In the coming days, the US Congress will be voting on a massive spending package to give subsidies to various industries and people as part of the Federal Government’s response to the COVID-19 outbreak. This is a $1 trillion dollar bill that will hand out massive subsidies, include loans for businesses, direct deposits that could give an average U.S. family of four $3,000, and up to $4 trillion in liquidity for the U.S. central bank to support the economy. It includes bipartisan agreement on additional unemployment payments for people who have been laid off. https://news.yahoo.com/u-senate-leadership-aims-finalize-141350505.html
It is part of the government’s effort to legislate away a natural disaster. I think the result will be more hardship for Americans, not less.
In the mid-1990’s, I read a book called “The Government Against the Economy”, by George Reisman, an Economics professor who had been a student of the free market economist Ludwig von Mises and associate of Ayn Rand. In that book:
“Reisman details how the profit motive and private ownership operate in a free society to produce consequences beneficial to all. He contrasts this with socialism, which destroys the possibility of rational economic activity and maintains control through-compulsion. He demonstrates how housing is provided efficiently in a free market, then examines the chaos of rent controls. He explains why shortages cannot exist in a free economy, then explodes the myths surrounding the energy crisis. “ (https://fee.org/articles/book-review-the-government-against-the-economy-by-george-reisman/)
In the 1970’s the Federal Government, specifically the Nixon administration, imposed price and wage controls. https://www.cato.org/publications/commentary/remembering-nixons-wage-price-controls. After the Arab Oil Embargo of 1973, this had particularly disastrous consequences on the supply of gasoline and petroleum products.
In discussing the 1970’s gasoline shortage, Reisman made the distinction between “scarcity” on the one hand and “shortage” on the other. As he noted in a later, more comprehensive book:
“The concept of a shortage is not the same thing as the concept of a scarcity. An item can be extremely scarce, like diamonds, Rembrandt paintings, and so on, and yet no shortage exist.” (Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition. Location 10064.)
Diamonds are very “scarce”, but there is no “shortage” of diamonds. The price of diamonds is determined on a free market. When something is scarce, their price is bid up to a level that will be consistent with that scarcity. So long as price can rise to a level that reflects that scarcity, then there will never be a shortage. People will learn to economize on that good or service. They will learn to do with less, or they will seek substitute goods.
In the production sector, if businesses find that certain inputs they need to operate are increasing in price, they will do the same. They will either learn to do with less, or they will seek substitute goods. For instance, if a factory making leather shoes finds that its cost of leather is going up, then it might switch to imitation leather, or start making canvas shoes.
Additionally, if a business sector is highly profitable because more consumers want its goods and services relative to other business sectors, then that business will have more money to hire more workers and, if the economy is near full employment, then it will be able to pay its workers higher wages, and thereby outbid other businesses that are less profitable. If, for instance, more people suddenly want more shoes and fewer jackets, then the shoe industry will be making higher profits as consumers are willing to pay more for shoes. This will give the shoe industry greater profits relative to other businesses sectors, and they will be able to offer higher wages and pay more for the inputs that both shoes and jackets use. (Leather, for instance, will go to make leather shoes, and not to make leather jackets.)
But, if the government steps in and interferes with this process by imposing price controls for leather, then shoe companies will not be able to pay more for leather in order to outbid the manufacturers of leather jackets. The government will thwart the shift from making leather jackets to making leather shoes because it has distorted the price system with price controls, and thereby destroyed any incentive that leather makers would have to sell more leather to shoe companies and less to leather jacket manufacturers.
The takeaway from George Reisman’s book, the Government Against the Economy, is that governmental interference in the profit motive leads to shortages, among other problems.
###
The plan to increase unemployment insurance benefits and give some Americans (around) $3,000 will lead to shortages in key industries for similar reasons as the price and wage controls of the 1970’s. It will discourage people who have been temporarily displaced from their jobs from seeking alternative sources of employment.
Some of these people could be employed in critical areas of the economy that are going to need to ramp up production. Some of these areas include:
(1) Grocery Stores
Grocery stores need more employees:
(2) Online order fulfillment at places like Amazon and Walmart centers.
Fulfillment centers at Amazon and Walmart need more employees:
(3) Restaurants switching to food delivery or increasing their food delivery services.
