Debating The Best Economic Response To Coronavirus

|
Posted: Mar 17, 2020 12:30 PM
Debating The Best Economic Response To Coronavirus

Source: AP Photo/Alex Brandon

wrote last week about the libertarian response to the coronavirus crisis and made four simple points.

  1. Governments should focus on protecting life, liberty, and property. That includes fighting pandemics.
  2. A big sprawling federal government will be less capable and competent when responding to a real crisis.
  3. International evidence suggests greater government control is not a good recipe for success.
  4. Domestic evidence indicates that bureaucracies such as the FDA and CDC are exacerbating the problem.

That column led to an invitation, from the folks at Pairagraph, to participate in a debate with Jason Furman, a Harvard professor who served as Chairman of President Obama’s Council of Economic Advisers.

Here are some excerpts from Jason’s opening statement.

Dan, you wrote a thoughtful piece the other day on a “Libertarian Perspective on the Coronavirus Response.” …But, I would also hope you would support me…in supporting a temporary increase in the share of Medicaid costs paid by the federal government. …health treatment is essential, and extra money…will help hospitals expand capacity as needed. After the pandemic is over we can take more time to debate the cost-benefit of this public funding for a low-income entitlement.

He then lists these four fiscal proposals.

Here’s some of what I wrote in my opening response.

Regarding potential steps to boost the economy, …conventional remedies may not be effective in the current environment. I don’t think my preferred policies (lower tax rates, for instance) will have much impact when people and businesses are focused on curtailing the spread of the virus. And I also don’t think Keynesian policies will be effective… That being said, we are facing a black-swan environment. …there is enormous pressure for Washington to do something.

What about Jason’s four proposals?

I agree on his first suggestion, but not on the mechanism.

…more health infrastructure would be very helpful. Which is why I want the private sector to take the lead. We’ll get faster results at lower cost.

As you might guess from what I wrote three days ago about paid sick leave, I’m very skeptical about program expansions.

I don’t want politicians to exploit a crisis to impose their long-standing policy preferences – especially when taxpayers, consumers, and workers will be burdened with long-run costs.

However, I’m open to his other two proposals.

I don’t think universal payments and/or business loans will prevent short-term economic harm. But if the federal government is going to do something, then payments and loans at least address a real problem (temporary loss of income) with a plausible action (temporary provision of cash).

Though I do warn that these ideas will have adverse unintended consequences.

In an ideal world, firms would guard against black-swan events by having business interruption insurance and households would similarly protect themselves by setting aside funds in savings accounts. Those prudent steps will be less likely in a world where people expect government intervention.

Our submissions are limited to 500 words, so neither of us had much opportunity to share details (there will be a second round, so the debate isn’t over yet).

Even with that limit, I made sure to mention Crisis and Leviathan, Robert Higgs’ must-read book about the unfortunate history of politicians using crises as an excuse to seize more power and control over the private economy.

That’s because my biggest fear is that this temporary crisis will lead to permanent expansions in the size and scope of government.

Libertarians don’t fear the “slippery slope” because we’re paranoid. We fear it because we understand the perverse incentive structure of politicians.

I don’t know whether we’ll become Greece or Venezuela if we tumble down that slope. But I know it will lead to a bad outcome.