Government's Perverse Incentives

It might seem reasonable to think that in the early days of a pandemic involving an unfamiliar pathogen, the public ought to allow the government leeway in its imposition of extreme measures, such as the virtual shut down of economic activity. But the initial impression ought to dissolve when one reminds oneself that we're talking about government, a monopolistic organization shot through with perverse incentives because it gets its revenue through coercion (taxation) and faces no profit-and-lost test. (We also must understand that extreme measures were imposed on the basis of a widely criticized computer model, not on any facts.)

Obviously everyone will know less about a newly emerged virus on Day 1 (whenever that may be) than on Day 30 and beyond. That ought to mean that policymakers and their advisers in the world of science should be prepared and eager to retreat from the early extreme measures when the data point in that direction. But, again, we're talking about politicians, bureaucrats, and the anointed experts who have their ears and don't wish to lose them. They all face perverse incentives that induce bureaucratic sclerosis. (Other perverse incentives also apply.) This phenomenon has long been identified with the Food and Drug Administration. Look at the incentives facing a bureaucrat who must choose between approving a new drug or not. If he approves and headline-catching unanticipated rare side-effects emerge, the bureaucrat's name on the dotted line could be mud, no matter how beneficial the drug is on the whole. Career ruined. But if he doesn't sign off and people keep dying because the drug remains unavailable, few among the public will call the bureaucrat a killer because his responsibility will escape most people's notice.

You can see the parallel with the pandemic. Even if new information showed the initial extreme measures to be inappropriate, officials would have almost no incentive to remove them. If they did and the number of cases and death rose, they would be pilloried in the press, whether or not their policies had anything to do with the rise. But if they didn't remove the extreme measures and cases or deaths surged, they would not be on the hook. In fact, they would say their policy actions kept the surge from being even greater. (The policy makers would be even less accountable for the deaths directly caused by the policies themselves, which is the case with the shutdown.)

However formidable, these perverse incentives are not insurmountable, and occasionally someone in the government world admits a mistake. But this is not to be expected often. Government is deadly.

The only cure is full freedom, decentralization, and open debate in an environment where dissenter are not officially stigmatized, shunned, or repressed. In other words, we need a radically freed market, which rewards rather than penalizes the identification and correction of errors.

Our Foolish Politicized Era

It's ridiculous to think you can divine people's politics merely from their views on the pandemic or any given policy response to it. Similarly, it's absurd to rebut a view by referring to the holder's politics.

How to Panic the Public

1. Disseminate worst-case scenarios, taking care to ignore the dubious assumptions that go into modeling while vilifying anyone, no matter how well-qualified, who refuses to ignore them.
2. Emphasize the (alleged) benefits of a draconian government response, taking care to ignore the costs while vilifying anyone, no matter how well-qualified, who refuses to ignore them.
3. Repeat as necessary, preferably often.

An Economy Cannot Be Crippled

Lockdown doesn’t cripple “the economy.” It cripples people who are trying to live. Strictly speaking, there’s no economy. There are people interacting in particular ways regularly.

What the Love of Power Trumps

How interesting that the people most worried about Trump’s authoritarian personality demand draconian government responses to the pandemic. Love of power must trump fear of Trump.

About Those Shutdowns

When the only tool in your toolkit is a blunt instrument, every problem looks like one that can be addressed only with a blunt instrument.

Cuomo's Wager

Pascal’s Wager is a familiar idea. It goes something like this: regardless of what you may think about the existence of God, rational cost-benefit analysis says you should sign on. After all, if you do and you’re wrong, what have you lost? But if you don’t and you’re wrong, uh oh — you’re in big trouble, buster. (I’m not saying this makes sense, by the way.)

Something similar has gone on with the coronavirus pandemic and the draconian economic policies embraced by many governors in the United States, best exemplified New York Gov. Andrew Cuomo and California Gov. Gavin Newsom. They have made a wager sort of like this: if we don’t shut the economy down and the pandemic fulfills the worst-case scenario, we are all in big trouble; but if we do shut the economic down and the pandemic falls closer to the best-case scenario, what will have been lost?