Restaurants, many of which have been arbitrarily shut down by the government, need delivery services:
“U.S. consumer interest in delivery and take-out food service has more than doubled due to the coronavirus pandemic”
(4) Businesses need extra personnel to clean
All businesses need cleaning people to go through and sanitize their offices and work areas more frequently, if for no other reason than to assure workers and customers that health and safety is a top priority:
“Job openings for cleaners are shooting through the roof as the U.S. mobilizes to contain the coronavirus…Many companies, workplaces and transportation systems are trying to assure customers they are safe by sanitizing and deep cleaning their premises. That’s leading to a steep increase in demand for cleaning services…”
Paying people unemployment insurance, especially when there is enormous need for employment in other sectors of the economy, like there is right now, will reduce the incentive for people to seek employment in these other sectors of the economy.
Additionally, making cash payments of $2,000 or more to people below a certain income threshold will likely discourage people who could do the type of work that is needed right now from doing overtime or re-entering the job market. If the government is going to pay a person working in the the office cleaning industry $2,000, then they might decide they’d rather stay home for the next month. This will mean offices and businesses don’t get cleaned.
(I don’t know how much cleaning services actually help stop the spread of COVID-19, but consumers and workers appear to want the psychological reassurance that stores, offices, and factories are clean. So, cleaning them will provide those consumers and workers with the confidence to go back to work, and get the economy moving.)
Reisman described how the profit motive works in a free market for labor in a later book, Capitalism: A Treatise on Economics:
“In sum, in a free market there are at least three principles of wage determination at work simultaneously. One is a tendency toward a uniformity of wages for labor of the same degree of ability. A second is a tendency toward unequal wage rates for labor of different degrees of ability—primarily intellectual ability, but also other abilities as well. And a third is a tendency toward the inclusion of discounts and premiums in wages as an offsetting element to the special advantages or disadvantages of the occupations concerned. The combined operation of these three principles helps to explain the full range of the various wage rates we observe in actual life.” (Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition. Location 9062)
“Now, as far as it operates, the principle of the uniformity of wage rates is similar in its consequences to the uniformity-of-profit principle. That is, it serves to keep the various occupations supplied with labor in the proper proportions. Too many people do not rush into carpentering and not enough go into printing, say, because the very effect of such a mistake is to reduce the wages of carpenters and raise those of printers.” ( Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition. Location 9065)
“In addition, the operation of this principle gives to consumers the ultimate power to determine the relative size of the various occupations. If, to continue with the same example, the consumers buy more printed matter and fewer products made of wood, then the effect of the change is to cause the demand for printers to rise and that for carpenters to fall. As a result, the wages of printers rise and more young men are induced to become printers, while the wages of carpenters fall and fewer young men become carpenters.
It should be realized, as this example of the printers shows, that in seeking to earn the highest wages, the individual worker is seeking to do the kind of work the consumers most want him to do.” (Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition. Location 9070)
“…the enactment of price and wage controls causes shortages and economic chaos, because it destroys the price system.” (Reisman, George. Capitalism: A Treatise on Economics . TJS Books. Kindle Edition. Location 37186)
Paying people in shuttered industries and professions extra unemployment benefits will discourage them from seeking employment in industries where there is suddenly great demand. If someone can get paid, say, $2,000 a month in unemployment benefits, or go work at an Amazon fulfillment center and earn $2,500 per month, they might just decide to forego the extra $500, and sit at home.
(I am assuming someone at an Amazon fulfillment center makes about $15/ hour, working 40 hours per week. https://www.glassdoor.com/Hourly-Pay/Amazon-Fulfillment-Associate-Hourly-Pay-E6036_D_KO7,28.htm and, I’m assuming the average monthly benefit for unemployment insurance is about $500 per week. https://fileunemployment.org/unemployment-benefits/unemployment-benefits-comparison-by-state )
By paying out massive unemployment benefits, it’s like the government is a business that is bidding away people who could go and work at Walmart and in trucking at a time when Walmart and trucking companies are in need of those additional workers. It doesn’t even matter that these people might make more working at Walmart than they would on unemployment, because there is “disutility” associated with working. Most people would prefer to stay at home rather than work, which is why they get paid. If the government pays them something even close to what they can make working, then they’ll just chose not to work.
###
The effort to prop up businesses hit by the Coronavirus will have the same effect as giving more unemployment benefits to American workers at this time. It will disincentivize them to switch to the production of more immediately necessary goods and services.
