The Single Most Common Economic Fallacy in COVID-19 Reporting
2020-04-01 · Guest: Don Boudreaux (Professor at George Mason University) · 51:45
Economic trade-offs of COVID-19 government responses
Bob Zadek and George Mason University economics professor Don Boudreaux discuss the profound economic and social trade-offs inherent in the government’s response to the COVID-19 pandemic. They explore how policies like lockdowns, anti-price gouging laws, tariffs, and Certificate of Need regulations create artificial scarcity and undermine the complex systems of cooperation that sustain human life and prosperity.
Topics: COVID-19, economic trade-offs, price gouging, tariffs, Certificate of Need laws, Robert Higgs, Crisis and Leviathan, government regulation, scarcity, wealth creation.
Speakers:
- Bob Zadek: Host
- Don Boudreaux: Economics Professor at George Mason University and writer for Cafe Hayek
The Great Trade-Off [00:00]
Bob Zadek: Good morning, everyone. Welcome to the Bob Zadek Show, the longest-running live—yes, live—talk radio show in all of radio focusing on libertarian issues every single Sunday morning. Thank you so much for listening. We are this morning, and always, the show of ideas, never once the show of attitude.
I suspect this morning’s show should start with: “Welcome to class, everyone.” We are going through—we as a country, we as a planet—are going through a maybe singular, certainly singular for everybody who is alive today, experience in the learning how to cope with and what to learn from the COVID-19 virus. This is to me, as I always look for and find the bright side, the positive side of most experiences of life, this is to me a wonderful, wonderful learning experience for all of us.
We have certain theories we carry around in our head about how government ought to be organized, how our lives ought to be organized, what’s important and what is not. And those are theories; they are in our head, they are formed in the abstract. Here we have an example, planet-wide, of a test of all of those theories. And we are learning, if we are smart enough to take the lessons from it, we are learning an enormous amount about how to organize life on this planet, life between and relationship between us and our government, us and our family, us and our friends.
And as important to help us understand how to find these lessons, because they are right here for the asking, we are all in class together and fortunately we are guided by a cadre of brilliant, thoughtful observers—economists, educators, health professionals—to help us sort out the noise from the facts and to see and to present to us all of the lessons that can and should be learned from this experience.
In that list of professors, of thoughtful intellectuals, I’m happy to welcome a friend and long-time guest on my show this morning, Don Boudreaux. Professor Boudreaux is an economics professor at George Mason University, he is one of my—Don perhaps doesn’t know this so much—he is one of my mentors. I cannot start my morning without reading his daily blog, Cafe Hayek (H-A-Y-E-K). It is a must-read every morning. It helps me understand so much about what is going on about me. And Don will share his thoughts with us this morning on the interplay between economics, health, epidemiology, government policy, and the like. There is so much to learn. I only hope we are not cut short by the end of the hour because Don has so much to offer. Don, welcome to the show this morning.
Don Boudreaux: Happy to be here, Bob. I should tell your listeners, if you hear me coughing, I don’t have COVID-19. I’m in the middle of an allergy attack. The allergy season is in high form now here on the East Coast. So if I sneeze or cough, don’t worry about me, it’s just pollen.
Bob Zadek: Thank you so much, Don. Thanks for telling us that. Now, Don, in what’s going on right now, there has been this apparent tension in the formation of core national, state, and local policy. This tension, which you have written about quite a bit, between: Do we, to put it simplistically, do we shut down the economy to maximize or minimize social interaction so as to slow the spread of the virus? Do we therefore shut down the economy, which will have, as you will explain, profound long-term economic and health, physical and mental consequences? Do we shut down the economy to minimize the disease spreading, minimize death—yes, minimize death—or do we give some nod to the importance of the economy and not impose through government dictat, impose that nobody is allowed to go to work in order to minimize life? And is that a real choice or a false choice?
