The imposition of lockdowns to counter the spread of the infection from the coronavirus is likely to severely damage the real economy. As a result of these lockdowns economies have ground to a total halt. The production of goods and services has stopped whilst at the same time the enhancement and the improvement of productive infrastructure has also been terminated.
Does it make much sense to counter the damage caused by the virus by stopping the economy? It is akin to trying to fix a headache by chopping one’s head off.
The supporters of general population lockdown are of the view that this will reduce the number of infections. This will “flatten the curve” and, consequently, the number of deaths from the virus will decrease.
These population lockdowns seem to be a natural response of governments to do something in order to reduce the number of dying individuals. Most people are in total agreement with government decrees regarding such lockdowns.
Note, however, that most experts acknowledge that the information we have regarding the nature of the virus is incomplete and of debatable value.
Even the WHO has criticized the conflicting advice of medical authorities across different countries as to the appropriate responses. Some countries have favoured testing and isolation of carriers while others have enforced lockdowns. Even at the level of infection and death data – as unreliable as they are – there is conflicting opinion as to which approaches have worked better. Thus it seems that governments worldwide are basing their actions on, at best, conflicting opinion as to the virus itself and the appropriate response.
Policy is thus being applied in a very unclear, even contested environment. Obviously, there is the real risk that the steps that governments have introduced, notwithstanding their good intentions, could end up in disaster.
Completely stopping the economy in order to counter the viral infection is likely to inflict much greater damage on people’s lives and well-being. There is also the “moral hazard” of ceding greater power to governments to use emergency powers in order to take an even bigger role in controlling the economy and individual freedoms.
According to some experts, the current coronavirus (SARS-CoV-2) is similar in many respects to the influenza virus i.e. the familiar flu. If this is the case then once summer arrives the coronavirus is likely to disappear for several months before arriving again in the wintertime. Should we then introduce lockdowns once again in order to counter the viral menace? One can only hope that by then we will have discovered a vaccine or some effective remedy against the virus.
There is, of course, always the possibility because of the unknowns associated with the virus we might not be able to come up with an effective remedy. So what then?
Government bureaucrats that operate under strict regulations do not have the necessary flexibility to come up with effective solutions. These bureaucrats also do not have the incentive to find the right solutions. This is where the free market economy could help.
The key factor that drives businesses in a free market economy is the opportunity to make profits. The fact that profit can be made is a sufficient incentive for entrepreneurs to enter a particular market. Entrepreneurs will discover the ways and the means how to supply the necessary remedies to eradicate the coronavirus.
The entrepreneurs will also provide the ways that the economy could function in the midst of the crisis. They will provide a framework of how individuals could coexist with the virus.
Some Asian countries such as the South Korea had relative success in fighting the coronavirus by introducing large scale testing of their population in order to identify individuals that could spread the viral infection.
Given that, the only solutions we have so far is just lockdowns and social distancing by identifying the individuals that could spread the disease one could at least isolate only them and not the entire population.
Some scientists are of the view that over-time individuals are likely to generate self-immunization i.e. herd immunity. However, for this to work one needs to stop all the lockdowns and social distancing and allow the nature to take its course. It is argued that the virus is going to do what it is meant to do regardless of our actions. If this is the case then we should adjust our conduct in active way i.e. not paralyzing ourselves but by maintaining and expanding the machinery of wealth generation. With more wealth it is much easier to counter any enemies in particular viruses.
If entrepreneurs were allowed to take over the fight against the coronavirus the quality of information would have been much better. This would have allowed scientists to come up with better answers of how to fight the coronavirus.
Entrepreneurs will know how to mobilize the necessary resources to produce the remedies to counter the effects of the virus. In order for them to be able to get on with the business of finding the answers the entrepreneurs, require free environment.
This amounts, to remove all the regulations imposed by the government. In addition, various regulations that prevent smooth functioning of the market economy must be completely removed.
Most people will find it hard to accept this because we have never had a free market economy. For instance, people that lived under dictatorship may find it hard that free market can provide telecommunication services for them only government can supply such services. Yet we all know that this is utterly false. Most people, notwithstanding the chaotic state of public hospitals, would want a greater government control over health services.
As a result of massive loss in the wealth production because of the lockdowns governments everywhere in the world are busy providing financial support to all the businesses that were decimated because of the government policies to flatten the curve without knowing what the nature of the virus is.
There are signs that in some countries the curve is becoming flatter because of this governments are planning for a gradual re-start of the economy. Some commentators are of the view that this re-start could take place without much harm. This is however, could be wishful thinking. For instance, there could be a chaotic transitory period to establish how to price various goods and services.
Some commentators are of the opinion that the massive monetary pumping by the central banks have already took care of various damages to the economy caused by the lockdown.
Unfortunately, monetary pumping cannot do such things. All that monetary pumping can do is inflict another damage on the real economy by weakening the process of real wealth generation.
For those individuals that still hold that monetary pumping is a must in emergency cases that we experience now must realize that money is just the medium of the exchange. It does not produce anything as such. In fact, monetary pumping just inflicts damage on the process of real wealth generation thereby making the economy more vulnerable to various shocks such as the coronavirus shock.