For those with their eyes open, the answer to this last question is simple: a lot. Forbidding most economic activity has to impose substantial hardship — material and otherwise — on countless people, not to mention future generations. I won’t go into detail, and I shouldn’t need to. Just think about it for a few moments. (See David Henderson’s “End the Lockdowns Now.”) And I haven’t mentioned the future harm from government’s so-called solutions: enormous deficit spending, money creation by the Federal Reserve, and the ratchet (specifically, the Higgs) effect from precedents set.

The point is that it’s easy to “reason” to the policy outcome you want if you list only the real and imagined benefits and ignore all the burdens. This was what Frédéric Bastiat was getting at in his brilliant essay “What Is Seen and What Is Unseen.”

The blunt-instrument policies adopted by many governors were chosen in the dark. Flawed statistical models seemed to shed light, but knowledgeable people questioned the validity of those models from Day One. At any rate, we know more now (though not nearly enough), so it’s time for the lockdown orders to be lifted, liberating society’s widespread entrepreneurial problem-solving process to do its thing.

Atomistic Individualism for the Win!

I'd say defenders of the automobile versus mass transit are looking pretty good these days.

If Adam Smith Were Writing the Wealth of Nations Today

“It is not from the benevolence of the mask maker, glove maker, or hand-sanitizer maker that we expect our person protective equipment, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.”

Why Politicians Do What They Do

I don't think politicians relish closing down the economy, nor do I think they'll be eager to do so in the future. For one thing, it's contrary to their interests. They do what they do because when all you have is a blunt instrument, every problem looks like something that can only be solved with a blunt instrument.

Anarchism and Pandemics

I highly recommend William Gillis's "Anarchism and Pandemics" at the Center for a Stateless Society site. It's one of the best things I've read so far on how a free society could deal with a serious pandemic.

Where the Coronavirus Didn't Come from

Benedict de Spinoza

Benedict de Spinoza (1632-1677), Ethics, Appendix to Part One, "Concerning God":

All such [misconceptions about God or nature] spring from the notion commonly entertained, that all things in nature act as men themselves act, namely, with an end in view. It is accepted as certain, that God himself directs all things to a definite goal (for it is said that God made all things for man, and man that he might worship him). I will, therefore, consider this opinion, asking first, why it obtains general credence, and why all men are naturally so prone to adopt it? secondly, I will point out its falsity; and, lastly, I will show how it has given rise to prejudices about good and bad, right and wrong, praise and blame, order and confusion, beauty and ugliness, and the like….

[J]udging from the means which [human beings] are accustomed to prepare for themselves, they are bound to believe in some ruler or rulers of the universe endowed with human freedom, who have arranged and adapted everything for human use. They are bound to estimate the nature of such rulers (having no information on the subject) in accordance with their own nature, and therefore they assert that the gods ordained everything for the use of man, in order to bind man to themselves and obtain from him the highest honor...; but in [people's] endeavor to show that nature does nothing in vain, i.e. nothing which is useless to man, they only seem to have demonstrated that nature, the gods, and men are all mad together. Consider, I pray you, the result: among the many helps of nature they were bound to find some hindrances, such as storms, earthquakes, diseases, &c.: so they declared that such things happen, because the gods are angry at some wrong done to them by men, or at some fault committed in their worship....

There is no need to show at length, that nature has no particular goal in view, and that final causes are mere human figments…. [E]verything in nature proceeds from a sort of necessity, and with the utmost perfection.... [Later he explains, “the perfection of things is to be reckoned only from their own nature and power; things are not more or less perfect, according as they delight or offend human senses, or according as they are serviceable or repugnant to mankind.”]