Don Boudreaux: No, it’s a real choice. It’s trade-offs. Life is a series of trade-offs, and we are confronted now with a huge trade-off. In my view, the trade-off is being made in a terrible manner. Yes, I don’t doubt that to the extent to which government keeps human beings from being in contact with each other, that will reduce the spread of this and any other communicable disease. It also, however, reduces humans’ abilities to engage in productive commerce. And when you reduce humans’ abilities to engage in productive commerce, you have less that’s produced, people become less wealthy over time.
Wealth itself—the evidence is overwhelming—that wealth itself, prosperity for the masses, is a huge input into keeping people healthy over time. What’s going on now is that the trade-off is being done exclusively in keeping people away from each other without any consideration, as far as I can tell—certainly insufficient consideration—being given to the economic consequences. Not only the economic consequences of right now, April 5th, 2020, or spring 2020, but the economic consequences going forward. As far as I see it—and I hope this does not sound like an overstatement—governments around the world, including governments in the United States, national, state, and local, have taken a sledgehammer to the market economy and nothing good can come from that.
There are disputes, and I’m not an epidemiologist, I’m not a natural scientist in that way, I can’t—I’m not competent to judge whether or not, you know, just how communicable the disease is, what is the fatality rate of the disease. One thing I do know is that the experts seem to be not so much agreed on this. There’s a lot of dispute in the scientific community about the lethality of COVID-19 and about its communicability. I am, however, an economist, and it seems to me overwhelmingly clear that this disease is not so catastrophic, cataclysmic, that the degree of shutting down the economy that we are experiencing now is remotely justified. So I’m very pessimistic about what is now happening to the economy. I find it sad and scary.
Defining Wealth as a System [03:56]
Bob Zadek: Now, you have used the word in your last comment, you used the word that gets people on the left quite agitated. You used the word “wealth,” creation of wealth. I want to make it clear to our friends out there, we are not talking about a desire to accumulate opulence, to a desire to have a nicer car or a nicer anything. We are talking about wealth as the tool that drives the economy, which drives all of the human experience. Wealth that is a functioning economy produces everything good we have in the world. So this is not—I want to be sure nobody construes it as—a somewhat selfish desire by anybody who simply wants more and wants more at somebody else’s expense, even of their life. It’s not about that. It’s about the economy as a circumstance that drives all human development. That’s what we are wishing was not suppressed by this.
The economy is a functioning system. And once the system stops, it is very hard to restart it. I imagined, as I think about this, shutting down a nuclear reactor and then starting it again. You don’t just look for the toggle switch. It is a big, complicated deal fraught with peril and missteps. And I believe that’s the system you are striving not to turn off because turning it back on is expensive and at great cost.
Don Boudreaux: I agree. In fact, the economy compared to a nuclear reactor is far more complex. As complex as the reactor is, the economy is vastly more. You’re exactly right to point out that when I use the term wealth, I’m not talking about gold-plated Jacuzzis or private jets. I’m talking about the ability of ordinary people to have ready access to food, good clothing, good housing, medical care, education, leisure that’s necessary, medicines. All of these things are what we mean by prosperity or wealth.
All of these things are the product of the cooperation of hundreds of millions of people from around the world. Any of your listeners can just reflect on what he or she is now wearing, where he or she is now standing, the last meal he or she ate, the automobile that sits in his or her garage or driveway. All of these things are produced by millions of strangers. Our economy is so prosperous because it has somehow managed—it’s managed because of free markets and private property and prices and competition and entrepreneurship—but it’s managed to knit millions of people from around the world together into a vast cooperative ongoing process of producing the food and the medicines and the housing and the clothing and the entertainment that we all take for granted.
And so wealth is not a bunch of stuff that’s piled up somewhere like grain in a warehouse. That’s not what wealth is. Wealth is human activity, constant ongoing human activity where we cooperate with each other, we buy from each other, we sell to each other, we work with each other. It’s that cooperation that has now been sledgehammered into a virtual stoppage. And that’s what’s scary.
