COVID-19 Essay Question

Question

Based on your political beliefs, would you never have implemented a quarantine and left it up to people to self-quarantine? If no, do you agree with all the government interventions that have been rolled out and/or are about to be rolled out in order to help individuals/businesses/industries affected by the quarantine? Please frame both in context of how they are consistent with your overall political/economic views or why this would be an exception if they’re not consistent with your general views.

Tl;dr

If I were the ruler of the galaxies, I would have never implemented a quarantine and left it up to people to self-quarantine.

I can’t entirely agree with the government interventions that have been rolled out or are about to be rolled out. There are some measures, though, with which I agree. Namely, the removal of the bureaucratic barriers that hinder markets from working more efficiently like testing regulations, occupational licensing, allowing for alternative supply chains to obtain resources, etc.

Context

I would let the market handle the issue at hand. The main problem with the COVID-19 pandemic is not the virus, per se, but the changes in relative scarcity caused by the virus. To me, the biggest scarcity issue is not the lack of hospital beds or test kits, but knowledge. The “knowledge problem” is that there is no centralized repository of knowledge, even if the CDC, FDA, or other government agency claims to be in that role. Knowledge is diffused among many people and is incredibly messy. The same nugget of information can appear to be contradictory to different people under different circumstances. The market mechanism, or price system, works because of the knowledge problem, not despite. 

In a perfect (libertarian) world, the media would report on the new concern from a trusted, privately-run nonprofit research institute that looks at pandemics. The Pandemonia Institute would be among several research institutes that have access to reported medical data, of course, via online medical records. As the media reports and concern increases, medical experts would suggest self-quarantine while the mitigation/suppression options begin to emerge. From there, we would see cooperation at the localized level, communities, and up, to address the epidemic at hand. Businesses would continue to run, as usual, making the necessary adjustments. Given how the particular virus is affecting different demographics, responses should be different for different communities. So the localized cooperation should be the best, at least from an epistemological perspective.

We’re not in a perfect world. We have a government that, throughout history, has exercised both edges of its sword. This fact is the libertarian concern. On one side, the monopoly on force has, in theory, reduced the destructiveness of violent organizations competing for market share. The other sharp edge has allowed the state to expand in power and scope, brewing and exasperating societal iniquities while often getting in the way of good, ole civil society. 

We also have a state that has always jumped in at any crisis, from legitimate to completely made-up, like Trump’s “Border Crisis.” The government MUST do something. Not because it will help, but because its constituents demand it out of uncertainty and fear, and because it is the opportunity to increase government scope–every government official’s desire.

Herein lies the problem. 

We have to be cautious of the institutional environment behind particular epistemic systems, or arrangements of the gathering and formation of knowledge. Koppl (2006) states that “epistemic systems are social processes viewed from the perspective of their tendency to help or frustrate the production of truth.” When it comes to the institutional environment of governments, disseminating truth might run into some roadblocks. 

Let’s agree on a few points: 

1) Public servants are self-interested. 

2) Medical and other government “experts” are also subject to the institutional incentives of engaging with said civil servants. 

3) Even with voters sharing a common interest–“BEAT THE VIRUS!”–they are ignorant of the right way to reach that goal. To be sure, they are rationally ignorant of virtually all public policy questions as the costs of being informed outweigh the benefits. 

4) And, there is a tendency for both laypersons and experts to “adjust their opinions away from the obvious truth in order to conform to majority opinion” (Koppl 2006).

Reasonable, right?

Not only are we, as constituents, pretty ignorant on the whole issue, so is the government (and its respective medical experts). Because the data we have is unreliable and biased, we lack the evidence that shows whether mandatory lockdowns and quarantines will, indeed, work to mitigate or suppress the pandemic. It is not biased out of malice, but out of the current scarce conditions where we don’t have the testing capabilities to capture a good sample of the infected population. “We don’t know if we are off by a factor of three or 300.” 

In other words, it is by no means clear that quarantining measures being implemented by governments are less costly than simply allowing markets to share information, allocate testing equipment, and mitigate the result of the virus spread without massive disruptions to people’s lives.

Given that lack of evidence, the state is still quick to action and quick to disregard the economic and social tradeoffs. How will shutting down schools help solve a problem of which we have such terrible data? Especially, when students, who may very well be infected, might now be at home with an elderly family member? 

What about the economic implications of completely shutting down businesses? We do not have the appropriate cost/benefit analysis to make these types of heavy-handed calls. In other words, will the mandatory quarantines end up being worse than taking a more level-headed, and localized approach to the situation? 

The state, however, is borne out of its ability to capitalize on its power and mobilize society. Unfortunately, it doesn’t have to prove that it’s done the necessary due diligence to take any action it decides to take. Fear and panic can grant it the appropriate authority.

The measures employed by the government, however, are expected. Given that we expect the government to act swiftly and with a heavy hand, there are less terrible ways of doing things. Professor Tyler Cowen lays out a few public policy proposals to help during the crisis in this document. Many of the policy suggestions involve removing or relaxing annoying restrictions that have typically hindered the allocation of goods and services like tariffs/taxes, labor laws, and price controls. It also includes reasonable “state capacity” suggestions like encouraging innovation via prizes and idea protections. And, finally, unemployment insurance and loan contract extensions to help those who are, for now, unable to participate in the market economy.

