Why the State Shouldn’t Manage a Crisis
By Duncan Whitmore
Many libertarians, especially at lewrockwell.com, have written of their scepticism to the draconian responses of states around the world to the recent outbreak of coronavirus (COVID-19). It is not difficult to share this scepticism given that at least some analyses – particularly of infections on cruise ships, which, given the unavoidably close social proximity, present the closest thing to a worst case scenario – suggest there is little cause for any heightened alarm. Indeed, for the very vast majority of us, there is probably more to be feared from state overreaction than there is from the virus itself. Even mainstream commentators, such as Matthew Parris in Saturday’s Times, are beginning to question the wisdom of trashing your economy to prevent the spread of an infection that is, at least at the moment, affecting only a relative minority of people of advanced age and/or with underlying health conditions (in common with many other inflictions). States always have ulterior motives when dealing with (apparent) crises as they always see them as an opportunity to expand the ambit of their power over the populace, given that a scared people is nearly always willing to sacrifice its liberty for the sake of security. In fact, if the true medical seriousness of this current virus turns out to be only a hill of beans then it may well have served as a dress rehearsal that has merely tested our pliability for some later calamity.
This essay, however, will not concern whether the spread of COVID-19 is quite the crisis it is being made out to be. Instead, let us assume, for argument’s sake, that the world was to be threatened by a very real and very serious pandemic threat. Would such a disaster warrant stronger, co-ordinated, globalised solutions managed by states and enhanced state powers to deal with the problem?
The first problem with state solutions to crises is that they rarely result in merely a temporary expansion of state power. Instead, the state normally manages to achieve a permanent and long lasting engorgement of its largesse vis-à-vis the citizenry. In the US, the New Deal programmes, implemented to tackle the Great Depression, created an enduring expansion of the Federal Government which persists to this day, and many of those measures were themselves resurrections of government controls enacted during the previous crisis of World War I. Americans in the twenty-first century are still languishing under the restrictions to their freedom imposed by the so-called Patriot Act, passed in the wake of 9/11, while the power to declare war – initially for the purposes of apprehending the perpetrators of that atrocity – has seemingly been transferred permanently from Congress to the President by the Authorization of Military Force Acts. The state’s motto is always “never let a good crisis go to waste”. For once the state has been granted a new power (ostensibly on a temporary, “emergency” basis) it will rarely give it back – and even if it does relent then the precedent can lay dormant, waiting for the next big problem to come along. Indeed, this may be the most enduring effect of the current crisis.
The control and centralisation of information is a grave problem with state management of crises. Already, in the current COVID-19 outbreak, there are calls for banning and censorship of “misinformation” and “fake news” relating to the nature of the disease and what can or should be done to combat it. Apart from the fact that, as we mentioned, the state already has an incentive to exaggerate the nature of the problem, most crises are characterised as such precisely because they are novel situations which no one has dealt with before and for which existing socioeconomic infrastructure is unprepared. Indeed, when journalists and media hacks cry for the government to “do something!” they rarely give much thought to the fact that nobody knows what “something” should be or what it might achieve. Such uncertainty is precisely when you want to encourage, not discourage, competition in the so-called “marketplace for ideas”, with people then assessing the information from different sources in order to sift out the truth. True enough, there will be private persons and entities which get things wrong and may even have malicious motivations in pushing, say, a certain product or remedy that may turn out to be useless or even harmful. These outfits, however, cannot force people to adhere to their advice, and ultimately have to subsist by persuading customers that they are right. As soon as people realise they are wrong then they will go out of business.
However, even if we were to assume that the a unitary authority such as the state is well-intentioned, once it latches onto a wrong idea (or implements the wrong solution) while forcibly suppressing any alternatives then not only does the original problem remain unsolved but the eventual outcome could be much worse. It is not difficult to levy this charge against all of the economic destruction being wrought by lockdowns, quarantines, curfews and bans, the impoverishing effects of which may cause far more illness and death than COVID-19. Moreover, the state will not be punished for having inflicted such a devastating outcome on everybody, for it will still be there ready to collect your taxes regardless.
The economic responses of the state during the current crisis are precisely an example of what should not be done.
The first problem is the phenomenon of panic buying and stockpiling which, as of now, appears to be of items such as hand sanitiser, toilet paper and dried or canned foods. When the market is left to operate by itself, such an occurrence would lead to a sudden, sharp rise in prices which would a) curtail the emptying of shelves, b) encourage a more judicious use of available supply, and c) send a signal to businesses to produce more of the heavily demanded items, relieving the pressure and eventually bringing prices back down. States, however, nearly always ban so-called “price gouging” that is an expected outcome of any disaster or crisis situation. When goods are held at their previous prices, demand outstrips supply and stores are simply emptied without any replacement of stock. Important consumer goods are therefore unavailable to all but the luckiest few who got to the checkout first.