People, Bob, you know this, people will say, “Oh, well, you know, we have this $1.3 trillion stimulus here in the United States.” People look at the amount of money that the federal government is going to dispense to them in the form of checks. They talk about the amount of money that the Federal Reserve will inject into the banking system. Whatever the merits of any of those policies might be on their own, the fact is none of that, none of those checks, none of that money is worth anything if there’s nothing real to buy. If each of us doesn’t have a whole legion and army of people who are willing to cooperate with us to help us acquire the things that we want. If no one’s producing food, then you can have $2.3 trillion yourself, you’re not going to have any food to eat. If no one is producing clothing, the same thing. If no one is producing housing, if no one is producing fuel. And what worries me is we’ve stopped people from engaging in the productive activities that they engage in, and no amount of money, no amount of government spending is going to create the real goods and services that we need in order to sustain our standard of living.
Risk and Everyday Trade-Offs [08:31]
Bob Zadek: And Don, what I hope our friends understand is that I ask anyone out there, no matter how simple you have organized your life, uncomplex it is, just think of when you go about your life. You have your favorite dry cleaner, your favorite restaurant, you have found the job that you really like, you have found the car and the medicine that works for you. All of that, if you think back, is the product of years and years of trial and error and building and finding a vendor—this vendor doesn’t work, I’m not going to use that vendor anymore—and you move your business to somebody else. You find a spouse that finally is the perfect spouse through trial and error.
And imagine if all of a sudden everything you put together in your life to make your life pleasant and efficient and productive gets erased and you have to start from scratch. Go find a new everything and figure it out all over again. And that is one one-millionth of what we’re asking the economy to do, to become disorganized, to reshuffle the deck of cards, and then try to figure out how to get it back together again. And that is a staggering task.
Now, Don, I want to speak to this issue about—because people on the left and others who perhaps haven’t thought about it so much, they say, “How can we sacrifice human lives for money? How can a government do that? How can a government undertake to keep the economy going, perhaps on a smaller scale, on a more thoughtful scale, if that means somebody, probably a senior citizen, more likely than not if we want to speak about probability, will die as a result of that activity?” Government makes those choices every minute of the day. In the extreme, we send 20-somethings into war to die, not because we don’t value their life, but because there is a greater good that the country has decided that certain people just, regretfully, they will die to preserve some greater good. And isn’t that what’s going on today, but without any decision-making?
Don Boudreaux: Two things, Bob. You’re exactly right. Number one is, to the extent that’s possible—and reasonable people can disagree over the exact extent that is—but to the extent that it is possible, the decisions about the degree of risk each individual should take or should be subjected to ought to be left to individuals. We all have different preferences, we all have different histories, we’re all at different stages in our lives. And so to the extent that each of us can make a decision about how much risk we want to undertake, that decision does not have to be collectivized.
Now, I understand that there are some situations in which maybe we do need some sort of collective decision. But so the first point I want to make is people give too little attention to the fact that in a lot of ways, ordinary individuals are capable of making these decisions themselves.
The second point I want to make is more directly to the point you raised. Human life is constantly about making trade-offs between health or safety and convenience and prosperity. We all ride in automobiles. I doubt there is a listener right now who is hearing my voice who has never ridden and doesn’t ride regularly in an automobile. Every time you get into a car, you increase your chances of dying a horrible death. And so you’re making that trade-off. Your chances of dying go up a little bit, but you do it. Why do you do it? Because you want to go to the movies, you want to travel a little bit more quickly to Grandma’s house. There’s nothing wrong with that, but we make these decisions all the time and there’s no escaping these decisions.
