When an economic crisis hits, everybody from the Fed chairman to the man on the street knows that the Fed must print more money and reduce interest rates and that the government must spend more money and go deeper into debt. This is seen as necessary to “fill the gap” left by the private sector.

This approach is entirely wrong. In fact, it is highly counterproductive.

Murray Rothbard’s number one rule in an economic crisis is for the government not to interfere with the market’s adjustment process, or, in Wall Street terms, “the correction.” The more government intervenes in the economic crisis, the longer and the more grueling it will be. It can even perpetuate the depression as it did during the Great Depression.

However, the government has been intervening in most economic crises for the last century. This approach started shortly after the founding of the Federal Reserve in 1913. If printing money can paper over a problem, it seems like an easy, straightforward solution to politicians.

The United States had economic crises during the previous century. Two big ones were caused by the First and Second Banks of the United States. The ones after the War Between the States were quickly resolved because the national government could do precious little to intervene.

Even after the Fed was born, intervention was not the rule. During the depression of 1920–21 the Fed raised interest rates in the same way it did in the early 1980s. President Harding also balanced the budget. Both times it was grueling, but the economy quickly recovered, with full employment, rising wages, and a growing stock market.

What are the interventions that Rothbard wrote about that hamper market adjustment? In his America’s Great Depression (1963, pp. 19–23) we find the following:

First, government can attempt to delay or prevent bankruptcy or foreclosure by lending money or establishing moratoriums on rents and mortgage payments. This keeps prices up and prevents necessary adjustments.

Second, the Fed can adopt an easy money policy of inflation. This keeps prices up and interest rates down, whereas economic recovery is based on lower prices and higher interest rates.

Third, efforts during a depression to keep wages higher than market rates when prices are falling means that real wage rates rise. The result is massive unemployment.

Fourth, policies to keep prices up also raise the cost of living and can result in surpluses of goods with no buyers.

Fifth, efforts to stimulate consumption discourage saving, a prime ingredient of recovery. Food stamps and taxes on wealth, capital, and profits encourage consumption and discourage savings. Because government spending is entirely consumption, its budget should be slashed permanently.

Sixth, policies to subsidize unemployment, such as unemployment insurance, only increase unemployment and discourage people from searching for jobs or accepting lower-paying ones.

In summary, Rothbard’s approach for dealing with an economic crisis suggests that government should not prevent prices and wages from falling or stand in the way of bankruptcies. The road to recovery involves higher interest rates and price deflation. This leads to a painful but effective and historically tested process that is fully opposed by mainstream economists.

To show you the common sense of this deflationary approach, consider what is typical in an economic crisis. During a hypothetical economic crisis, we might see the following:

1. The price of capital falls drastically. Thing like stocks, real estate, and land fall by up to 90 percent. The Dow and NASDAQ lost around 50 percent after the housing bubble. The Dow lost more than 90 percent of its value during the Great Depression.
2. The prices of basic commodities, like energy, grains, and metals, fall significantly, sometimes by more than 50 percent, as did gasoline after the housing bubble.
3. The price of labor falls noticeably, with the prices of highly skilled labor falling by more than 50 percent in some cases and those of manual labor falling even further. After the dot-com bubble burst, computer programmers could not find work and often opted to retrain for other occupations.
4. The prices of consumer goods fall somewhat, but although luxury goods prices might fall by 20 percent or more, the declines in the prices of necessities is minimal, because the demand for goods like toothpaste and soap is largely unaffected while the demand for others, such as rice and potatoes, often increases.

The obvious implication of these changes in relative prices is that entrepreneurial people should buy up the cheap capital goods, commodities, and labor to produce consumer goods or hire the abundant skilled workers to produce innovative consumer goods to sell for profits.

Mainstream, especially Keynesian, economists use the metaphor of a black hole to describe an economy experiencing deflation as utter destruction. I have dubbed this fear apoplithorismosphobia. As shown above, Austrian economists see deflation as part of a necessary cleansing process, and they use the metaphor of the shock absorber to describe the impact of deflation. The historical record supports the Austrian view of deflation.¹Joseph T. Salerno, “Deflation and Depression: Where’s the Link?,” Mises Daily, Aug. 6, 2004, https://mises.org/library/deflation-and-depression-wheres-link; Pavel Ryska, “Deflation and Economic Growth: The Great Depression as the Great Outlier,” Quarterly Journal of Austrian Economics 20, no. 2 (2017): 113–45; Greg Kaza, “Deflation and Economic Growth,” Quarterly Journal of Austrian Economics 9, no. 2 (2006): 95–97.

In terms of silver linings, it’s worth noting that Microsoft and Google were small companies when they started in the late 1970s and the late 1990s, respectively, but that both greatly expanded in and after the subsequent economic crises. Microsoft did so in the depression of the early 1980s, and Google did so in the aftermath of the collapse of the tech-stock bubble in the early 2000s.

Still, there is great skepticism that the U.S. government would ever sit on the sidelines and not pursue the interventionist, big government agenda. True enough, but there is actually a silver lining here too. If the government continues to pursue this failed approach, things will only get worse and we could end up in a hyperinflation:

The value of the U.S. dollar has already fallen immensely and is currently only strong vis-à-vis other fiat monies. It has suffered an official inflation rate of 2,500 percent since the Fed began operations. The M1 money supply—what we think of as money—has increased from around $250 billion when the United States was taken off the gold standard in 1971 to $5 trillion today, up from $4 trillion just a couple of months ago! That is an increase of 1,900 percent. The M3 money supply, which includes all forms of money, increased from $685 billion in August 1971 to over $16 trillion today, an increase of 2,200 percent.

If the federal government continues to run massive deficits and the Fed continues to monetize government debt, interest rates will increase and foreigners and their central banks, who are large holders of both our currency and our debt, will lose confidence. If they decrease their demand for our government debt, it will start us down the road to hyperinflation and possibly a totalitarian form of government.

The silver lining here is that proponents of the free market would likely get what they have long wanted through the political process: a return to the gold standard, the repeal of Social Security and welfare, an end to the warfare and surveillance states, and a return to a decentralized form of federalist government.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission. 

Although we’ve been given a brief respite from COVID-19 pandemic news, it’s likely that the killer of over one hundred thousand so far in America will leap back to the front page and that continuous calls to flatten the curve will return to top of the mind.

As a friend and fellow ex-University of Nevada Las Vegas (UNLV) Rothbard student reminded me, flattening the curve essentially means to socialize medicine: to ration healthcare, giving preference to COVID sufferers at the expense of non-COVID emergency medical care and elective procedures.

If the US healthcare system is the cowboy capitalism that many believe it is, why aren’t there doctors, nurses, and PPE (personal protective equipment) in abundance? Why the need to portion out medical care and talent?

The American Medical Association (AMA) was founded in 1847, incorporated in 1897, and as Paul Starr wrote in “The Social Transformation of American Healthcare: The Rise of a Sovereign Profession and the Making of a Vast Industry,” “The key source of physicians’ economic distress in 1900 remained the continuing oversupply of doctors, now made much worse by the increased productivity of physicians as a result…[of the] squeezing of lost time from the professional working day.”

Starr points out that the number of medical schools expanded at the end of the nineteenth century. From the founding of the AMA to 1900, the number of medical schools more than tripled from 52 to 160. The population expanded 138 percent between 1870 and 1910, while the number of physicians increased 153 percent.

“The weakness of the profession was feeding on itself; ultimately help had to come from outside,” Starr wrote. Help came in the form of the Flexner Report, penned by Abraham Flexner, whose claim to fame was being the brother of the powerful Dr. Simon Flexner, a key player in the chase for a vaccine to battle the 1918–19 Spanish flu,which killed 35 to 100 million people worldwide.

Brother Abraham was not a doctor himself. And while the report was commissioned by the Carnegie Foundation, “​Flexner’s report was virtually written in advance by high officials of the American Medical Association, and its advice was quickly taken by every state in the Union,” Murray Rothbard explained in Making Economic Sense.

Using the Flexner Report as a guide, the AMA was able to use the state to cartelize the medical industry. Rothbard wrote,

The result: every medical school and hospital was subjected to licensing by the state, which would turn the power to appoint licensing boards over to the state AMA. The state was supposed to, and did, put out of business all medical schools that were proprietary and profit-making, that admitted blacks and women, and that did not specialize in orthodox, “allopathic” medicine: particularly homeopaths, who were then a substantial part of the medical profession, and a respectable alternative to orthodox allopathy. (Making Economic Sense, p. 76)

The report recommended closing schools, competing therapies, and minority doctors that were considered substandard. “Medicine would never be a respected profession…until it sloughed off its coarse and common elements,” wrote Starr. Medical schools had been closing before 1910, with 20 percent shuttered in the four years before the report was published. Capital requirements for moden laboratories, libraries, and clinical facilities “were what killed so many medical schools in the years after 1906,” Starr wrote.

Rothbard explained further,

In all cases of cartels, the producers are able to replace consumers in their seats of power, and accordingly the medical establishment was now able to put competing therapies (e.g., homeopathy) out of business; to remove disliked competing groups from the supply of physicians (blacks, women, Jews); and to replace proprietary medical schools financed by student fees with university-based schools run by the faculty, and subsidized by foundations and wealthy donors. (Making Economic Sense, p. 77)

A reader can pick up plenty of books on the Progressive Era and find barely a mention of the AMA, yet the medical mess we have today took root during that era. Some of us still remember house calls, five-dollar office visits, worn black medical bags toted by doctors with stethoscopes dangling from their necks. Before the Flexner Report, mechanics made more than doctors and the brightest students avoided the profession to enter the clergy.

The burgeoning cartel meant “a skewing of the entire medical profession away from patient care toward high-tech, high-capital investment in rare and glamorous diseases,” wrote Rothbard, “which rebound far more to the prestige of the hospital and its medical staff than is actually useful for the patient-consumers” (ibid., p. 77).

Abraham Flexner, according to Starr, “had an aristocratic disdain for things commercial.” The high-minded Flexner Report “more successfully legitimated the profession’s interest in limiting the number of medical schools and the supply of physicians than anything the AMA might have put out on its own.”

The result: after peaking at 162 medical schools in 1906, by 1922 the number had been cut in half. The Flexner Report (a.k.a. ​Bulletin Number Four) recommended that the number of schools be reduced to thirty-one. Fortunately, more than seventy survived. Left up to Flexner, twenty states would not have had a single medical school. Legislators intervened. The report “was the manifesto of a program that by 1936 guided $91 million from Rockefeller’s General Education Board (plus millions more from other foundations) to a select group of medical schools,” according to Starr. Two-thirds of these funds went to only seven schools.

Medicine made a great leap in the Progressive Era. “The transition from household to the market as the dominant institution in the care for the sick,” in addition to increased specialization of labor, “has created emotional distance between the sick and those responsible for their care,” Starr wrote, “and a shift from women to men as the dominant figures in the management of health and illness.”

The true sign of the elevation of doctors in society was evident in 1926, when H.L. Mencken snidely wrote, “Kiwanis, like golf, is a symbol of the business man’s natural desire to break the dreadful monotony of his days. And when I say businessman, I include also, of course, the doctor, the dentist, the lawyer, and all other bored and laborious walking gents of human comedy.”

Thanks to Flexner, the AMA, and state licensing, today’s healthcare cartel is no laughing matter, but deadly serious.

Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply, and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master’s degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe. This article was originally featured at the Ludwig von Mises Institute and is republished with permission. 

Welcome to your future. Your government is spending it right now. And your children’s and grandchildren’s future to boot.

The U.S. Treasury projected that it would borrow $2.99 trillion in the second quarter fo this year. The Trump administration also plans to borrow another $677 billion in the July-September quarter, bringing the total fiscal 2020 debt to $4.48 trillion.

To put it into some perspective, before the pandemic, the CBO projected that the federal deficit would come in at just over $1 trillion in fiscal 2020. The government is set to borrow nearly three times that in just three months. And the one-year total borrowing will nearly equal the total of the four biggest yearly budget deficits on record. The level of government borrowing will crush the previous quarterly record of $596 billion set during the height of the 2008 financial crisis. It’s nearly two-and-a-half times the total amount of money the U.S. Treasury borrowed in all of 2019.

The national debt hit $25 trillion just a few weeks ago and it’s already knocking on the door of $26 trillion. By the end of the fiscal year, it will likely be well north of $27 trillion and climbing.

Here’s the most important thing to remember: Uncle Sam was already borrowing and spending at an unsustainable pace before coronavirus.

The federal government has run deficits over $1 trillion in four fiscal years, all during the Great Recession. The fifth trillion-dollar deficit was coming down the pike in fiscal 2020, despite what President Trump kept calling “the greatest economy in the history of America.” Simply put, the Trump administration was already running significant budget deficits even before the coronavirus crisis and debt was piling up at a dizzying pace. The deficit already featured numbers you would expect to see during a massive economic slowdown—before the massive economic slowdown. Response to the pandemic put spending and debt in hyperdrive.

Pretty much everybody accepts that borrowing and spending are necessary due to the economic destruction wrought by the government shutdowns. As the AP put it, “Private economists believe that the government has little choice but to spend the money now to prevent an even worse downturn and possibly even a situation like the Great Depression of the 1930s.”

Whether the government as a choice or not remains up for debate. What’s not debatable is that at some point we’re going to have to pay for all of this.

Never forget—borrowed money has to be paid back. Uncle Sam is effectively taking future productivity and spending it now. When the bills start coming due, the government will have two choices. It can raise taxes or it can pay the debt off through inflation.

I’d expect both.

Don’t think you can reelect Trump and avoid tax increases. The president can’t snap his fingers and suspend economic reality. At some point in the not-too-distant future, Congress will have to raise taxes to address budgetary realities. But tax increases are unpopular and politically unpalatable, so also expect a lot of inflation.

In fact, the Federal Reserve is already inflating the money supply at an unprecedented rate. Were it not for the central bank backstopping all of this borrowing, bond prices would tank and interest rates would soar. But the Fed is set up and primed to monetize all of this debt through QE Infinity. In effect, the central bank is printing money and buying U.S. Treasury bonds. Ostensibly, by creating artificial demand for Treasuries, the Fed will be able to soak up excess supply and hold interest rates down. It has no choice because rising interest rates would be the death knell for this debt-riddled, overleveraged economy.

But the central bank will create trillions of dollars out of thin air and inject it into the economy in order to run this debt monetization scheme. That raises the specter of inflation. This is one reason financial analyst Peter Schiff recently said hyperinflation has gone from the worst-case scenario to the most likely scenario.

So, enjoy your stimulus checks and your bailouts. You’re going to pay for it later.

And even sadder, your children and grandchildren are going to pay for it too. That’s unconscionable.

In a letter to James Madison, Thomas Jefferson asserted that we have no right to bind future generations to pay our debts.

“No man can, by natural right, oblige the lands he occupied, or the persons who succeed him in that occupation, to the paiment of debts contracted by him. For if he could, he might, during his own life, eat up the usufruct of the lands for several generations to come, and then the lands would belong to the dead, and not to the living, which would be the reverse of our principle.”

Politicians have short time-horizons. That’s why they generally make poor decisions. They don’t care about the future beyond the next election cycle. They certainly don’t care about my children. Elected officials do the popular thing now to secure reelection tomorrow. with little concern for the long-term consequences. It’s a neverending game of kick the can down the road—until you run out of road.

Three trillion borrowed dollars in the span of three months will make that road mighty short.

This article was originally featured at the Tenth Amendment Center and is republished with permission.

“There is enough for all. The earth is a generous mother; she will provide in plentiful abundance food for all her children if they will but cultivate her soil in justice and in peace.”- Congressman William Bourke Cockran (D-NY)

With the massive oncoming rush of poverty as a result of government-imposed shutdowns, Americans can expect that the progressive left will shout again in a loud chorus about how capitalism has failed the poor. But the increasing global poverty brought about by the heavy hand of government mandates to close down the capitalist system cannot be leveled against the market system itself. You can’t blame a depression on the failure of the market system when official government policy was to shut the markets down.

It would surprise some people on the left to learn that the capitalist, free market system not only brings increasing general prosperity—something even many on the left begrudgingly acknowledge—it also brings up the wages of the poor and has its own kind of safety net system in place for frugal, working people in times of economic distress. While many on the left—such as academics Emmanuel Saez and Thomas Piketty, politicians such as Bernie Sanders and the “Squad,” and leftist media outlets—like to talk about how there’s an increasing concentration of wealth in the hands of the rich, they’re only partly right.

The increasing number of billionaires around the world is largely a simple consequence of our increasingly globalized economy. If a man is able create a new and innovative product and sell it for a one-dollar profit to 1/3 of all Americans under the old protective national economy, he earns a little more than $100 million. But if an innovator sells a product to 1/3 of the people of the world in the global economy for a one-dollar profit each, he becomes a multi-billionaire. Sure, there are some crony billionaires like Elon Musk, who has been the recipient of more than $5 billion in government subsidies. And how could Musk not be rich after receiving so much largesse transferred from workers and taxpayers to his bottom line? But it is folly to claim the free market was at work in making Musk a billionaire. And despite the corporate subsidies exception, it perhaps shouldn’t be surprising that those most able to sell to the world with little restrictions—like tech companies—are producing the greatest number of billionaires.

This latter category of billionaires are not taking money from the working people through the tax system; they are profiting by providing new products that working people actually want. And in some cases, like Facebook’s Mark Zuckerberg or Twitter’s Jack Dorsey, they are becoming billionaires by offering a service to consumers for free.

Here’s where Piketty and Saez are wrong: the concentration of wealth globally is gradually declining, but the concentration of wealth in rich economies—including Europe—has been increasing. Most of this has been because of an increasing global free market in labor, as the dynamic capitalist economy shifts jobs to those most desperately in need of a boost in living standards. There’s a reason living standards have increased dramatically in China, much of Eastern Europe, Chile, and Mexico in the last three decades. And because of the diversion of jobs from rich countries to poor countries, it has put some stress on wage growth for middle and lower income workers in what the IMF calls the “advanced economies.” Meanwhile, many of those increasingly rich business innovators selling to the entire world are still coming from the advanced economies. One anecdote that follows along these lines are that Apple’s Steve Jobs and Arthur Levinson in the United States became billionaires even as they shifted much of the production of iPhones to China’s increasingly wealthy laborers.

The capitalist mechanism to raise people out of poverty doesn’t discriminate against people because of national borders or ethnicity.

The research by Piketty and Saez have contributed to a false narrative in another sense: the growing disparity between the wealth of the super-rich and the working class in America today began in the mid-1970s, not after the Reagan tax cuts (which didn’t take effect until 1982), as many on the left have been led to believe. A more careful study of charts published by Thomas Piketty and Emmanuel Saez reveals the trend toward increasing centralization of wealth in the U.S. began shortly after the dollar was severed from the gold standard (and inflation initiated) and the Tokyo round of GATT (which decades later became the World Trade Organization). Both had an impact: the former by stealing the wealth of the creditor-workingman and transferring it to the debtors in the financial sector, and the latter by reallocating some of the dynamism of the U.S. economy globally to alleviate the conditions of extreme poverty in then-poor countries. In the 1970s, that meant lifting extremely poor nations like South Korea, Ireland, and Taiwan out of poverty.

It shouldn’t be surprising that as the globe has further embraced capitalism and free markets—however imperfectly—global income inequality has decreased in the past three decades. Revealingly, capitalism alleviates poverty in nations in proportion to the amount that the nations practice capitalism and free markets. Thus, since the 1990s, the economies of the Baltic states (Lithuania, Latvia and Estonia), the Czech Republic, and Slovenia took off while Belarus and Ukraine lagged behind.

But Piketty and Saez have a point when they argue the divergence between the rich and poor in the United States is growing faster than in European countries and other advanced economies. It’s true that the divergence in wealth concentration is increasing at a faster pace in the United States. And all of that difference can’t be chalked up to globalization, even though U.S. laborers’ wages were the highest in the world in the 1970s (and would therefore presumably have the highest stress from opening up the global free market in labor) and the U.S. has had the most technology innovators.

So what explains the rest of the difference?

There are a couple of reasons, and none have anything to do with capitalism.

The first is the cronyism already mentioned, which is far more rampant in the U.S. than other countries. Whenever government gives $5 billion to one man after taking it from the tax dollars of millions of working Americans, inequality is going to increase. And the level of cronyism in the U.S. has increased dramatically since 2008, with bailouts of the financial sector in 2008-12 and another, larger bailout ($4 trillion in subsidized loans) in 2020 hidden in the COVID-19 bailout CARES Act.

The second reason is inflation, which is an increase of the money supply that decreases the purchasing power of the dollar. Creditors are hurt and debtors are helped when the value of the dollar falls through inflation. Here’s an example from my personal history that helps to explain how creditors are hurt by inflation and debtors are helped by it:

I first moved out on my own in 1989 and rented a cheap one-bedroom apartment in Appleton, Wisconsin and thereafter visited home in Massachusetts where I told my father I was able to rent the apartment right across the river from Lawrence University for the incredibly cheap price of $290 per month.

He almost turned white, and eventually sputtered out, “That’s more than my mortgage.”

He had bought his big colonial-style home for his wife and five kids with a low interest rate in 1971, just as hyper-inflation was about to rear its ugly head. Over time, it became much easier to make payments on his 30-year mortgage (though our family struggled financially during this hyper-inflationary period on other necessities). In essence, the lender had been cheated out of the value of their loan to my father by the hyper-inflation.

My father had been lucky in a way I wasn’t. A few years later I bought a house with a loan where the interest rate was nearly nine percent (8.875%, with excellent credit and 20% down), at a time when the CPI was only increasing by four percent annually (and it would fall from there). The lenders had built the risk of inflation into their interest rates since the 1970s, and had over-compensated a bit.

And while the financial sector is the business of being in debt and managing other people’s money, the working man—especially the poor working man—is primarily a creditor. This may seem counter-intuitive: how can a poor man with no money extend credit?

The answer: his labor.

The working man generally only has his wages to sell. And he credits his employer for a week or two of his wages in perpetuity, always advancing his labor before he receives his pay. While this loan of $1,000 or so worth of labor to his employer every week may not seem like much, keep in mind that the largest line item on the ledger of almost every corporation in America is the wage line. Collectively, working people—even when they have no ability to borrow from others because they “have no credit”—are themselves huge creditors. Working people’s wages amount to a rolling loan of at least $160 billion (a week’s worth of $8.4 trillion in wages annually), a deposit level larger than that held by Goldman Sachs! The level of deposits credited to employers by wage-earners comfortably ranks among the 20 largest banks in the U.S.