We must not omit to notice that the followers of this [divine-will] doctrine, anxious to display their talent in assigning final causes, have imported a new method of argument in proof of their theory—namely, a reduction, not to the impossible, but to ignorance; thus showing that they have no other method of exhibiting their doctrine. For example, if a stone falls from a roof on to someone's head, and kills him, they will demonstrate by their new method, that the stone fell in order to kill the man; for, if it had not by God's will fallen with that object, how could so many circumstances (and there are often many concurrent circumstances) have all happened together by chance? Perhaps you will answer that the event is due to the facts that the wind was blowing, and the man was walking that way. "But why," they will insist, "was the wind blowing, and why was the man at that very time walking that way?" If you again answer, that the wind had then sprung up because the sea had begun to be agitated the day before, the weather being previously calm, and that the man had been invited by a friend, they will again insist: "But why was the sea agitated, and why was the man invited at that time?" So they will pursue their questions from cause to cause, till at last you take refuge in the will of God—in other words, the sanctuary of ignorance....

[H]ence anyone who seeks for the true causes of miracles, and strives to understand natural phenomena as an intelligent being, and not to gaze at them like a fool, is set down and denounced as an impious heretic by those, whom the masses adore as the interpreters of nature and the gods. Such persons know that, with the removal of ignorance, the wonder which forms their only available means for proving and preserving their authority would vanish also.

The Dog that Didn't Bark

Not so long ago we might have been seeing public-service announcements like this:

For the duration of the pandemic, please use the internet and your cell phone for essential purposes only. It is imperative that we keep the bandwidth open for emergency use. 

Thank you for your cooperation.

Flunk the State!

Knowledgeable people (Bill Gates among them) had warned for years that governments were ill-prepared for serious pandemics. The US government was not just ill-prepared; it also maintained regulatory obstacles — in the name of public health — to others who were willing and able to act.

I’d say the case for statelessness looks better all the time.

TGIF: Libertarianism in Emergencies

Libertarians have always acknowledged that emergencies -- severe extraordinary conditions of limited duration -- can justify actions that would be unacceptable under normal circumstances. This doesn't mean that all the rights-based rules disappear, only that some measures are deemed permissible that otherwise would be beyond the pale. Danger, however, lurks in this principle, requiring eternal vigilance.

For example, if someone collapses unconscious in the street, you may do things intended to help him without his consent. This does not justify a general policy of paternalism. Another common hypothetical is that of the person caught in a life-threatening blizzard in the wilderness who happens on a cabin (which, let us say for simplicity's sake, is unoccupied at the time). To save his life, the stranger breaks in, builds a fire, and eats the food. No reasonable person would fault him for not first seeking permission of the owner. What happens after the emergency passes is an interesting topic for discussion -- should he offer compensation? should the property owner demand and accept it? -- but let's not get into that now. (Yes, the hypothetical could be made far more complicated than mine, but that's also for another time.) Yet this cannot justify the abolition of property rights.

We might call those situations micro emergencies. They affect one individual or a few, while other people may experience nothing extraordinary at all. So what about a macro -- society-wide or global -- emergency -- a widespread epidemic, let's say? I can't see why the principle of emergencies would not hold. The aim of ethics (politics being a subset) is human flourishing, not blind slavishness to duty.

Unfortunately this might mean that in today's world -- where a dangerous communicable disease threatens to overwhelm the medical system -- governments would reasonably have freer rein to do things than they have in normal times. Most people would expect that to be the case and, moreover, would want it that way. I say unfortunately not only for reasons obvious to libertarians but also because the existence of the state has over a long period impeded and even forbidden the gradual spontaneous emergence of alternative, protean, voluntary public-health and mutual-aid institutions that would be better suited to responding to pandemics (and other disasters) than the centralized collection of politicians and bureaucrats we call the state. To see the point, you need only meditate on the leading government public-health agencies' prolonged botching of the matter of coronavirus testing. (Although it's been stretched nearly beyond recognition for obvious public-choice reasons, public health is a legitimate concept in light of the existence of serious communicable diseases.)