To the extent that government is shutting down the economy now, it’s reducing the amount of, as you mentioned before, it’s reducing the amount of wealth that’s being produced. When people become less prosperous, they become less healthy. Again, the evidence on that is overwhelming. A less prosperous person is a less healthy person. A less healthy society is a less healthy person. So the government’s making a trade-off now by shutting things down. It’s just choosing to say, “Okay, we want to have fewer COVID-19 deaths, but we’re willing to, as the trade-off, we’re willing to have more of other sorts of deaths that will come in the future as a result of this shutting down of economic activity.” There’s no avoiding the trade-off. There’s no avoiding the trade-off. None of us choose to live in a bubble. None of us would think that life is worthwhile if we lived in a bubble that protected us from all risks. The fact that we all voluntarily subject ourselves to all manner of risks as we go about our daily lives means that, of course, we’re willing to make these trade-offs. And to the extent that government has to make the trade-offs, of course, it has to make the trade-off. It should make the trade-off, but it should make the trade-offs wisely and well. It should not make the trade-offs in economic ignorance. It should not make the trade-offs as a response to widespread panic, both that is real and panic that the government itself seems to be stoking. That’s the fear I have. But you’re right, there’s no avoiding the trade-off.
Bob Zadek: And without belaboring it, just to mention it, your reference to driving is very relevant and it makes the point so plainly. Who among us would vote to eliminate driving, criminalize it, ban cars, because we want to save the 45,000 lives a year that are lost in automobile accidents? If you vote for continuing driving, you are declaring—you are sentencing—55,000 random Americans to die. You are doing so for the selfish reason of your own convenience, but you don’t feel guilty about that. That’s the rational decision to make. And if it works for the analogy with driving, then it works for the virus. We have to assume certain risks because the danger, the damage to the country—capital C, Country—is infinitely greater by shutting down the economy than the damage, again, to the country by banning economic activity is far greater. It’s simply a question of making a decision which we make all the time, as Don pointed out, what’s best for the country. But what has happened in the national debate is that in the battle between the economist and the epidemiologist, the economist does not get a vote. Although it seems to be changing, but up to now, the economists are told, “Sit down, keep quiet, we have no interest in your point of view about what is best for the country.” And that’s been the debate which I ask all of us to watch and to observe and to at least understand what is going on.
Government-Imposed Scarcity [13:19]
Bob Zadek: Now, Don, another topic that I would like to explore when we come back from our break is what this situation has pointed out is how the government’s policies of creating scarcity—I’ve come to realize how effective and single-minded government has been in a country of plenty in creating scarcity of so many goods and services. And the COVID-19 experience has made all of that so clear. And that’s what I meant at the start of the show when I said there is so much to learn if we can simply turn on and put it on overdrive the rational part of our brain and just see through the fog, the fog of disease. There are so many lessons to be learned. When we come back, I’d like to discuss with Don all of the examples which this experience has pointed out where government has created, of all things, scarcity of goods and of services. It is astonishing with an endless list, and we have to ask ourselves why. This is Bob Zadek, I’m spending the morning talking with Professor Don Boudreaux. Don is an economics professor at George Mason University in the Mercatus Center. Don also writes Cafe Hayek, the most wonderful blog there ever could be on the whole planet. We’ll be back in 30 seconds with a discussion of government-imposed scarcity. Please stay tuned.
[Ad break omitted]
Bob Zadek: Welcome back to the Bob Zadek Show, the longest-running live libertarian talk radio show in all of radio. Thank you so much for listening this Sunday morning to my conversation with Professor Don Boudreaux. Don is an economics professor at George Mason University in the Mercatus Center. Don also writes Cafe Hayek, a wonderful blog which is a must-read for me every single morning. There is so much wisdom every morning available for free by subscribing to Cafe Hayek (H-A-Y-E-K).
Now, Don, before the break, I suggested to our audience that I have come to observe in spades how the experience of living through this coronavirus pandemic has pointed out to me how effective government has been throughout the virus experience and before and after in creating, of all things, scarcity of goods and of services. And it came to mind during this experience because the first—one of the first experiences we had besides stay at home and limiting people’s right to travel and to work was the advent which has come up from time to time and you’ve written about it, which is—I hate the phrase, I hate to even say it—“price gouging.” And we have 26 or 29 states that actually criminalize price gouging. And price gouging is the most perfect example of creating a policy which has the appearance to those who don’t think it through of protecting people, but people are being protected from getting enough of what they need and are willing to pay for. Help us understand briefly, Don, how misguided the whole concept of price gouging is and how wrong government gets this issue.