Passenger air traffic has fallen off drastically because no one wants to take a chance of becoming infected on a plane. Commercial airlines and cruise ships could retool their planes and boats to deliver goods and cargo instead of people. Admittedly, they will take a hit to their profit, since their systems are not set up for cargo delivery, but this could be done with some retooling. Some airlines are already doing this:
“American Airlines will conduct its first cargo-only flights since 1984 on Friday as it looks to offset a massive revenue shortfall amid the ongoing coronavirus pandemic.” https://www.foxbusiness.com/markets/american-airlines-coronavirus-cargo-freight-flights
Perfume and alcoholic-beverage companies have switched to making hand-sanitizers:
“The British Honey Company, which makes honey, gin, rum and other spirits from its base in the Cotswolds, said it would use spare capacity in its distillery in Worminghall, Buckinghamshire, to produce hand sanitiser.”
Although in the US, alcohol companies had to get “special dispensation” from the FDA to do so, as the FDA restricts the output of hand-sanitizer with regulations: https://www.cnbc.com/2020/03/20/fda-says-it-wont-take-action-against-manufacturers-that-start-making-hand-sanitizer.html
Now, thanks to government subsidies, these companies have an economic incentive to sit idle. Rather than retool, passenger airlines might decide it’s better just to do nothing, let their planes sit idle, and take their corporate welfare check from the government. It’s exactly the same principle as paying people extra unemployment benefits. The stockholders at the airlines might decide it’s better to just sit idle, and hope for passenger traffic to return.
Since what is needed right now is the movement of cargo like medical supplies, the government is essentially paying companies to remain idle, which will exacerbate the problem, and thereby keep us in the emergency even longer. (This is all assuming that COVOD-19 is truly the health threat that many government officials are claiming it is- which I don’t have enough information to know, one way or the other.)
###
If the current plans in Congress to help will actually hurt our response to the COVID-19 natural disaster, is there anything Congress and State governments can do? They can get out of the way. Some possible solutions include the following:
(1) Reduce commercial drivers license regulations.
There are probably a lot of retired truck drivers out there. The government could repeal commercial driver’s license requirements for anyone who has ever had a commercial driver’s license, even if it isn’t active. For instance, in Washington D.C., if a CDL has been expired for more than 60 days, the driver has to retake the tests:
“If your CDL has been expired for more than 60 calendar days, you must take and pass BOTH the knowledge and the road skills tests.” https://dmv.dc.gov/service/renew-cdl
State and Federal Government should waive this and allow truckers to drive on expired CDL’s.
(2) Allow doctors from other countries residing here who do not have medical licenses to practice medicine – with patients signing informed consent forms.
There could be thousands of foreign people from other countries in the US right now that could start practicing. The New York Times notes that:
“….No one knows exactly how many immigrant doctors are in the United States and not practicing, but some other data points provide a clue. Each year the Educational Commission for Foreign Medical Graduates, a private nonprofit, clears about 8,000 immigrant doctors (not including the American citizens who go to medical school abroad) to apply for the national residency match system. Normally about 3,000 of them successfully match to a residency slot,…” https://www.nytimes.com/2013/08/12/business/economy/long-slog-for-foreign-doctors-to-practice-in-us.html
This is significant because foreign doctors can only practice in the US if they can get into one of these residency slots. This means there are about 5,000 foreign doctors in the US every year that cannot practice medicine.
(3) Relax immigration laws for foreign medical personal and their immediate families (spouses and children). Offer permanent US residency if they serve in hospitals here during the crisis.
I suspect that you would have large numbers of foreign doctors flooding into the US very quickly if this offer was made.
Would a doctor rather live and practice medicine in India, or here in the U.S.? If you allow him to bring his wife and children, and give them all permanent U.S. residency, the airlines would suddenly see planeloads of doctors and nurses headed to the US. I predict this would solve a lot of our healthcare problems, very quickly.
(4) Allow doctors and other medical personnel who allowed their licenses to lapse due to retirement, or who no longer have a license for other, non-disciplinary, reasons, to practice medicine, with patients signing consent forms.
In a serious emergency, getting medical care from a doctor with a lapsed license is better than getting no medical care at all.