While the financial sector has frequently failed the economy (though this has often been in response to bad government incentives), there’s one bank that’s never failed to keep credit flowing: laborers.

The poorer a man is, the more he is forced to be a creditor. While much of the middle class owns their own homes (or finances the purchase of them through debt), the poor working man must also extend his credit to his landlord, paying in advance a month’s rent for his apartment or home and typically advancing an additional month’s worth as security deposit.

Inflation takes away the value of these credited items, silently stealing from the poor working man by percentages rather than at the end of a gun. For the working poor, it takes value from everything they have: from their wages, from their rent, from the meager dollar deposits in their checking accounts (collectively, laborer/wage-earners are also among the greatest creditors to banks), and even the cash in their wallets. The richer a person is, the higher the proportion of his or her assets which are protected against currency inflation. Rich people generally a hold very small percentage of their assets in cash and instead have their wealth vested in inflation-protected hard assets like real estate, stocks, and commodities.

In essence, inflation is the most “regressive”—to use a term of the left—of any tax: The poorer you are, the higher proportion of your income it takes. Meanwhile, that which worker and creditors lose, borrowers—especially the financial sector—gain.

The financial and banking industries like to think of themselves as essential to the economy, and they are. But the financial and banking industries are essential only to the extent that they can properly price time and interest in the markets. Financiers and bankers don’t actually produce products consumed by people or manufacture food or physical products or provide services that contribute to people’s standard of living. Once they misallocate wealth and create a recession, their misuse of society’s abundant resources is exposed and the capitalist economy takes their wealth away and gives it to the worker by creating a recession and deflation of prices.

Deflation in a recession is a redistribution of wealth to the poor, especially the working poor. There’s a kind of “preferential option for the poor”—to borrow a term from the Catholic Church’s social teaching—in the pure capitalist pricing mechanism. Deflation acts a cushion for the frugal working man, letting his meager savings go further through the storm of a recession created by others.

One of the best signs a society is run by oligarchs is that its policy is dominated by rabid avoidance of deflation and strong encouragement of inflation. But this policy is unfortunately the priority of both parties in Washington. Congress’ first act during the coronavirus shutdown was to prop up prices for the financial sector with a giant $4 trillion subsidized loan program through the Federal Reserve Bank. The appropriately named “CARES Act” (even if it was only ironically appropriate) showed very precisely who Congress cares most for, and it was not the working man or the free market. The bill was passed unanimously in the senate and by voice vote in the House—despite efforts led by Representative Thomas Massie of Kentucky—and signed by President Trump. Notably, all the leftist congressmen and senators who squawk loudest about income inequality—Senators Bernie Sanders and Elizabeth Warren, the “Squad,” Ro Khanna—voted in favor the bill that, as Massie tweeted out the day after the vote, was “the biggest wealth transfer from common folks to the super-rich (Wall Street and bankers) in the history of mankind.”

And when global oil prices fell at the beginning of the current oncoming depression, one of the first acts of President Trump was to broker a deal to re-empower the OPEC cartel to raise prices on consumers. Of course, lower gasoline prices amounts to one of the few financial benefits for consumers during the current government-imposed shutdown.

Avoiding falling prices has been the official policy of the U.S. government since 1930. The entire economic efforts of the Hoover Administration and Roosevelt’s New Deal were attempts to artificially prop up prices paid by the working man. In essence they were saying to the poor: “No, we won’t let you working people have your deflationary purchasing power back. We’re going to print new money and put it back in the hands of the same people who created the economic trouble in the first place.”

President Herbert Hoover initiated the Reconstruction Finance Administration, which loaned government money to the same mismanaged banks and utilities that had created the problem. President Franklin Delano Roosevelt and his compliant Congress passed the National Recovery Act, and the resulting National Recovery Administration arrested tailors for sewing pants for ten cents less than the regulated price and arrested chicken farmers for letting customers pick their own chickens they would buy (because the latter violated high-price-fixing regulations imposed by FDR’s rule-makers).

FDR also supported and signed the Agricultural Adjustment Act, which bought and destroyed agricultural produce before it could be sold in the market in order to keep consumer prices artificially high at the supermarkets. The idea that government would deliberately destroy perfectly good food in an economic depression when so many were going hungry in order so that the poor would have to pay a higher price at the cash register was just as insane a policy as it sounds, and it was a policy later lamented by folk singer Woody Guthrie.

And while official government policy was designed to rob the working man by keeping prices high at the the check-out counter, these government interventions also incompetently fiddled with the market pricing system and—this shouldn’t have been a surprise—extended the Great Depression until long after World War II had started.

By the way, paying farmers to produce nothing is a policy still practiced by the U.S. Department of Agriculture today, though in most cases it takes the form of subsidies for farmers not to plant in the first place. Dozens of farmers take in tens of millions of dollars in order not to plant crops at all, again, with the idea that this will raise prices in the supermarket for consumers.

Let’s go back to the point that the income inequality is increasing at a faster pace in the U.S. than in Western Europe. One might argue: how can anyone say that inflation is making the margin of wealth wider than European countries when European countries have inflation rates about the same as Americans (and in some cases worse)?

The answer is a little more complex, but it can be loosely summed up this way: The position of the U.S. dollar as the world’s reserve currency means that currency inflation is not only increasing the wealth of the banking and financial sectors at the expense of the American working man, but also at the expense of the working men in other countries that use the U.S. dollar as their international exchange currency. In short, the inflationary dollar system robs the working people of the world for the U.S. financial sector while the inflationary Euro, Ruble, or Pound only robs the working men of the countries where their currency circulate.

Sure, the U.S. banking and financial sectors benefit from the inflationary increase in the money supply of the dollar, as one would expect from debtors who are the first to receive new credit in an economy and are the first to use that purchasing power before it is diminished at the retail level. As a result, the U.S. financial sector is the richest in the world.

But the unseen impact of this currency inflation is that the laborer has had his wages and his savings robbed at the hand of the government at a time when the free market sought to return it to him, and at a time when the working man needed it most. It’s time for policy makers end the anti-labor price-fixing on behalf of the financial sector, especially in the current economic crisis. This should be a broad issue on which the ideological left and right, as well as libertarians, could agree upon.

Leftists support the lockdowns, conservatives oppose. With a few exceptions, pandemic policy has lined the tribes up with impressive neatness, and while many factors contribute to any ideological divide, the socialist influence on the broader left is here playing a crucial and unexpected role.

While the trademark of progressives has long been the grand social engineering project, the socialists’ motivation for supporting such policies (and allying with the rest of the left) is their stated goal of helping the workers. Workers’ movements, centered around workers’ issues, sign on to progressive methods and policies as a means to an end: They hope that the scientific management the progressives install will benefit the group they represent.

But with lockdowns costing millions of workers their jobs, depriving them of necessities and devastating small businesses and family savings, the socialist movement within the left is providing an essential service to the progressives who imposed this policy. How can the costs of such a desperate experiment be justified? The real, crushing costs are borne by the vulnerable, not concentrated on the affluent like a Sanders tax plan. Regardless of the necessity of the policy, or its benefits, facing up to tradeoffs is to be avoided in politics, especially when those tradeoffs amount to ruining the lives of millions. A frank reckoning along the lines of “x thousand lives saved is worth y million livelihoods destroyed,” is unlikely, even with the most favorable numbers.

And it is here that the intellectual influence of the American socialists comes to the aid of the progressive cause. How can we minimize the impact of tens of millions of unemployment applications? How can we look upon the livelihoods wrecked, not by natural disaster, but by our deliberate policy, as a small enough thing to ignore? By denigrating the notion of “livelihood.” The democratic socialists who celebrated driving Amazon’s headquarters out of New York must look at jobs in a very different light than do job applicants. If jobs and businesses are viewed as the means by which the masses feed their children, their destruction is a tragedy, but if workers have nothing to lose but their chains, it is no such matter. Inflicting losses on workers is ironically sanitized by an ideology committed to defending workers, because it insists they have nothing to defend. In regarding jobs as exploitative, and economic freedom not as opportunity (as in the view of immigrants actively pursuing it) but as a predatory struggle, the socialist blinds himself to the interests of living workers.

The persistent problem for American socialists is the disconnect between their image of the impoverished worker, wages suppressed by the iron law, barely surviving at all, and the lived experience of a large mass of American workers. That workers should succeed and elevate themselves by working in “exploitative” employment relationships, or competing in the “dog-eat-dog” world of small business, forms no part of the socialist’s vision of the world. But for those workers who do succeed on their own terms in the market, that success is a matter of personal pride and identity that will not be wrenched away without a fight. The welders, mechanics, machinists, framers, nurses, electricians, plumbers, roofers, (and on and on into more trades than I could name) who have improved their conditions of life and fed their families by doing these jobs are absolutely hostile to a socialist pitch that involves treating them as charity cases. It insults their personal achievements, and erases their identity, to be treated like Russian serfs needing political liberation as a gift from Bernie Sanders. The successful worker is as repelled by this condescending kind of socialism as the unemployed are drawn to it.

It is the size of this class, the successful workers (success being defined in terms of the aims of each individual worker) that will decide the fate of the American socialists’ dreams. Where workers succeed by working, they have no need for a “Workers’ movement.” Where the dreams of the individuals are stifled, by disaster or by policy, there is hope for the socialists to be welcomed when they come rushing in with their political interventions. But in the calculations of the socialists themselves, the size of this class is always claimed to be zero; the worker is always the victim, or else he himself has become an exploiter. When this view is perhaps close to reality (as in post-Ming China or Tsarist Russia) the socialist’s theories guide him well enough and he can expect good success for his political movement. Where Chinese peasants stream by millions with nothing but the shirts on their backs, and in three generations have climbed to statistical affluence, the Marxist theory, and the socialist movement, are both seriously confounded.

A lockdown policy which devastates the independent livelihoods of Americans thus erodes an important base of mass resistance to socialism (even if it is a mass the socialists refuse to acknowledge), as do occupational licensing, business regulations, and tax withholding (more hated on payday than any boss). Politicians will view this as a feature or a bug, depending on their hopes for the socialist movement; they may seek to protect the livelihoods of the workers as a defense against socialism, or they may go on trying to impoverish and destroy the dreams of families in order to pave the way for their better world. G.K. Chesterton explicitly warned his contemporaries about this very issue nearly a century ago, in arguing against the Inclosures in England:

…in so far as the peasant proprietor is certainly tenacious of the peasant property, is concentrated on the interest or content with the dullness, as the case may be, he does, in fact, constitute a solid block of private property which can be counted on to resist Communism; which is not only more than can be said of the proletariat, but is very much more than any capitalists say of them. I do not believe that the proletariat is honeycombed with Bolshevism (if honey be an apt metaphor for that doctrine), but if there is any truth in the newspaper fears on that subject it would certainly seem that large properties cannot prevent the thing happening, whereas small properties can.

(The Outline of Sanity, 1927)

The fact that leading defenders of capitalism in Chesterton’s age sneered at the “rustic” small property holders and allowed cronyism to eat away at the property and security of a large class of Englishmen seemed to him a tactical error as well as a moral outrage. To excuse violations of property in the name of “modernization” is not only hypocrisy, but also, in Chesterton’s view, destroys the best bulwark against the open violations of socialism: Millions with their own independent stakes in private property, and personal motive for its defense.