Don Boudreaux: Governments aren’t good at doing very much. One of the things governments are excellent at—in fact, they are historical and world champions at—creating scarcity, creating unnecessary scarcity. On that front, no one has ever, no one could possibly beat them. So the term “price gouging,” as you point out, is obviously a derogatory term applied to the spike in monetary prices that happen during crisis times, you know, when hurricanes hit, when earthquakes hit, when blizzards hit, and now when the coronavirus panic hits.
And the prices, what people don’t understand is that market prices, these are not arbitrary facts. Market prices reflect underlying realities. The underlying reality might not be pleasant. Indeed, the underlying reality in the coronavirus episode that we’re now in is not pleasant. But that underlying reality involves this: there is an increased demand for various goods and services, goods such as face masks, hand sanitizer, toilet paper. It doesn’t matter how rational or irrational this increased demand is, it’s a reality. Also, on top of that, there is a decreased supply, a decreased supply now mostly caused by the fact that government is preventing people from going to work. You can’t have toilet paper if no one’s producing toilet paper. You can’t have hand sanitizer if fewer people are producing hand sanitizer. You have less of it. And so you get this simultaneous rise in people’s desire to acquire things and a decrease in the production of those things. That means these things have become much more scarce.
The higher prices simply reflect that scarcity. When you stop the higher prices from reflecting that scarcity through government dictat, when the government says, “No, no, you may not charge a price higher than the one that you’ve been charging in the past or that we will allow,” what that does is—the main thing it does, it does several bad things—the main ill effect of that dictat is that it fails to incentivize suppliers from putting forth the extra effort necessary to produce the goods that are now in high demand and to actually get those goods to places where consumers buy them. And so the laws against price gouging, while meant to help consumers, perversely hurt consumers. They hurt consumers by keeping the supply of the things that they want lower than that supply would be in the absence of the price controls.
And so in that way, it creates scarcity. The example I always use with my students about this: a price is a report. It’s an objective report on the scarcity of something. And so if the New York Times sends a reporter out to observe some event in the Bronx, and let’s say the event is a fire that kills two people. Well, the reporter should say, “We had a fire that killed two people.” Now, it’s an unhappy event, we wish it wouldn’t have happened, but no one would say, “Oh, you know, let’s have the reporter write a lie. Let’s have the reporter say it wasn’t a fire, wasn’t a house fire, it was a little campfire and it didn’t kill anyone. In fact, the only thing that happened was that marshmallows were roasted.” Everyone understands that by writing a false report, you don’t change the underlying reality. But that’s what these laws against price gouging attempt to do. They attempt to fool people into thinking that economic reality is more pleasant than it is. And we don’t deal well with reality when we are misled about its current state. And preventing prices from rising to their market-clearing levels is a way of hiding from consumers and producers the true unfortunate state of the market. And so producers and consumers don’t respond as well as they would if they were fully informed.
Bob Zadek: And, and we all abhor hoarding as being economically wasteful and anti-social, if you will. But hoarding means those who are first in line and buy up all of the product because it is cheap and it is below its market price. Those hoarders, speculators if you will, end up further exacerbating the absence of supply, whereas if the price was the market price, it would be too expensive for the hoarder to buy a whole lot of it and no advantage because you’re paying the real price, not the fake price. And therefore, hoarding would diminish, and it’s more small-d democratic because then everybody has a shot, not just the person who was first in line, at getting the product. And also, those who need the product the most are willing to pay the most for it, and therefore those who need the product the most will end up getting it because they will outbid those who need it a bit less. So the market and prices, Don, as you have taught me so often, price is only information produced by independent decision-making of buyers and sellers. Independent people whom we never meet make a decision on what something is worth, and that will tell me its value. And value is always relative to something else. So I can allocate my resources and get the greatest value for my dollar of spent based upon what something is really worth. And so price gouging, which is done to quote “protect people,” it protects them from getting enough. That’s the protection.