(5) Eliminate all tariffs on the import of medical products
This appears to be something the Trump administration is getting right, although they initially helped create the problem:
(6) Eliminate all environmental regulations associated with drug manufacturing and the manufacture of medical supplies, so that drugs can be made here in the US, instead of in China.
Rosemary Gibson, author of “China Rx: Exposing the Risks of America’s Dependence on China for Medicine”, discussed the shortage of essential lifesaving drugs in U.S. hospitals on C-SPAN recently. She noted at 00:33:36 that:
“THAT’S A GREAT QUESTION, ONE OF THE REASONS THAT CHINA’S CHEAPER IS NOT JUST BECAUSE OF SUBSIDIES BUT BECAUSE LABOR COSTS ARE LOWER AND ENVIRONMENTAL REGULATIONS ARE CERTAINLY NOT WHAT WE HAVE HERE. SO BY OUTSOURCING IT WE HAVE ACTUALLY INCREASED GLOBAL POLLUTION WHICH COMES FROM PHARMACEUTICAL MANUFACTURING. WHAT I HAVE BEEN IMPRESSED WITH COMING BACK TO THIS IS THE NEW CHEMICAL PROCESSES THAT WE HAVE WHICH DRAMATICALLY REDUCES THE ENVIRONMENTAL FOOTPRINT. IF WE CAN LEARN TO MAKE OUR MEDICINES DIFFERENTLY AND ADOPT THOSE PRACTICES, WE CAN MITIGATE THE ENVIRONMENTAL IMPACTS THAT COME FROM TRADITIONAL WAYS OF MAKING MEDICINE.” (Emphasis added.) https://www.c-span.org/video/?470077-5/washington-journal-rosemary-gibson-discusses-us-reliance-china-lifesaving-drugs&start=2016
In other words, environmental laws are forcing drug manufacturers over to China, where they can then threaten to restrict our supply of medical drugs, as one Chinese official recently did. https://www.ibtimes.com/china-threatens-restrict-drug-exports-us-amid-coronavirus-pandemic-2941920
(7) Eliminate minimum wage laws for medical manufacturing here in the US.
This is the other major reason we don’t manufacture more goods here in the US. Labor costs are artificially high thanks to unions and minimum wage laws.
(8) Eliminate overtime restrictions, and requirements that employers pay time and a half for jobs at hospitals, medical facilities, grocery stores, food delivery, and food services industries. Allow the free market to determine what people will be paid, which will probably be more than before, anyway.
The reality here is that most of these industries are going to pay much higher wages precisely because they need to “ramp up” with as many doctors, nurses, truck drivers, and Walmart workers as they can. So, people in these sectors will likely get paid more, not less.
(9) States like California should roll back laws restricting the “gig economy”, especially for thinks like food and package delivery.
Companies like DoorDash, which is an app-based food delivery service, are potentially going to be put out of business by California’s AB 5:
“It has many unicorns, including Lyft, DoorDash, Instacart and Uber worried about their business model scrambling to launch a voter initiative to roll back the effects of AB 5.” https://www.cnbc.com/2019/12/11/californias-new-employment-law-is-starting-to-crush-freelancers.html
California, which is currently forcing all residents to remain in their homes under penalty of law (an injustice in itself), should repeal AB 5.
(10) Prepare government funds to pay Hotels and Motels to use their rooms in an emergency as extra bed space for medical patients.
This is a temporary taking of private property by government, so compensation would have to be paid, although I suspect most hotel and motel companies would gladly donate the space. Hospitals would probably be willing to pay them for the use.
The government should cut funding to non-essential things like public parks, recreation areas, and libraries to pay the just compensation to hotel and motel companies. Alternatively, the government can offer to drastically reduce the taxes that hotel and motel companies pay in order to compensate them. In other words, the government can guarantee lower taxes in the future for hotels and motels, if they agree to make bed space available for medical purposes if things should get too bad. (Essentially offer a massive income tax credit for several years to hotel and motel companies.)
###
The social and political reality of the age we live in means I am probably “spitting into the wind” by writing this. What people do in a crisis is largely determined by a lifetime of habit and belief. Perhaps if more people read books by Ayn Rand, Ludwig von Mises, and George Reisman going forward, the next national crisis, whatever it is, will lead to positive political and social change, instead of more of the statism and collectivism that has made our culture and society sicker than any virus ever could.