The ultimate fate of America’s class of small property holders, independent livelihoods, or successful workers, is yet to be seen. Certainly the presence and size of this class has been an intrinsic element in the American standard of living, in spite of America’s lagging behind other nations in “essential” worker protections like unionization, regulation, and welfare. America has a centuries-long tradition of unusually high real wages under conditions of unusually inactive (though not absent) economic policy. Marxists put this down (when they admit it at all) to a “labor shortage,” while economists credit it to a large capital stock, which is a more sensible way of saying the same thing. In any case, the home of relative laissez-faire has been the most fertile of ground for penniless families to take root and flourish, and about the most stubbornly barren for socialist movements. These two facts are not unrelated.

With roughly 36 million people having filed for unemployment across the country in the last two months in the wake of the coronavirus shutdown, one issue receiving more scrutiny from some quarters is the issue of employer-based health insurance.

With so many laid off temporarily or permanently out of work, there is increasing concern about how many of those will be uninsured because when they lost their job, they also lost their source of health insurance.

About half of Americans receive their health insurance through an employer-sponsored plan, which means the recent layoffs could potentially swell the ranks of the uninsured by 18 million.

Concern over this trend has prompted a growing chorus of those attempting to mount an opposition to America’s heavy reliance on employer-sponsored insurance. For example, Rep. Ilhan Omar’s tweet below which garnered more than 76 thousand likes at the time of this writing.

This raises the question, however: Why is health insurance tied so closely to employment in the first place?

The answer should come as no surprise to readers of this site: government intervention.

As this 2017 New York Times article describes, when we look back a hundred years ago, “Most insurance in the first half of the 20th century was bought privately, but few people wanted it.”

Few people wanted insurance because there was not much medical care that needed to be insured.

The medical treatment and technology available at the time was very limited. But as doctors learned to treat more illnesses and medical technology advanced, the healthcare industry likewise began to expand which brought increasing procedures and treatments to be paid for.

In response, hospitals formed Blue Cross in 1939 as an insurance pool to help patients pay for treatment, and physicians formed Blue Shield at about the same time.

A gradual increase in insurance coverage followed.

Then, as the Times reported, “Things changed during World War II.”

“In 1942, with so many eligible workers diverted to military service, the nation was facing a severe labor shortage. Economists feared that businesses would keep raising salaries to compete for workers, and that inflation would spiral out of control as the country came out of the Depression.”

In response, President Roosevelt signed Executive Order 9250, establishing the Office of Economic Stabilization. This order, among other things, froze wages. “Businesses were not allowed to raise pay to attract workers,” the Times noted.

Progressives and anti-capitalists would lead you to believe that this situation would be perfect for greedy business owners. The executive order would give them cover for what they want to do anyways—which is to exploit workers and pay them slave wages.

But reality has a way of bursting progressive’s ideological bubbles.

Instead of gleefully colluding to keep worker compensation suppressed, businesses instead “began to use benefits to compete. Specifically, to offer more, and more generous, health care insurance,” the Times reported.

“Then, in 1943, the Internal Revenue Service decided that employer-based health insurance should be exempt from taxation. This made it cheaper to get health insurance through a job than by other means,” the Times continued.

As an employer, if you could choose between paying a worker, say, an additional salary of $10,000 or pay $10,000 for their health insurance premiums tax free, there is significant incentive for the employer to opt for the insurance coverage.

And even if the employer simply provides the option of enrollment in an employer-provided plan, and requires the worker to pay for those premiums, the employee gets to do so with pre-tax income. There is still strong incentive for the employer and employee to accept insurance coverage in lieu of higher salary.

As University of Alabama-Birmingham health economist Michael A. Morrisey explains, “employers and their employees have a strong incentive to substitute broader and deeper health insurance coverage for money wages. Someone in the 27 percent federal income tax bracket, paying 5 percent state income tax and 7.65 percent in Social Security and Medicare taxes, would find that an extra dollar of employer-sponsored health insurance effectively costs him less than sixty-one cents.”

Roosevelt’s order let the employer-sponsored health insurance genie out of the bottle. And employer-sponsored insurance coverage growth was the driving force in a major increase in overall insurance coverage. As the Times reported, “In 1940, about 9 percent of Americans had some form of health insurance. By 1950, more than 50 percent did. By 1960, more than two-thirds did.”

The stronger the tie between employment and health insurance, the more significant becomes the issue of “job lock.”

This is a situation where workers fear losing or leaving their job because it means also losing their health insurance coverage; which in turn could also mean losing access to their preferred doctor.

Which brings us back to the current situation.

The concern about “job lock” and the close connection between employment and health insurance is legitimate, and has certainly been highlighted by the current crisis.

It’s surely not a stretch of the imagination, however, to conclude that progressives like Omar’s solution is to transition to a government-run single payer scheme like Medicare for All.

But as this debate heats up as more lose their jobs, it is important to understand why health insurance is so closely tied to employment in the first place. The fact that leftists desire to ‘fix’ a problem created by government intervention with still further government control is an irony apparently overlooked.

Ludwig von Mises warned us nearly a hundred years ago that government intervention begets more intervention.

As he wrote in 1929, “isolated intervention fails to achieve what its sponsors hoped to achieve. From their point of view, intervention is not only useless, but wholly unsuitable because it aggravates the ‘evil’ it meant to alleviate.”

Once the interventionists realize their interventions made things worse, Mises argued, they are “not inclined” to remove the initial intervention, but rather seek to address the new problems with still more interventions. The new interventions create new problems, and the cycle repeats, ad nauseam.

His words ring true now more than ever. They should not be ignored.

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics. Follow him on twitter, @erasestate. 

Remember all of the government bailouts and stimulus in response to the 2008 financial crisis? Conservatives threw a fit. The Tea Party movement grew out of worry about the impact of all of the stimulus, money-printing, and the taxes they knew were coming down the pike.

My, how things have changed in 12 short years—and with a Republican sitting in the Oval Office.

Today, pretty much everybody supports the stimulus and bailouts gushing out of Washington D.C. even though they dwarf anything imagined during the Obama administration.

“This is different!” so we’re told. Government policy set up the 2008 financial crisis and a lot of “bad actors” got bailed out. The Obama stimulus undermined the free market!

But now we’re being told that you can’t pin this economic meltdown on the government. You can’t blame anybody for coronavirus. This crisis really is too big for the free market to handle. Government needs to step in.

But the truth is big government set the stage for this economic meltdown just like it set the stage for the 2008 financial crisis. This is a prime example of the government breaking your legs and then giving you a wheelchair.

Don’t let the irony get lost on you. Government intervention in the economy set things up for a crisis like this. Now virtually everybody thinks we need the government because the free market can’t handle a crisis like this. Even people who claim to favor free markets are pushing for the bailouts.

A healthy economy could weather the coronavirus. In a truly free market, businesses and consumers would have savings. These government shutdowns would stress a healthy economy, but they wouldn’t kill it.

But we don’t have a free market.

We have a central bank that manipulates interest rates and a bloated government that taxes, borrows and spends us into oblivion. As a result, the United States went into the coronavirus pandemic with a bubble economy built on a mountain of debt.

By holding interest rates at artificially low levels for more than a decade after the 2008 financial crisis, the Federal Reserve incentivized borrowing. As a result, consumer debt, corporate debt and the national debt were all at record levels before COVID-19 reared its ugly head.

Meanwhile, the federal government was already spending trillions of dollars to prop up the economy. The Trump administration was on track to run a $1 trillion budget deficit in 2020 before the pandemic. This is the kind of budget deficit one would expect to see during a major economic downturn. The federal government has only run deficits over $1 trillion in four fiscal years, all during the Great Recession. The current Congress and the Trump administration were approaching that number before the pandemic, despite having what Trump kept calling “the greatest economy in the history of America.”

The Fed facilitates this deficit spending by monetizing the debt—buying U.S. Treasury bonds on the open market with money created out of thin air. Without the Fed backstopping the financial system and effectively printing money, the U.S. government wouldn’t have the ability to borrow and spend as it does.

Meanwhile, the tax burden necessary to sustain big-government spending policies stresses family and corporate budgets to the breaking point. When people have to hand a big percentage of their income to the taxman, it becomes that much more difficult to save for a rainy day—or a government shutdown of the economy.

And why save when you can borrow? Artificially low interest rates make it easy to borrow and pointless to save. You get no return on your savings. Might as well borrow and spend now.

This is all well-and-good until the economy hits a bump in the road like the coronavirus pandemic. Suddenly you have no income, no savings and a massive pile of debt. It doesn’t take long to go from a hiccup to a full-blown crisis.

This is where the United States finds itself today. After a decade of easy-money and borrowing, coupled with out of control spending in Washington D.C., the coronavirus shutdowns popped the economic bubble that the government helped create. Now the air is coming out and everybody is turning to the government to bail them out.

That’s not to say the coronavirus shutdowns would have been a walk in the park if the economy wasn’t already broken. But a healthy economy could have weathered the storm. If the Fed hadn’t intervened in the economy, people wouldn’t have been able to bury themselves in debt. If the government wasn’t levying high taxes on corporate earnings, companies would have had more money saved to push through a crisis. If people didn’t rely on government programs like Social Security for their savings, they could have saved money on their own and they would have had it to tap into during this crisis.

This is the exact same set of policies that set up the 2008 financial crisis. The government and the central bank doubled-down after ’08 with some political backlash from the right. This time, the government is quadrupling down with pretty much everybody on board. Peter Schiff summed up the situation perfectly in a recent podcast.

“It’s the government that crippled the economy in the first place. The solution – the answer to that –  is not to have a bigger government crutch so we can hobble around. How about getting rid of all of that government? Liberating the economy from the dead weight of government.”

This article was originally featured at the Tenth Amendment Center and is republished with permission.

How bad is it?

That is the question on everyone’s mind as we come to grips with the economic carnage caused by global economic shutdowns, supply chain disruptions, and ongoing quarantines of million of people. Do we face another Great Depression, or simply a deep recession more like 2008? And equally important, are soft Americans prepared for either? Have we started to process all of this psychologically? Have we really come to terms with the enormity of the situation, with the unprecedented risk posed by business shutdowns? Are Americans so accustomed to a certain material standard of living that they do not understand how fragile it is?

Here is what we know.

Since February, 30 to 40 million Americans have been thrown out of work. Four or five million file new unemployment claims each week. The real unemployment rate is probably over 20 percent, while the labor force participation rate drops like a stone. In states like Hawaii unemployment may approach 35 percent. Deutsche Bank economists predict an absolutely staggering 40 percent reduction in U.S. GDP for the second quarter of 2020. Meanwhile, millions of American households and businesses simply stopped paying rent or mortgages on March 1, and bankruptcies spread across major American retailers like wildfire. Countless small local businesses, many left out of the running for the new SBA (Small Business Administration) loans recently created by Congress, simply will not reopen regardless of what happens over the next few months.

So although we have a sense of how deep the economic damage runs, we can only guess how long it may last.

Will the virus remain a threat, real or perceived, for months or years? And if so, how long will state governments maintain at least partial business lockdowns? Will the U.S. economy enjoy a vaunted V-shaped bounce-back recovery, as promised by Trump administration cheerleader Larry Kudlow? Will it look more like a U, with months or years of stagnation at the bottom? Or worse still, like an L with no rebound in sight?

Looking back at the 2008 crisis provides a sober argument against a quick recovery later this year.