Don Boudreaux: That’s correct. Bob, if you’re ever in town and I can’t teach my class, I’ll hire you to be a substitute economics teacher. That was very well said and very accurately said.
Tariffs and Scarcity [15:59]
Bob Zadek: Thank you, Don. Now also, Don, I was going to say you have written a lot about, of course, tariffs, where you write beautifully and passionately about the misguided tariff policy of the present administration. But that has been very much in the headlines in the sense of denying us the ability to import essentials—an overused word these days—essential commodities, whether it’s face masks, ventilators, or perhaps drugs and other such products from China because we have to become self-sufficient and we cannot buy the cheaper product from a foreign country. You have written passionately about that, and that is yet another example of creating a scarcity when one naturally wouldn’t exist and therefore increasing the price. So since this is another lesson—and that’s the theme of this morning’s show, lesson from the coronavirus experience—share with us some of your writing about the imposing of tariffs on quote “essential products” from foreign countries.
Don Boudreaux: Well, as you summarized very well, Bob, a tariff is simply a punitive tax that a government places on its own citizens when those citizens buy goods from abroad. And the purpose of this tariff—people will give all kinds of reasons for it—but the real purpose of any tariff is to grant monopoly power to domestic producers who have competition from imports. And so the tariff is designed to make things more scarce because the point of the tariff is to raise prices to a higher level in order to allow domestic producers to raise their prices and profits to higher levels. The whole point of a tariff is to create scarcity. That’s what they’re all about. That’s the reason d’être of a tariff.
I believe all tariffs are unjustified, but certainly in times of crisis, if there’s such a thing as being more unjustified, they’re even more unjustified because we now need as much cooperation from our fellow human beings around the world as we can possibly get. Americans are about 4% of world population. 96% of human beings live outside of America. Why should we artificially block ourselves off from 96% of human productive effort, human creativity, human problem-solving ingenuity? That’s what tariffs do. To the extent a tariff exists, they block us off from 96% of the world’s problem-solving capacity. I just think it’s nuts and crazy.
Certificate of Need Laws [18:31]
Don Boudreaux: But I want to say one thing more generally about this nice observation you have about how governments are very adept at creating scarcity. People are worried about, and perhaps rightly so—I find this to be one of the more legitimate worries—about hospital bed capacity. You know, if a lot of people suddenly get sick, there’s medical care capacity. You need more hospital beds and nurses and all the other hospital facilities. Think about this: the United States has had in place now since Gerald Ford’s administration, I think, a system of certificates of need. In a lot of places, hospitals are not allowed to open, new hospitals are not allowed to open, unless they are granted a certificate of need, which basically means the new hospital, the builder of the new hospital, has to get permission from the government and they have to show that, “Well, we need a new hospital.” And of course, guess who decides whether a new hospital is needed or not? Well, existing hospitals. And so existing hospitals are not inclined to say that they need more competition. And so we’ve had in place in this country for at least a half a century, or going on a half a century, a policy that actually artificially restricts the number of, the amount of hospitals we have and restricts the number of hospital beds. And so if indeed there is a run because of COVID-19 on hospital bed capacity, don’t talk to me about how bad China is, don’t talk to me about how bad foreign trade is. Talk to me first about the inappropriateness of government for decades now artificially restricting the number of hospitals and the size of hospitals in the United States. That’s an artificially created scarcity that is real and that we in fact might be on the verge of paying a very high price for.
