Crises understandably spark demands for action. And the bigger and more outside-the-box the action, the better such demands seem to be met. Yet crises also spark panic. Panic, in turn, promotes reckless impulsiveness. Thus times such as these suffer short supplies of sober and careful assessments. So let’s all take a deep breath (or two!) and focus on some realities that must be kept in mind if today’s policy responses are to do more good than harm.
Start by recognizing that today’s threat to the economy springs from — and remains rooted in — people fearing physical contact with each other. This crisis, unlike economic downturns in the past, was not started by declines in people’s job opportunities, wealth, income or spending. And so conventional economic fixes for recessions will not now work. Putting an extra $1,000 or $2,000 into the pocket of someone fearful of contracting a deadly virus isn’t going to make that person eager to rush out and dine or attend an NBA game. This fact is especially true given that federal, state and local governments are all encouraging people to stay home.
Next, understand that stocks of real wealth — the likes of food, housing, medical care and toilet paper — are not conjured into existence merely by the Treasury Department sending government checks to households or by the Federal Reserve injecting new money into the banking system. Instead, what is needed to improve people’s material well-being is the increased production of actual stuff.
But to improve people’s material well-being requires also that any increased production be of goods and services that are of the most use to people. It would be wasteful to use resources in ramping up production of cruise ships and karaoke machines rather than of more desperately needed hospital beds and food. Income earned at work is valuable only if it can be spent on things that income earners most want.
Unfortunately, government efforts to stop so-called “price gouging” reduce the production of goods and services that people want the most in times of emergency. By preventing prices from reflecting just how desperate consumers are for the likes of hand sanitizer, canned goods and fresh milk, anti-price-gouging measures thwart consumers’ ability to obtain the real goods and services that would do them and their families the most good.
Finally, there’s this reality, one that’s especially easy to lose sight of during emergencies: Today’s response to the current crisis will affect how people prepare for, and respond to, future crises.
Collectively, people can afford to stop working only if adequate resources were previously saved to sustain those who are currently holed up at home. Without such a stock of saved goods to consume, people not working would eventually die not of disease but of starvation, thirst, and exposure.
Ideally, each and every household would save enough to sustain its members during times of quarantine, illness, and other reasons for taking lengthy absences from work. Fortunately, an economy that falls short of the ideal can still operate smoothly: People who need to consume while not working, but who don’t have adequate savings, can get what they need from the savings and continued work of others. But savings and continued production must nevertheless be done by some people.
The danger is that the government policies that address today’s crisis by transferring command over resources from those who saved to those who didn’t risks causing people to save too little going forward. Why save for a rainy day if you expect to receive from government enough to see you through the next crisis — or for government to transfer to others much of what you do save?
If today’s response by government is ill-thought out, Americans might be less prepared to deal with whatever crisis will strike next.
To point to this awkward reality is not to oppose all, or even most, government emergency assistance. It is, instead, to counsel that whatever steps governments take today should be taken not in panic mode but, instead, with the sober recognition that these actions will affect how people behave after the current crisis passes. And how people behave then will unavoidably affect our readiness and response to future crises.