Consider this analogy: Most roller coasters feature what is known as a “lift hill,” a chain-driven steep ascent at the beginning which takes nervous riders to the top of of a sharp drop-off. Going over this first hill not only creates the most thrilling moments, but also generates energy to propel the coaster cars farther along the path of the ride. How much farther and faster the ride goes depends on the height of the hill and the mass of the coaster train. Bigger and higher make for a more precipitous fall.

Absent some kind of additional mechanical intervention, the coaster never again reaches the height of the initial hill due to simple friction. Congress and the Fed are busy attempting to overcome this friction using government stimulus and central bank “liquidity.” But per our analogy, the coaster’s potential energy is highest during the pregnant pause at the peak of the lift hill; its kinetic energy is highest at the bottom of the first drop. No subsequent hill, twist, or turn quite matches the feeling of that first free fall.

Recall, from those terrible days of 2008, how a crash gathers speed. At first a few cars on the coaster crest the hill, well before the rest of the train plummets. In mid-September of that year, Lehman Brothers was the first car in the coaster to go over the hill into the abyss. It took a few weeks, until September 29, for investors to fully grasp what was happening and send the Dow plummeting in the largest single-day loss in history.

But the Dow did not reach its ultimate low until March 2009. Nine million lost jobs were not recovered until well into the next decade. And US housing prices didn’t bottom out until 2012.

Crashes are fast, like that first hill on a coaster. Recoveries are not, for the simple reason that production is more difficult than destruction.

Although the Great Recession of 2008 “lasted” eighteen months in official terms, its effects lasted far longer and are still felt today. Its scars remain particularly visible on two bookend generations, Millennials and Baby Boomers. In stark terms, many of the former failed to launch and many of the latter found comfortable retirement out of their grasp. Millions of Millennials sought more education and degrees (with resulting debt) to ride out the soft job market; millions of older workers simply gave up and limped along until they were eligible for Social Security. Now both face another crisis just a decade later.

How bad will the Great Crash of 2020 be? Even more unsettling is the question of whether it represents a self-inflicted wound, caused by state-mandated business shutdowns which increasingly appear wildly disproportionate to the actual threat posed by the COVID virus. Economist Daniel Lacalle and I will attempt to answer both during a live webinar later this week, particularly in the context of what governments and central banks have done in recent months.

The first step in addressing a crisis is understanding how severe it really is.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

At an April 23 press conference, Gov. Andrew Cuomo sounded indignant when a reporter asked if anyone had objected to New York’s policy of forcing nursing homes to admit recently discharged COVID-19 patients.

“They don’t have the right to object,” Cuomo answered before the reporter finished his question. “That is the rule, and that is the regulation, and they have to comply with it.”

New York isn’t the only state to adopt a policy ordering long-term care facilities to admit COVID-19-infected patients discharged from hospitals. New Jersey, Massachusetts, and California—three states also hit particularly hard by the novel coronavirus—passed similar policies to free up hospital beds to make room for sicker patients.

The practice is coming under increased scrutiny by health experts and family members of deceased patients who say the orders needlessly put the most susceptible populations at risk.

“The whole thing has just been handled awfully … by everybody in regard to nursing homes,” said Kathleen Cole, a nurse who recently lost her 89-year-old mother who lived at Ferncliff Nursing Home in Rhinebeck, New York. “It’s like a slaughterhouse at these places.”

Cole, who shared her story with the Bucks County Courier Times, told the paper her mother, Dolores McGoldrick, became infected with COVID-19 on April 2 after Ferncliff re-admitted a resident who had been discharged in late March. Two weeks later her mother, a former school teacher, was dead.

McGoldrick is one of nearly five thousand COVID-19 victims who died in New York nursing homes, according to new figures from The New York Times. New York’s high nursing home death toll is not an outlier. California recently released data showing that some 40 percent of California’s COVID-19 fatalities have come from eldercare homes. In Pennsylvania, nursing homes account for 65 percent of COVID-19 deaths. Both states, like New York, had orders in place that required nursing homes to admit recently released COVID-19 patients.

These results are not surprising to some. Health experts and trade associations had warned early on that forcing nursing homes to take on newly discharged COVID-19 patients was a recipe for disaster, noting that such facilities didn’t have the ability to properly quarantine the infected.

“This approach will introduce the highly contagious virus into more nursing homes. There will be more hospitalizations for nursing home residents who need ventilator care and ultimately, a higher number of deaths. Issuing such an order is a mistake and there is a better solution,” American Health Care Association President and CEO Mark Parkinson announced in March after New York’s order went into effect.

David Grabowski, a professor of health policy at Harvard Medical School, sounded incredulous when asked about the policy.

“Nursing homes are working so hard to keep the virus out, and now we’re going to be introducing new COVID-positive patients?” Grabowski told NBC.

Richard Mollot, executive director of the Long Term Care Community Coalition in New York, echoed that sentiment.

“To have a mandate that nursing homes accept COVID-19 patients has put many people in grave danger,” Mollot told the Bucks County Courier Times.

The question, of course, is why states began ordering nursing homes to take in COVID-19 infected residents. The one thing we know of COVID-19, and have known from the beginning, is that the virus is particularly deadly for the elderly and people with compromised immune systems.

State leaders will have to answer that question themselves. But one answer might be that central planning is inherently irrational.

The Nobel Prize-winning economist F.A. Hayek observed that the problem with trying to centrally plan economies and other complex social orders is that central planners cannot possibly access, comprehend, and weigh the vast amount of information relevant to their sweeping decisions.

The only way to cope with this “knowledge problem” is by bringing to bear the special knowledge that each individual has about the matters he or she is intimately familiar with. And that can only happen through decentralized processes, like the market price system.

This lesson has been lost on many, but particularly so on politicians and bureaucrats who imagine they possess the knowledge to design a more perfect social order. As Hayek famously explained in The Fatal Conceit:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.

This is why individuals are more competent decision-makers about their own affairs than governments. For this reason, a society that removes decision-making from individuals and places it in the hands of central planners invites disorder and endangerment, the economist Thomas Sowell has observed.

“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong,” wrote Sowell.

Media were quick to describe the nursing home tragedy as a “market failure,” pointing out that 70 percent of nursing homes in the US are for-profit. This is hardly a market failure, however. Long-term care facilities saw the danger and warned public officials what would happen.

What were they told?

“That is the rule, and that is the regulation,” Cuomo told them, “and they have to comply with it.”

Gov. Cuomo and other officials responsible for these policies are guilty of Hayek’s fatal conceit. In their hubris, they presumed to know enough to centrally plan a complex society’s response to a complex pandemic, and to know more than individuals with local knowledge, industry expertise, and skin in the game, like the elder care experts and businesspeople who tried to warn policymakers about the disastrous effects the policy would have.

This presumption may stem from another kind of conceit: the dictatorial arrogance on display when Cuomo indignantly insisted that unquestioning compliance was the only appropriate response to his mandate.

Tragically, that conceit was quite literally fatal for many of the most vulnerable members of society.

Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has appeared in TIME magazine, The Wall Street Journal, CNN, Forbes, and Fox News. This article was originally featured at the Foundation for Economic Education and is republished with permission.

Some myths in politics die hard.

We are constantly reminded by the managerial classes that foreign aid is crucial to lifting the developing world out of poverty. With the magic wand of public spending, money is sent to the developing world in hopes of pushing these countries out of their economic stupor. We’ve seen this story play out domestically when politicians call for wealth transfer programs with the purported intent of “investing” in economically beleaguered sections of America. With the universalist ethos of American politics, inevitably the domestic redistributionist logic is taken to the international level.

The mythos of foreign aid lives on in politicians’ constant appeals to the Marshall Plan as a source of inspiration for pushing new foreign aid ventures. The Marshall Plan refers to the economic recovery package sent to western European countries after World War II. Per conventional wisdom, Europe’s ability to bounce back from the devastation wrought by World War II is largely attributable to the Marshall Plan’s disbursements of aid, which totaled more than $100 billion in 2018 dollars.

Using the western European foreign aid program as a template, policymakers regularly search for the next region to experiment on. During a news conference at the 2017 G-20 summit, French president Emmanuel Macron was asked about the viability of a Marshall Plan for Africa. In a surprisingly brusque manner, Macron threw cold water on the idea. The French leader averred, “The Marshall plan was a reconstruction plan, a material plan in a region that already had its equilibriums, its borders, and its stability. The problems Africa faces are completely different, it is much deeper. It is ‘civilizational.'” Macron’s blunt commentary disappointed the journalist class, who were hoping to get a politically acceptable response.

Political commentators did not have to wait long. When former United States Secretary of Housing and Urban Development Julian Castro Julian Castro ran for the 2020 presidential candidacy, one of his selling points was a Marshall Plan for Central America—a region notorious for its socioeconomic and political strife. In the former 2020 Democratic Party candidate’s view, a Marshall Plan is the missing ingredient in getting Central America over the hump.

Allow me to express some skepticism. I previously noted that foreign aid is no silver bullet for the developing world. As a matter of fact, foreign transfers can foster bad behavior and prop up regimes with long-standing records of corruption. Macron was correct in his assessment of the Marshall Plan and why replicating it in Africa will not yield similar results. Europe was already prosperous and institutionally stable before most of the continent was ravaged during World War II. It was only a matter of rebuilding infrastructure and letting private actors return to the private sector to resuscitate many of the factors of production that had been destroyed during the war. Strictly speaking, the Marshall Plan wasn’t working with a blank slate, and functioned as a reconstruction plan that nominally sought to restore the pre–World War II equilibrium in the region. Europe already had enough know-how and capital accumulated in previous decades that it could work around the tragic circumstances of World War II and get back on its feet in no time.

Like most historical narratives of twentieth-century events, several key points tend to be omitted about the Marshall Plan. Contrary to what many court historians would have us believe, the Marshall Plan may have not been the sole cause of Europe’s success in the postwar period. Historian Tom Woods has argued convincingly that the economic liberalization in countries such as West Germany facilitated robust economic growth more than the aid from the Marshall Plan.

West German minister of economic affairs Ludwig Erhard’s economic reforms, such as lifting price controls and ending rationing, contributed to Germany’s incredible comeback after World War II. Other countries such as Austria and Greece, which received considerable aid on a per capita basis, witnessed more sluggish growth and didn’t really take off until aid was phased out. Despite what college textbooks say, the lifting of wartime economic controls was the decisive factor behind many European countries’ growth following World War II, not the Marshall Plan.

All things considered, foreign aid is a feel-good policy that strokes the egos of DC do-gooders but has suboptimal results in the real world—the one place politicians seem to be perpetually detached from. Due to institutional shortcomings inherent to the region and the flawed nature of foreign aid, a Marshall Plan for Central America would not pan out the way that many of its boosters such as Julian Castro would have us believe. Just look at the region’s corruption levels.

According to Transparency International’s 2019 Corruption Perception Index, El Salvador, Guatemala, Honduras, and Nicaragua are ranked 113th, 146th, 146th, and 161st, respectively, for overall levels of corruption. On the Heritage Foundation’s 2020 Index of Economic Freedom, El Salvador, Guatemala, and Honduras are middle-of-the-road countries at best, ranked 90th, 73rd, and 93rd. Nicaragua found itself in shoddy 113th place. Sending the modern-day equivalent of a Marshall Plan to the aforementioned countries is asking for corruption to proliferate and the compounding of previous problems.