These suggestions do not necessarily fall outside of the “libertarian purview” because the current state was and continues to be built outside of the libertarian purview. The US government makes up about a fifth of the country’s gross domestic product. So, it makes sense to use the government’s capabilities to help soften the blow and encourage the rebounding of productivity as opposed to merely sitting idle. It might also be important to note that some, if not most, of the fragility in the market economy is due to previous government action. 

The Fed’s preemptive actions are not likely to stimulate the economy. In a world of meager interest rates, an expansionary policy will have little effect. As a result, we are left with government stimulus packages. Some of these might work, but many will not. 

In sum

From a practical libertarian standpoint, the main concern with the intervention is the government’s role after we’ve “defeated” the virus. I wouldn’t be surprised if a new agency pops up that performs medical testing at airports or large gatherings. In the name of national security, it will double down on surveillance, giving the state more control over our personal lives and medical data. Though presented innocuously, it has the potential of serious infringement of liberty for a variety of different groups of people. 

To be sure, several deregulatory measures are in line with the libertarian ideal of progressing toward a freer society. Our health care system, as expensive as it is, is better able to handle the capacity than other developed countries around the world. What’s more, is that it would be able to handle this overwhelming demand even more by removing the bureaucratic barriers in the way of biomedical manufacturers producing and distributing equipment around the country. As Jeffrey Tucker points out, “had we left this issue entirely to the private sector, which would have brought a Coronavirus test to you as quickly as you can order a pizza.” 

If we come out of this crisis with industries deregulated, we should be able to swallow the massive deficit spending to curb the economic disruption as a result of the current quarantining measures.

Hysteria: $1.5 Trillion Injection From the Fed

 On social media, people are up in arms with how the government is quick to take care of the filthy wealthy bankers and don’t care at all about the working-class folk. “Oh, so the government can inject $1.5 Trillion in an instant to save the banks but can’t provide free healthcare to the 99 percent or free college education to its citizens. DISGUSTING!”

These types of comments show a lack of understanding of financial markets and are simply wrong. The Fed injection is an effort to make sure the bank or financial institution where your money is deposited is there when you want it. It is not merely to make sure the wolves of Wall Street don’t go hungry—it’s to make sure you don’t go hungry. 

The Fed 

The Federal Reserve or the “Fed” is the central bank of the United States. This entity is purposely separated from the government to avoid political influence. The Fed is a bank. And, like any bank, it does not give money to any firm or individual. It is the mediator between borrowers and savers, of which are banks or the U.S. government.

The three primary functions of the Fed are:

• To control the price level by adjusting the money supply via monetary policy.

• To make sure we can all pay each other efficiently and effectively.

• To make sure banks are doing crazy things via regulation.

When we see headlines of the Fed “injecting” money into the financial system or “Wall Street,” they are not giving money to Wall Street. The Fed has bought short-term Treasury bills, which are government bonds or IOUs, from banks. The banks then use this money to loan out at lower interest rates (because the supply of money has just increased). The lower interest rates are supposed to incentivize borrowing, which keeps businesses and individuals investing in productive stuff.

The intended outcome of this “$1.5 Trillion Fed Injection” is that you, the 99 percent, get to keep your job. 

The Fed vs. The Government 

Monetary policy refers to the actions taken by the Fed. Fiscal policy, however, applies to actions taken by the government. We can shout, “Disgusting! Unbelievable! I…I, just CAN’T,” when the government starts to enact fiscal policy by injecting cash into their preferred industries. We can then wonder why that money isn’t going toward healthcare, education, paid-leave, daycare, farms, ice cream shops, toilet paper, or any other industry to which you believe we are righteously entitled. 

In 2009, the government and the Fed engaged in policies to help the economy facing a downward spiral. The Fed aimed to battle the contracting economy by buying government securities, or bonds, to increase the money supply. But, when that expansionary monetary policy proved not to be enough, the government injected cash, in the form of fiscal policy, into the banks with the Troubled Assets Relief Program (TARP). 

Both organizations were trying to help the average American citizen, and both were trying to do the right thing. There is a difference, though.

The Fed is a nonprofit organization, but makes a profit as any other bank does, buy paying savers lower than they charge borrowers. Notice how, when you save your money at the bank, the interest rate is lower than when you go to the bank to borrow the money? That difference is the profit, which goes toward operational expenses and then back to the Treasury Department, since the Fed doesn’t keep any of its earnings, and used toward government expenditures and reducing the federal debt. 

Outside of the excess profit from the Fed, governments do not make a profit. They don’t “produce” anything. The government’s money comes from taxpayers. When the government buys or provides anything to individuals, firms, or industries, it must obtain those funds from taxpayers. Given that it’s hard to take the money from you at once without guns coming out, they’ll borrow it from future taxpayers–the older you, your children, and your children’s children. 

Takeaway

So, no. The government isn’t giving money to anyone with the $1.5 Trillion injection from the Fed. Rest assured, the government will engage in fiscal policy pretty soon. For example, the payroll tax suspension proposed by the president could dwarf the fiscal measures taken in 2009. Billions of dollars will be spent to combat COVID-19 and the subsequent economic implications. Some of these expenditures will help! But, some will be a complete waste of money and maybe perpetuate the problem. And, given it’s an election year, you can bet your money on the government taking drastic measures in the attempt to make sure we are all fat and happy. Time will tell.

This stuff is complicated, even for economists. There is enough ignorant hysteria with the pandemic. Adding an extra dose of ignorant hysteria will certainly not help the situation.