Bob Zadek: And that’s known as the competitor’s veto, where the competitors get to reject, they get to prevent competition. It is so anti-capitalist, anti-free markets. And by the way, I think it was created during the Nixon administration at first, and it was done so for a sensible, in a strange way, reason. The Nixon administration reasoned that we could reduce the cost of healthcare in this country—this is going to sound bizarre, Don—but they reasoned we could reduce the cost of healthcare by eliminating excess capacity. Excess capacity is a cost. And therefore they said, “Okay, let’s make sure we don’t have free marketeers, capitalists, doing something stupid like building a hospital that nobody needs.” What, are they doing it for recreational reasons? Building a hospital that nobody needs. So to prevent them from making that mistake, we will require them to prove it is needed. How absurd is that? And would AT&T have voted if they could to allow Apple to create the iPhone or whatever business feels threatened? It’s utterly absurd. It’s embarrassing in a country such as ours to have Certificate of Need statutes. And they still exist, they’re alive and well, and they dominate certain industries such as the moving industry in Kentucky, West Virginia, and the like. They are hotbeds of CON statutes. So you’re exactly right that government creates that need and always to protect some, dare I say it, special interest like the existing hospitals at the expense of all of us citizens out there who have to pay the price.
The Ratchet Effect of Government Power [21:11]
Bob Zadek: So government—and also, now, the best example, remember, this is we are taking a course now in government in experiencing this crisis. Another example, Don, which you have written about, is the kerfuffle at the FDA and CDC on the testing and getting test kits out there. That was another huge government creating the scarcity. Tell us about that briefly if you would.
Don Boudreaux: So actually, I don’t think I did—I don’t know the details. I mean, I’ve read about it, so you may know as much about it, Bob, as I do. But what the current regime we have is that it’s a top-down regime, that the testing kits and things used for medical procedures have to be approved by our overlords and their mandarins. And unless they get the approval from our overlords and their mandarins, we don’t get access to them. Well, when you get a crisis like COVID-19 where you need this sudden burst of need for testing kits and other supplies, the overlords and mandarins are overworked. They can’t handle the rush. And so that’s part of the reason. I’m sure there are other reasons too, but I don’t know all the details of that. My Mercatus Center colleague Veronique de Rugy has written in detail on that.
Bob Zadek: Another important issue which I want to discuss because it is so important once again, it is a very important lesson from this experience, which was written about in a wonderful treatise, Crisis and Leviathan, by Robert Higgs. Bob Higgs, a well-respected economist. And that was during each of these crises, whether you want to go back to 9/11, whether you want to go back to the 2007 crisis, during all of these crises or alleged crises, government creates new special temporary powers just to get us through, where freedom, whether it’s freedom with regard to our property or our persons, is taken away. The examples are legion. Go back to withholding taxes, which were created—you have to prepay your taxes before you owe the money—that was done to finance World War II. Patriot Act took away our freedom, lots of our freedom and rights of privacy for the special events of 9/11. All of the environmental laws that are done to get us through the problem of climate change and the like. We can all list all of these special examples where government, using a crisis to take away our freedom, whether it’s with respect to our persons or our property, I defy any of us to name even one example when after the crisis has passed, government simply to make us more free again has returned those freedoms to us. So Don, tell us about this dynamic of we lose freedom, this ratchet of losing freedom during a crisis and never getting it back after the crisis has passed.
Don Boudreaux: Yes, the very famous thesis now that was proven beyond dispute by the widely respected economic historian Bob Higgs, as you mentioned, in his 1987 book Crisis and Leviathan. And he goes back to the beginning of American history up through the mid-1980s showing one crisis after another—some of them more genuine than others—showing that when a crisis happens and people perceive a crisis, they grant to government more power in order to get through the crisis. Typically, immediately following each crisis, the amount of government power that’s granted scales back a little bit, but never by as much as it increased. So you get this ratcheting up of government power. And it’s pretty well established now, it’s hard to dispute the history of it, it’s well-settled.