Central America does find itself in a bind, but it can look at other developing countries for inspiration. For example, Panama has steadily become one of the more unheralded economic success stories in the last three decades due to its efforts to open up its economy to trade and foreign investment. Now Panama is being dubbed the Dubai of Central America. Chile is another successful model for Central America to look at. The Southern Cone country escaped the clutches of Marxism and became Latin America’s greatest economic miracle of the last century by adopting deregulatory measures, privatizing previously state-owned enterprises, and opening up trade. Even Botswana, which is situated in a part of the world not known for its stability, freed itself from the typical stagnation that marks the developing world. By embracing the rule of law, defending property rights, and opening up its economy, it has separated itself from its Sub-Saharan rivals, such as South Africa and Zimbabwe, both of which have witnessed their share of economic trials and tribulations, the latter being a poster child for hyperinflationary collapse.

When most developing countries have been buying into Keynesian or Marxist development ideas hook, line, and sinker, we should not be surprised when they continue languishing. Intricate policy papers calling for tweaks in foreign aid won’t cut it. The idea of the developing world breaking out of its self-imposed shackles is not so far-fetched thanks to a select few countries that have broken from the interventionist norm. The question is: Will their political elites ignore Western policy wonks’ half-baked advice and embrace markets instead?

The key to economic success is not a matter of technocratic rocket science. Comedian Jane Bussman has spent years abroad in Africa trying to figure out how to alleviate the region’s poverty. After witnessing the foreign aid racket firsthand, she came to the following conclusion:

If you want to help a country that’s troubled, buy their s&*t. Do a three-day stopover, even, and spend spend spend.

Economist Joseph Salerno simplified Bussman’s observation: “In other words, trade (and investment) and not aid” will break the poverty cycle. At this point, the developing world should take its chances by following the advice of comedians rather than that of haughty elites who do not understand the intricacies of wealth creation.

At least the comedians actually understand the concept of value creation. The same cannot be said about your typical IMF or USAID bureaucrat.

José Niño is a Venezuelan-American freelance writer. Sign up for his mailing list here. Get his e-book The 10 Myths of Gun Controlhere. Follow him on Facebook and Twitter, or email him here. This article was originally featured at Mises.org and is republished with permission.

On February 10 the stock markets were at all-time highs, with the Dow 30 at almost 30,000. The unemployment rate was at an all-time low and interest rates around most of the world were at all-time lows.

With interest rates near zero for an entire decade, the value of stocks, bonds, real estate, land, and virtually any asset was artificially inflated. As a result, total household net worth doubled, increasing from $60 trillion to $120 trillion!

People were saying that things were too good to be true. Everything from giggling about personal finances at the gym to people embarking on unlikely business projects, and business owners being shocked when told it would not last, and even record-breaking skyscrapers. Things were too good to be true.

Now the popular refrain is that the coronavirus caused the economy to collapse. The government shut down the economy, putting people out of work. so there has been less consumption. Whole industries have been shuttered. The unemployment rate has skyrocketed, increasing by more than 10 percent in the last couple of weeks.

It is easy to see how politicians, the media, and even real people see this coronavirus situation as causing the economic collapse. A caused B. This in turn created the supposed need for trillions of dollars in subsidies, bailouts, and unemployment benefits. Plus the Federal Reserve would have to inject many more trillions of dollars to bail out every aspect of the financial industry including junk bonds and student loans.

All of this is false in the sense that A did not cause B. A, the coronavirus, did not cause B, the economic crisis; it merely triggered it, causing it to occur earlier than it would have. It may have also accelerated the collapse, and will likely deepen the trough of the crisis in business cycle terms.

In other words, the economy was weak, not strong. The fundamentals were weak, not strong. Balance sheets were weak, not strong.

This weakness could be clearly seen when President Trump began to publicly attack Federal Reserve chairman Jerome Powell for raising interest rates by 2 percent, which he rightly thought would hurt the stock market and his reelection chances.

The stock market thrived when interest rates were negative when adjusted for price inflation. However, when Powell pushed the inflation-adjusted rate to near zero, stock markets stalled and all political hell broke loose.

Let’s get back to the economic fundaments prior to the coronavirus. We are all consumers, so, starting with the consumer we find that, as a whole, consumers had a great deal of debt and not much in the way of savings.

There was certainly an effort to increase savings after the housing bubble crisis. The personal savings rate, which had fallen to 2 percent before the previous crisis (the housing bubble), had now risen to 7 percent but was still well below the 10+ percent that was normal when we on the gold standard.

The main villains behind a depressed savings rate are inflation and taxation on interest income. One-third of American households have zero savings and 60 percent have less than $1000. In effect, the Fed and the Treasury have needlessly put millions of households at risk.

Consumer debt is now more than double the amount prior to the last crisis, student loans are now more than $1.6 trillion, and the combined consumer credit of households and nonprofits is over $4 trillion. And, of course, this debt is not evenly distributed across the population, as some people have enormous debts relative to their ability to pay and some have none.

Before the virus, the labor market was also a mess despite a record low unemployment rate. There were millions of jobs that were going unfilled and millions of college graduates who could not get jobs in their desired fields, but who were instead working as waiters and bartenders and living at home. One of the biggest villains here is student loans, which encourage too many teens into college and put them on unproductive career paths.

The other big factor distorting the labor market is the Fed and its monetary policy. The unpreceded decade-long zero interest rate policy has caused a massive business cycle. Here, by artificially causing malinvestments, the Fed changed what types of jobs are in high demand and distorted income distribution as well.

In general, the Fed’s interest policy has increased the demand for very highly skilled workers such as electrical engineers, biochemists, and patent attorneys with graduate degrees. The increased demand for these types of labor has increased wages and distorted the distribution of incomes.

These types of workers are necessary to produce such things as new iPhones, software platforms, computer chips, and pharmaceuticals, all of which require a significant amount of work by patent attorneys.

Another way to view the distortions in the labor market is to take note of the number of job openings. In December 2019 the number of openings was 7.3 million, the highest number since it began to be counted in 2000. One of the reasons I suspected an economic crisis was around the corner was that this number stopped climbing and began to fall noticeably, before it recently plummeted.

Meanwhile, the unemployment rate for recent college graduates had been 41 percent and about one-third of all college graduates are underemployed, meaning that their job does not require a college degree. Remember, total student loan debt has skyrocketed to $1.6 trillion. These are all signs of a badly distorted labor market.

The too much debt/too little savings distortion can also apply to businesses and corporations, especially financial institutions. Some corporations have plenty of cash, such as Apple. It was so flush with cash that they started giving dividends to their shareholders.

But more telling is the problem of corporations using cash to buy back shares in their own company instead of investing in productivity. Another was the recent wave of mergers and acquisitions. Apparently, the Fed’s zero interest rate policy has driven the marginal return of capital so close to zero that corporations have resorted to these types of financial manipulations in an attempt to increase profits.

In summary, despite stellar numbers in the stock market and an all-time low unemployment rate, the US economy was already headed for an economic crisis. Prior to this economic crisis, we could clearly see that many consumers could barely pay their bills and had virtually no savings to rely on. The labor market was also badly distorted, with highly skilled markets booming, a record number of job openings, and massive numbers of recent college students unemployed or underemployed. Finally, the corporate market was also distorted, with firms using atypical financial manipulations such as share buybacks and mergers to increase profits. The viral pandemic merely triggered or revealed what was ultimately going to happen.

This article was originally featured on Mises.org and is reprinted with permission.

President Trump is convening with governors to reopen the economy, which will likely mean some sort of compulsory face mask order. Now is the time to seriously consider scrapping the patents on masks such as the N95.

Government at all levels has severely overreacted to the COVID-19 pandemic, but at long last there is political will to at least pretend as though there should be some return to normalcy. That, of course, doesn’t mean partisan politics is being set aside.

The governors of Connecticut, Delaware, New Jersey, New York, Pennsylvania, and Rhode Island, all Democrats, have announced that they are forming a “regional advisory council” to come up with a plan to reopen their economies. The same thing is being tried by West Coast Democratic governors in California, Oregon, and Washington.

However, the ultimate action taken will be a centralized one, Trump assures us, tweeting, “a decision…will be made shortly!”

The clampdown on economic and civil liberties will be restructured, almost certainly with more relief to the former than the latter. One likely compromise that any new national or regional policy will adopt is the condition that increased commerce requires mandatory mask wearing.

New York governor Andrew Cuomo, who polls evenly with Joe Biden as Democrats’ top presidential pick, has ordered employers of operating businesses to supply employees with masks.

Such a policy across the nation would have to look more like how Los Angeles is doing it, sacrificing quality for quantity in masks. There, shoppers must don face coverings in order to enter stores, but pulling a shirt up over the mouth and nose suffices.

If masks are so important to public health, as some studies and Asian countries indicate, then the government ought to knock down every obstacle in the way of people buying and selling the best masks possible.

Patent law would be a good place to start.

Deterring innovation, it puts manufacturers at risk of litigation if they produce face masks that infringe on one of more than one thousand US patents that cover the N95, 3M’s medical mask and the most prized respirator on the market, IndustryWeek reported.

“I don’t want to be the jerk saying people shouldn’t do things to save people’s lives,” but potential contractors “should have eyes wide open,” Washington lawyer Ranga Sudarshan of Covington & Burling, who argues intellectual property cases in the US Court of Federal Claims, told IndustryWeek.

Even as 3M admits that it can’t supply enough N95 masks at the current demand, the company has yet to release its patents royalty-free, even temporarily, to other market producers. Effectively, the multinational conglomerate stands behind the force of government to protect its monopoly.

As Rothbard wrote in Man, Economy, and State, “Patents prevent a man from using his invention even though all the property is his and he has not stolen the invention, either explicitly or implicitly, from the first inventor. Patents, therefore, are grants of exclusive monopoly privilege by the State and are invasive of property rights on the market.”

Federal law may ostensibly protect against patent “hoarding” when it’s the government demanding that a protected item be produced for its purposes, but patent owners still can reap royalty payments from the contractors, according to IndustryWeek.

Now, removing the patent or its protections, just for a time, may not even be considered by those who put politics first.

It’s one thing when the TSA rolls back its ban on large bottles of hand sanitizer, or when governors relax border restrictions on nursing licenses. Such welcome changes offer unaccountable bureaucracies to save face.

Undoing patents is far too costly to those benefiting from monopolistic control on the market.

Consumers might begin to wonder, as did the late legal theorist Butler Shaffer, “Were Leonardo’s or Gutenberg’s inventions, or the Egyptian pyramids, or the Roman aqueducts, rewarded by state-issued patents?”

Are patents as we know them, government issued, necessary at all?

Shaffer noted, “Patents and copyrights inhibit the creative process by discouraging the exchange of information,” adding that the patenting process is so prohibitively costly that it leaves the little inventor at the mercy of the big corporation, which will keep the patent power in exchange for the invention.

It is unknowable how much further 3M or another innovator may have taken the N95 idea were it not for the patent monopoly.

As intellectual property expert Stephan Kinsella puts it, “It is possible that companies would have an even greater incentive to innovate if they could not rely on a near twenty-year monopoly.”

In the meantime, seamsters are turning to GoFundMe to support their homemade mask donations, such as these or these. Crafty hobby sites such as SewCanShe.com and FaveCrafts.com are providing free DIY guidelines that will come in handy for those unable to find good masks in stores.