The second problem is the state response to the wider economic collapse. As usual, the answer of central banks is to lower interest rates and to flood the markets with so-called economic stimulus. In the first place, simply printing money isn’t going to restore broken supply lines, carry goods over sealed borders or cause workers to start producing when they are holed up at home. Physical constraints in supply (or so-called “supply-side shocks”) are not resolved by boosting demand. But the more serious problem is that high interest rates are precisely what you want during a crisis for they reflect the changes in economic life that have to occur. During a disaster, people have a high demand for immediately available, basic consumer goods – food, toiletries, medicines, and so on. High interest rates would send a signal to businesses that investment in long term, “roundabout” production processes (i.e. Research and Development, long term capital projects and most construction work) must be curtailed in favour of investing in shorter term production processes that can churn out consumer goods as soon as possible. Lowering interest rates would do the exact opposite and starve vital industries of much needed funds. This is compounded by direct government bailouts of businesses and industries that are at risk of failure or complete collapse. If we were to assume that the losses to businesses such as airlines, hotels, and the hospitality industry resulted from a genuine withdrawal of customer patronage (as opposed to enforced state lockdowns, curfews and quarantines) then this would mean that the resources being consumed by those industries were needed elsewhere, probably desperately, and so these businesses must liquidate in order to free up those resources. Trying to preserve the status quo ante when the underlying economic conditions have changed is wasteful and will only end up worsening the results of the crisis. States cannot initiate any new production or create wealth themselves – they can only shift it from one place to another. All of the bailouts, guarantees and massive spending packages can be paid for only by a reduction in something else that is more urgently needed.
There have been some murmurings that the current crisis has demonstrated the risks of globalisation – in this case, globalisation in the sense of international trade rather than in the sense of the consolidation and centralisation of states and state institutions. On the one hand, it is true that much international trade is distorted by the fact that Western countries can seemingly export their inflation to countries such as China which happily furnishes the west with manufactured goods. This has resulted in the concentration of production in the East, leaving almost everyone vulnerable to problems occurring in the latter – and, of course, the COVID-19 outbreak initiated in China. Such a distortion is the product of paper money and globally managed trade which is designed to enrich the politically well connected, and would end with a return to sound money and genuine free trade. In principle however, a reduction of international trade and a return to more localised economies would simply make the latter more susceptible to local disasters and local shocks (which are probably more likely than global pandemics). It is trade links outside of one’s locality which allow healthy, thriving communities to rescue those which have run into a temporary problem. Permanent isolation would cripple this ability. Moreover, the expansion of the division of labour across the entire world is not only of general, economic benefit but sustains peaceful and friendly relations between different peoples.
Risk Tolerance and Opportunity Cost
One of the biggest utilitarian objections to the state management of crises such as a pandemic is that the entire premise which guides state action – the protection of health – is a false one. The ultimate deciding factor of what an individual should do during a pandemic is not the objectively determinable effects of the virus (which may only be vaguely estimable anyway). Rather, it is one’s own risk tolerance, which is subjective. Experts may be able to tell us what the consequences of certain actions are likely to be but they cannot tell us how we should value those outcomes. Health officials will naturally think that our health should be our most important concern, and so they may be more inclined to sanction widespread quarantines, closures and social isolation without considering the impact on other things (i.e. the sustenance of income) which people may regard as more important. Dressing this up as an apolitical following of “the science” masks the reality that the state is making a choice as to what we should all value and the costs that we should all endure. Instead, people should be able to weigh up their own chances of becoming ill, offsetting the costs of curtailing their regular lifestyles against the benefits of improving the chances of themselves and their friends and family staying healthy. Some people may prefer the mental reassurance provided by greater isolation, particularly if they are in an at-risk demographic such as the over-70s. Others may be less concerned and prepared to weather the storm by carrying on regardless. Everyone else will adjust their behaviour to some point between these two extremes. Every option involves a trade-off the cost of which bears a different weight for different people. It is these myriad differences, feeding into people’s spending and production habits, which should decide which businesses stay open, which should close, which should ramp up production, and of what. There is rarely a single solution that will suit everyone and yet states are only ever adept at taking one-size-fits-all approaches – in this case, closing down the entire economy.
All in all, property rights and the pricing profit and loss system are not a luxury that can be “permitted” to flourish by state licence during “normal” times. Rather, it is precisely during a crisis – when goods are relatively scarcer and deployment of resources with minimum loss through waste is critical – that these things must be allowed to operate unhindered. The centralisation and direction of resources by the state can only lead to the same outcome that it always does – waste and inefficiency. Moreover, those people who suggest that capitalism cannot handle a crisis might wish to reflect on the fact that the unifying rationale for every decision being made at the moment is to prevent state-managed healthcare systems from being overwhelmed by a deluge (indeed, the effect of social distancing and isolation seems to be to delay the spread rather than prevent it). Each day, in his “daily briefing” on COVID-19, the Prime Minister stands behind a podium that says “Protect the NHS” – as if we are supposed to serve the health service rather than vice-versa. Thus, it seems as though it is state management that has met its match rather than capitalism.