And so government uses its increased power even during non-crisis times to meddle in our lives, to meddle in our economy. And one of the unfortunate ironies of this fact is that the increased power that was created during crisis times and that remains after crises have passed is used—this increased power is used during non-crisis times to actually put in place policies that lead to future crises. For example, Certificate of Need regulations is an example of a policy that when it’s first implemented, well, it doesn’t seem to have much in the way of problems. But now we come to the coronavirus issue, and now we have this crisis of shortage of hospital beds potentially. This crisis was created in part by a government policy meant to avoid rising healthcare costs and increasing problems with healthcare. And so this thesis, which is well-established, is going to be in play during this current period. We don’t know today when the coronavirus crisis will pass, when life will even begin to start to get back to normal. But at some point, presumably it will. Some of the government powers that have been accumulated in these past few weeks will be scaled back a bit, but they won’t all go away. There’s going to be more government in our lives at the end of this crisis than there was at the beginning of this crisis. And many of those powers, you can be sure, will be used—some innocently, some not so innocently—but all of these additional powers will be used to make sure that we are more susceptible to crises in the future, which of course will then only further increase government powers when the next crisis comes.
The Future Narrative [25:51]
Bob Zadek: The interesting dynamic, Don, which you have written about, which all of us have observed once again as part of the lessons to be learned from this, is how economic regulation—some of the most nonsensical economic regulations—have been scaled back somewhat quietly, scaled back or eliminated because we needed stuff. We needed workers and we needed stuff. And all of these regulations which were done for bad economic reasons now are getting in the way, and somewhat in a stealthy kind of way, they are being eliminated because we can’t afford them in times of relative scarcity. So it is like economic regulation is a luxury of the left that now they can’t afford.
And as we get down to the closing moments of the show, I would like you, Don, to speculate and observe if you will, something which you and I have talked about, which will be: Who will get to write the economic and social and political history of this crucial watershed event in the history of our country and of our planet? And what could the alternative versions of that history look like, whoever gets to write it?
Don Boudreaux: Oh my, that is a vital question. Everybody will be trying to write it. Of course, the wordsmiths on the political left, they will be crafting a narrative in their own way. What they will no doubt say, probably believe, although I think they’re mistaken—I know they’re mistaken—they will accuse, they will say the crisis is caused by freer trade, the crisis is caused by having too little government regulation, the crisis is caused by having government be underfunded, we need more funds for the FDA, we need more bureaucrats at the FDA, we need a larger staff and more funds for the CDC. In fact, we need more government agencies to handle crises such as this. And perhaps even they’ll say, “You know, federalism, we have these different state governments and local governments, we need more centralized power in Washington to give decisive powers to the President and his or her lieutenants to take action.” That’s what they will say.
But what people who know better should explain is how this crisis itself was largely—is one that’s exacerbated by government regulation, such as again, the Certificate of Need restrictions, as you mentioned, the tariffs. And markets, free markets, open competitive markets, dynamic entrepreneurship, that is the single best hope we have to prevent future crises and to deal with any future crises that we might encounter.
Bob Zadek: Would you say, Don, that there are certain absolutes that this experience proved, in the finest sense of the word “proved,” rationally showed us that certain policies were misguided and others would have been better policies? Is there any—when you get to write the textbook in 20 years, is there anything of which this is absolute proof?
Don Boudreaux: I think it’s still playing out, Bob, and so what I’m about to say isn’t on the record yet. But I’m convinced that this $2.3 trillion stimulus is going to lead to inflation because people now have more money to spend but nothing much to spend it on. And so I think what will be proved is that you don’t create prosperity by printing numbers on checks and just merely by injecting money into the banking system. I hope I’m wrong, by the way, I’d love nothing more than to be proven wrong. But I think that this event and the government’s response to it will show that when you stop production, you create an inflationary environment. I think that people who look at the deep history of this event will see that the government’s response to it was one that was largely unnecessary and one that was largely harmful.
Bob Zadek: Don, we’re going to have to close. I’m sorry, we’re going to run out of time. I just wanted to thank you so much for your time and invite our listeners to please subscribe to Cafe Hayek (H-A-Y-E-K), Don’s wonderful blog. Don, thank you so much. Stay well and hope to have you back on the show real soon.
Don Boudreaux: You too, Bob. Thank you.