Entrepreneurship remains alive and well in America, but as demand grows or government mandates expand, the patent monopoly will inhibit what public policy ostensibly seeks: a healthy people and a healthy economy.

Nick Hankoff lives in Fort Wayne, Indiana, with his wife Alice Salles Affonso Hankoff and their two children, soon to be three. His website nickhankoff.com is where you can find all of his recent writings and a forthcoming return of the fugacious Nick Hankoff Show. This article was originally published at Mises.org and is reprinted with permission.

Back on March 19^th, 2020, I pointed to this piece by Pierre-Olivier Gourinchas at my blog – Coordination Problem — where he states very clearly the reality constraint in public policy deliberations in the current coronavirus crisis. Without committing one way or another on the debate over the epidemiology models being used, I thought, and still think, this way of putting it could serve as a very useful point of departure for serious conversations about trade-offs, short-run/long-run, and public policy in a liberal society. By now you have seen these graphs numerous times, but they are still useful to draw your attention to the issue at hand.

Public Health in Pandemic

Economic Policy During Pandemic

My sincere hope was that by framing the public discourse in a discussion concerning trade-offs, we would be able to deliberate our way to a rational consensus that will reduce regime uncertainty, and free up the creative powers of our civilization to both address our public health crisis and make sure the economic future is bright. That was perhaps a foolish hope given the reality of politics and the state of our intellectual culture, especially the divisiveness and mood affiliation attractors of social media and much of cable news coverage.

When I wrote Why Perestroika Failed: The Politics and Economics of Socialist Transformation (1993) the public conversation was different inside and outside of the former Soviet Union and East and Central Europe. The problem with the communist economies was a feature of those systems, and thus the policy conversation focused on changing those features as quickly and clearly as possible. I discuss this in chapter 7 of the book.

That created its own set of serious difficulties, and the subsequent history has no doubt revealed the consequences those difficulties presented. But there really is no debate that structural change of the system was required. The situation was also different at the time of the Global Financial Crisis of 2008-09, which again identified deep structural weaknesses in the system that resulted from misaligned incentives and the distorted signals caused by monetary mischief as Steve Horwitz and I argue in our monograph The House That Uncle Sam Built (2009).

The problems revealed in 2008 were a feature, not a bug, and thus required changing those features as quickly and clearly as possible if the economic vulnerabilities were going to be addressed. Again, doing the sort of structural change required has its own difficulties, and subsequent history again reveals the consequences of failing to overcome those difficulties.

But, in my opinion, this crisis is different not in degree but in kind from those previous shocks. It is literally and figuratively a bug in the system. Our current crisis was not endogenously created, though no doubt significant vulnerabilities of key sectors are being exposed (e.g., my own industry of higher education). Those vulnerabilities will need to be addressed, but it is important to stress that they were not caused by the coronavirus; they were revealed by the policy choices made in attempting to fight that coronavirus.

And, those vulnerabilities are a function of policy choices that were made over the years — in particular since 9/11 and 2008, but more generally dating back decades (consider, e.g., the third-party payer problem in health care). These vulnerabilities must be addressed because they exacerbate the negative consequences of this shock, and many of the policy “mental models” that politicians and intellectuals propose only will augment the negative, rather than ameliorate the problem in health, education, inequality, and economic volatility.

This public debate must take place, and sound economics must once again be stressed if we are to have any hope in sustaining a liberal society of peace and prosperity. However, while never far from our minds, that debate must wait in line as we first have to see ourselves out of this morass.

The current situation is a result of an exogenous shock and the policy responses to that exogenous shock that have in effect shut down significant sectors of the economy. In tackling the trade-offs, we need to think hard about how to meet the challenge and unleash the creative power to simultaneously reduce human suffering and restore economic prosperity and peaceful social cooperation. The administration has released a plan that comes in 3 phases. The primary criteria for moving from Phase 1 to 2 and finally to 3 will be public health indicators.

As Doctor Anthony Fauci put it at the press conference last Thursday.

But we feel confident that sooner or later we will get to the point, hopefully sooner with safety as the most important thing, to a point where we can be–get back to some form of normality.

The one thing I liked about it that Dr. Birx said so well is that, no matter what phase you’re in, there are certain fundamental things that we’ve done that are not like it was in September and October. You want to call it the new normal, you can call it whatever you want. But even if you are in phase 1, 2, 3, it’s not okay, game over. It’s not.

At that same conference, it was made clear that the US with its large land mass and its 330 million population will still pay lip service to federalism, and the authority rests with the state governors to decide when and how to re-open their respective economies. Some of the governors have formed regional agreements with each other.

Those of us who look to Hayek as an inspiration for their research program view economics as a coordination problem, and we see entrepreneurship as the solution to that problem. We study entrepreneurship in the public, private and independent sector to see how a variety of coordination problems are in fact solved or at least ameliorated by creative and clever human actors.

These acts of entrepreneurial alertness and creativity are never trivial acts ex ante but are often acts of bold courage; of voyages into an unknown and uncertain world. But unless these acts are taken, the coordination problem persists and opportunities for gains from trade and gains from innovation are unrealized.

In short, absent the productive specialization and peaceful social cooperation that is realized when coordination problems are solved improvements in the human condition are lost. This is not exclusively a loss of material progress, but a loss of all the things that lead to human betterment that material progress delivers for us.

Within the set of serious coordination problems to be addressed we must include macro volatility problems associated with the manipulation of money and credit, and the corresponding misallocation of capital and labor. In short, a standard boom-and-bust story in the Austrian Theory of the Business Cycle. But not all macro volatility problems are money- induced distortions and corrections.

The Real Business Cycle focused attention on exogenous shocks to the system – be they from non-monetary policy changes or random events. These exogenous shocks can be, and often are, compounded by errors in the policy responses to them. When we were conducting the Katrina project at Mercatus, one of the issues we focused on repeatedly was how to try to avoid “compounding the fury of nature with the folly of mankind.” Unfortunately, that problem is almost as difficult to manage as the consequences of the external shock itself.

But collective action will be required. The great economists Thomas Schelling put his finger on this in an interview in the LA Times back in 2005. As he put it:

“There is no market solution to New Orleans,” said Thomas C. Schelling of the University of Maryland, who won this year’s Nobel Memorial Prize in Economic Sciences for his analysis of the complicated bargaining behavior that underpins everything from simple sales to nuclear confrontations.

“It essentially is a problem of coordinating expectations,” Schelling said of the task that Vignaud and her neighbors must grapple with. “If we all expect each other to come back, we will. If we don’t, we won’t.

“But achieving this coordination in the circumstances of New Orleans,” he said, “seems impossible.”

But Schelling was too pessimistic; private, public and independent sector entrepreneurs figured creative and clever ways to serve as focal points of orientation for individuals to come back and rebuild in New Orleans. The task was daunting, but it was not impossible. They solved the coordination problem through ingenuity, grit and determination, and once their bold and courageous acts were taken, others found hope.

I have written here already about the trade-offs, and about expectations, and the plans to reopen the economic system following public health guidelines. These all must be studied carefully and dispassionately — without over-optimism or over-pessimism. But one thing is clear in my mind; we will need to solve once again a problem similar to what Schelling identified for New Orleans. If we don’t, expectations will guide actors away from moving in the desired direction.

One of the key issues to stress, which I don’t see stressed enough, is that we do not need a cure to get back to a semblance of a functioning economy. All that is needed is credible assurances that effective treatments have been developed, and hospital capacity is not exhausted. Ben Powell recently reminded everyone that the original intent of the policy path chosen was not to eradicate the virus, but to buy time for the hospital system to be able to function properly rather than be overwhelmed by patients.

Our hospitals must have the capability of servicing patients that have become infected, and also conduct their normal operations of caring for those who are acutely ill, who suffer from accidents, develop chronic illnesses, or are victims of violence. In other words, the medical system has to be able to function. Solve these two issues – treatments that ease us through the illness and adequate hospital care if needed — and the coordination problem of getting back to work will go a long way toward being solved. Or, at least solved enough that we can all start to get back to our lives.

Which by the way is not just our jobs, but our relationships and our plans to spend quality time with loved ones, to celebrate the joys of reunion, to find comfort in each other as we struggle with the trials and troubles of living. Our commercial lives are not limited to our professional lives, but are intimately interwoven with our personal and communal lives.

A society of free and responsible individuals who can participate and benefit from the market economy and who live in caring communities with family, friends and neighbors; that is what the liberalism of Tocqueville as well as the libertarianism of Nozick promised. We shouldn’t forget that vision of a free society, and we should not let critics try to use this occasion to slander liberalism and libertarianism with being either ill-equipped or lacking in compassion in moments of public crisis like this. We must demonstrate in theory and in our deeds that true radical liberalism provides the robust answer to these turbulent times.

Again, it is not a cure we must wait for; we just need credible assurance from entrepreneurs in the public, private and independent sector that treatments and medical capacity are such that our own risk preferences and risk management strategies can take over.

There are other serious steps that can be taken. We do not need a selfless and saintly super brain to achieve any of these, just ordinary human actors who are alert to opportunities they are presented with. One of the most important realities is that while it is true that the spreading of a virus represents a classic negative externality, and coordinating a response represents a classic public goods problem, as we have learned repeatedly throughout the judicious study of economic theory and history, the ultimate resource is the human imagination and clever and creative individuals that will test out, discover, and create a variety of solutions to externality and public goods problems, and in so doing often transform them into non-problems.

This results from slight changes of behavior on the relevant margins, or from seismic change due to introduction of novel technologies, products, or services. Today’s inefficiency is tomorrow’s profit for the entrepreneur that is able to internalize the externality, or exclude free riders of the public good in question.

Right at this very moment, not just in government-sponsored labs, there are individuals looking for solutions to our current problem. And, not just experiments with potential vaccines, but new products that will help us reduce our risk. Individuals desperate for a return to their normal life are eagerly figuring out practices that will provide a modicum of relief from the current anxiety. A free people is not a helpless people. We adjust, we adapt, and we take on the responsibility of being architects of our own fate.

The obvious public focal point that many point to would be wide scale testing and antibody determinations. This would be fantastic, but if we could get credible assurances that effective treatment options and medical capacity is there I believe that despite whatever calm analysis of the numbers tells us, folks will begin to believe that they are relatively safe to enter social spaces once again. And, it is this entering back into social spaces that will get us over the coordination problem that Schelling identified in the context of Katrina.

The existing pressure on the medical system has to be reduced by ingenuity and innovation, not I would argue, by improvements in command and control management. This includes alternative supplies of needed equipment and personnel being guided to most urgent areas, by scientists working hard to discover effective treatment options by repurposing drugs or through creative combinatorial thinking. Again, the coordination problems we are facing will be addressed by creative and clever entrepreneurs (who are also erring but always striving to correct) in the private, public and independent sector.

When these entrepreneurial acts produce results that can serve as a focal point to others that it is within the reasonable calculations to return to social space in which we work, play, and live with one another, then additional work will be required to clean up the mess that the folly of mankind has created in the wake of the tragic fury of nature. When we embarked upon our study of Katrina back in 2005, we found hope in a classic statement from the great classical economist J. S. Mill’s Principles of Political Economy:

what has so often excited wonder, the great rapidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war. An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the moveable wealth existing in it: all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.

Just in the 20th century economic history of the US, calm resolve may be provided in these difficult times by looking at the economic consequences of 1918-1919; 1952; 1957. Horrendous toll and tragedy befell so many families and yet economies recover, grow and develop due to expansion of the opportunity for gains from trade and gains from innovation. This doesn’t diminish the tragic suffering.

Social systems should be judged both by how well they minimize human suffering, and maximize the opportunities for human flourishing — that is what striving for a “good society” is ultimately all about.

I hope someday soon we will once again be having very rational yet vigorous discussions about the fundamental issues related to the liberal principles of justice and political economy, and we can point to the resiliency and ingenuity of a free people even in the face of adversity as one of the main arguments in favor of true liberal radicalism.

Peter J. Boettke is a University Professor of Economics and Philosophy at George Mason University, as well as the Director of the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, and BB&T Professor for the Study of Capitalism at the Mercatus Center at George Mason University. Boettke is a former Fulbright Fellow at the University of Economics in Prague, a National Fellow at Stanford University, a Senior Fellow with the American Institute for Economic Research, and a Hayek Visiting Fellow at the London School of Economics. This article was originally featured at the American Institute for Economic Research.

Aside from a few hotspots like New York City or Detroit, hospitals across the country are at such low capacities that many are laying off staff and seeing their bottom lines threatened during the current coronavirus pandemic.

For instance, in my home state of North Carolina it was reported “After hospitals and doctor’s offices across North Carolina canceled nonessential procedures and in-person appointments because of the coronavirus pandemic, many nurses and medical staff were laid off or had their hours reduced.”

“It’s definitely not the situation you might think would happen during a pandemic,” said North Carolina Nurses Association CEO Tina Gordon.

According to an April 14 article in The Guardian, “43,000 healthcare jobs were lost in March 2020” throughout the U.S, and “the HealthLandscape and American Academy of Family Physicians issued a report estimating by June 2020, 60,000 family medical practices will close or scale back, affecting 800,000 workers.”

An April 1 McClatchy article reported that hospitals “are now losing 40% to 50% of their revenue.” Meanwhile, the American Hospital Association, according to the Business Insider, “has sounded the alarm about the industry’s financial difficulties and said that quickly distributing funding from the CARES Act would help facilities keep their doors open.”

It is of course welcome news that hospitals have not been universally overwhelmed during the pandemic.

Some of the downturn in hospital finances is attributable to routine visits being cancelled amid stay-at-home orders along with delays in non-emergent procedures like hip or knee replacement.

The current situation does, however, help underscore a little-discussed cause of the nation’s rise in healthcare costs: unnecessary treatment.

Unnecessary procedures make up one-fourth of healthcare spending

According to the Institute of Medicine, “unnecessary tests, prescription drugs and medication, and extraneous procedures are one of the drivers of healthcare price inflation.”

Just how significant of a factor is unnecessary procedures and testing in the healthcare industry?

More than you may think.

According to a February 2018 report by ProPublica, “The waste is widespread – estimated at $765 billion a year by the National Academy of Medicine, about a fourth of all the money spent each year on health care.”

ProPublica described the waste as “one of the intractable financial boondoggles of the U.S. health care system,” in which tons of patients “get lots and lots of tests and procedures that they don’t need.”

“Women still get annual cervical cancer testing even when it’s recommended every three to five years for most women. Healthy patients are subjected to slates of unnecessary lab work before elective procedures. Doctors routinely order annual electrocardiograms and other heart tests for people who don’t need them,” the article continued.

The ProPublica report referenced a study by the Washington Health Alliance, a nonprofit dedicated to making care safer and more affordable, which found “almost half the care examined was wasteful.”

Shockingly, as reported in this Greenimaging.net article, “85 percent of doctors admitted calling for too many tests, 97 percent agreed to personally ordering unnecessary tests.”

Of the unnecessary procedures, the American healthcare system wastes $200 billion per year on unnecessary medical tests alone, according to the Lown Institute.

The Washington Health Alliance study further noted that much of the waste “comprised the sort of low-cost, ubiquitous tests and treatments that don’t garner a second look.”  But as Susie Dade, deputy director of the alliance and primary author of the report noted “little things add up. It’s easy for a single doctor and patient to say, ‘Why not do this test? What difference does it make?'”

Indeed, this question helps inform us why unneeded procedures and tests are so prevalent.

Rise of third-party payments

To the patient, such unnecessary tests and procedures typically make little or no difference financially.

Steadily rising government intervention into the healthcare industry over the past several decades has created a system in which roughly 90 cents of every healthcare dollar is paid for by a third party.

As noted in this 2017 study by the Mercatus Center at George Mason University, “In 1960, patients controlled how almost 50 cents of each dollar spent on health care was paid. That number is now down to just over 10 cents, with the rest controlled by third-party payers.”

Third-party payers include Medicare, Medicaid and private insurance coverage. Government programs of course require little to nothing financially from enrollees. Meanwhile, government mandates requiring health insurance plans cover an ever-expanding list of providers and procedures drives up premiums while driving down the cost to patients at the point of care. Patients come to view their insurance as a sort of pre-paid medical card. If I am paying $1,000 a month on premiums, I want to get my money’s worth from my doctor. If additional unnecessary procedures and tests cost very little or nothing on the margin, why not go ahead with it?

Moreover, because health insurance benefits are tax exempt for employers, the majority of people receive their health insurance through their job. Rather than individuals negotiating the benefits and premiums of their insurance coverage with their provider, employees are covered by plans negotiated between their company’s HR department and the insurance provider.

As a result of government intervention, patients are largely insulated from bearing any cost for wasteful unnecessary procedures and tests. At most, their out-of-pocket charge will be a nominal co-pay, while many procedures – especially if covered by Medicare or Medicaid – will cost them nothing at all.

And such a situation rises above a simple “better safe than sorry” type scenario, where the unnecessary procedures can provide peace of mind with no downside. As the unnecessary procedures inflate healthcare costs, more people are priced out of the insurance market while others forego more urgent care out of fear of unaffordable bills.

Conclusion

The third-party payer system incentivizes mass amounts of wasteful and unnecessary healthcare spending. It costs the patient very little or nothing, while the doctors and hospitals can help pad their bottom lines by billing the government programs or insurance providers.

The current pandemic has put a halt to much of these unnecessary procedures as hospitals focus on coronavirus preparedness. And now hospitals are seeing their finances suffer significantly, revealing just how substantial a factor unnecessary procedures are to the rising costs of healthcare. The best way to significantly reduce such wasteful spending is to peel back the layers of government intervention that encourage it.

Mike Shedlock crystallized the Lockdown Nation catastrophe at hand by focusing on the unemployment claims numbers for Michigan Wednesday morning. And it doesn’t get any more transparent than a staggering 25% of the state’s work force already having filed unemployment insurance claims under the existing Federal/State UI program—only to have its computers crash and burn when the normally uninsured gig workers and self-employed tried to file this week for the new Federal $600 per week Covid benefit:

More than 1 million people — over a quarter of Michigan’s workforce — have filed for unemployment during the COVID-19 pandemic, the state’s top labor official said Monday.

Last week, Michigan reported more than 828,800 unemployment claims filed in the state from March 8 to April 4. Michigan’s pre-coronavirus record for new unemployment claims occurred during the Great Recession in January 2009, when there were 77,000 claims in a week.

In an embarrassing twist Monday morning, Michigan’s unemployment website crashed — again — but this time just as the head of the state labor department was expected to outline how the state would apply benefits for self-employed workers.

Just hours earlier, the unemployment website announced “self-employed workers, gig workers, 1099-independent contractors and low-wage workers can now apply for federal benefits online,” but, when attempting to file, an error message popped up: “This site can’t be reached.”

Likewise, the stunning collapse of the Empire State survey this AM left nothing to the imagination. The negative 78 reading for April was orders of magnitude worse than readings during the Great Recession and the post-dotcom crash.

Likewise, the cliff dive embedded in this morning’s report on March retail sales was way off the charts—with the 8.7% m/m drop posting at more than double the worst reading during the Great Recession.

Moreover, March was only a warm-up: The April numbers will be 2X-3X worse.

In fact, when you look at even the March numbers at the product level, the plunge is even more dramatic. Food and beverage and general merchandise sales were actually up smartly owing to the fact the grocery delivery services, Amazon warehouses and home-cooked meals are out of necessity booming.

But when you look at discretionary and Lockdown items sold in the public facility based retail categories the sales crash in March was already in the negative 20-30% range, and, again, the results for April will be far worse.

Even then, March readings like these have never before been recorded on a month/month basis:

• Electronics and appliances:-15.1%;
• Gasoline stations: -17.2%;
• Sporting goods and hobby stores: -23.3%;
• Motor vehicles and parts: -25.6%;
• Food services and drinking places: -26.5%;
• Furniture and home furnishings stores: -26.8%;
• Clothing and accessory stores: 50.5%

Not only are these double digit plunges severe in absolute terms, but relative to history they are literally coming from another economic planet. For instance, the Lockdown of bars and restaurants resulted in a -26.5% m/m change, which compares to the worst ever previously reported figure of -1.5% during the dark economic bottom in February 2009.

We will address the disaster that will ensue from the halting, baby-step “re-opening” of the economy being demanded by the infectious disease lobby and the Dem governors and mayors below. But here’s the point: All the upstream supply chains which deliver food and liquor, consumable supplies and equipment to  the restaurant and bar business have never previously suffered a measurable recessionary downturn as shown below. This time, however, they will suffer massive loss of sales owning to the near total shutdown of their customers.

In the case of the 50% plunge in sales at clothing and accessory stores, the cliff-diving numbers are even more fantastic. The chart below is not a rate of change measure. It represents actual sales dollars and means that in a single month, 25 years of sales growth was wiped-out.

Accordingly, the $11.1 billion of sales posted by these retail units for March was the lowest sales level since May 1995—–and these are nominal sales that give no account for the 40% increase in the general price level that has occurred in the interim.

The same story pertains with regards to furniture and home furnishings stores.

During the last 27 years, monthly sales have never dropped more than 5%, but in March sales collapsed by nearly 28%. Within two months, sales from these venues will easily by off by 50% or more for January 2020 levels.

Likewise, auto sales were down by 27.2% in March, and based on current industry information, are likely to be off by 50 to 60% during April.

This magnitude of instant collapse literally has no precedent since the collapse of sales in what was still the infant auto industry during the 1930s.  The low point in the Great Recession, for example,  was a 10.6% drop in October 2008 while the 15% drop in September of 2009 was a government instigated calendar aberration which occurred when Washington’s cash-for-clunkers boondoggle came to and end.

Needless to say, the collapse of retail sales is rapidly passing through to the production end of the economy—-with the March industrial production numbers published this AM providing merely a hint of the disaster to come later this spring.

Manufacturing output was already down by 6.3% in March, which is more than double the trough decline of 3.5% in December 2008 and the 2.5% drop in at the bottom of the 1982 recession.  Again, however, by April and May the plunging bars on the right margin of the chart will be down by 20-30%, at minimum.

Obviously, one reason 25% of the Michigan work force has already applied for unemployment is the auto assembly lines are tanking like they did in the winter of 2008-2009. Then, of course, both Chrysler and GM were already in bankruptcy and the Fed still had a massive trove of dry powder.

So the question recurs. How long can the Lockdown madness continue when it is self-evident that the US economy is going into cardiac arrest?

And They’re Gone! Lockdown Nation Wiped Out 10 Years Of Jobs Recovery In Four Weeks