That we must regretfully do without those alternative institutions in the present emergency (although not entirely) should teach everyone a lesson for the future. But what can we do now? A libertarian who says he would "push the button" and at once abolish the state (or in the case of a limited-government libertarian, merely eliminate the welfare state) has little of value to say today. Does he think that alternative voluntary institutions would spring into existence? Institutions -- and the constellation of customs and expectations they embody -- need time to grow. I'm not saying that people working together consensually wouldn't do much good on their own in the meantime -- they are doing so now -- but the limits in the short term would be significant.

Besides, no such button exists, so why would we even talk about it? A radical scaling back of the state at this time would not find widespread support, so even if it could be pulled off, it would quickly be reversed because, like it or not, most people regard the (welfare) state as legitimate, even if they have objections to various parts of it.

So we're stuck with the state as it is in this emergency. Where does that leave us? Some restrictions on normal activities will be regarded as reasonable, targeted quarantines, for example. That doesn't mean we should suspend judgment and accept every restriction the politicians or bureaucrats come up with. (What's with the curfew? Where's the necessary connection with banning gatherings?) An emergency is no time to abandon one's critical faculties. Nevertheless, things that would and should be condemned in normal times will reasonably be deemed acceptable -- with regrets -- even by libertarians for the duration of the emergency. Exactly what all those things might be I'm in no position to say with any confidence. A reasonable restriction could certainly be pushed too far. How far is too far? It's not always clear, although we'll often know it when we see it. We will be in an improvisational mode for some time to come -- which is why decentralization, competition, and openness to information from far and wide should be the rule of the day. (See this.)

Of course, libertarians have a critical public role at this time. First, we should never cease to point out that much of what the government has done to mitigate the COVID-19 pandemic has been in the nature of suspending restrictions on private conduct essential to responding in this emergency. The loosening of restrictions regarding trade, medical practice (including testing and tele-medicine), vaccine development, occupational licensing, and more demonstrates how routine and commonly accepted government activity has dangerously hampered the private sector's ability to anticipate and react to the pandemic. (Unfortunately restrictions on the price system, specifically, anti-price-gouging laws, are still in force. Trump has reinforced this.) When this is all over we must not let society forget how government stood in the way. What grounds could possibly exist for reinstating those restrictions that threatened our lives during the pandemic? They and others should be permanently repealed.

Second, we ought to be showing people that markets work in emergencies and that we need them more than ever. When hand sanitizer (which was not in common use a few decades ago) ran short, distilleries started making it. Hanes turned from making underwear to making masks. I'm sure other examples could be found. What if the whiskey and underwear industries had been shut down as nonessential? No bureaucrat can know all of the "nonessential" production required to support "essential" production. F. A. Hayek's insights about the market solution to the ubiquitous "knowledge problem" are more important than ever.

Our very lives depend on entrepreneurship, which is alertness to overlooked opportunities to improve people's well-being by transforming scarce resources from a less-valued to a more-valued form. Profit is not the only thing that motivates entrepreneurship, particularly in emergencies, but we must not discount its vital role. Thus "people before profits" is a false dichotomy that has devastating consequences, especially for the most vulnerable. (Profits from rent-seeking, that is, government favoritism, is what we should condemn.) When markets are free, serving others is profitable. Thus Trump should not use the Defense Production Act to command manufacturing. The price system is a faithful guide to action that helps others. Let it work. A corollary: globalization, the kind that is unguided by governments, is good and is saving lives now. The welfare-enhancing division of labor is limited by the extent of the market, Adam Smith wrote.

Besides suppression of the coronavirus we need the production of wealth, but only savings and investment through markets can produce new wealth for everyone (as opposed to special interests only). Government produces only the illusion of wealth by conjuring up apparent purchasing power through money creation -- raising the price of what's already been produced -- and moving existing resources around -- inevitably creating fertile ground for cronyism, pork-barrelism, and electioneering -- while consuming a large share in the process. Everyone will pay a huge price for the government's promiscuous fiscal and monetary "stimulus" -- which could conceivably be far worse than the coronavirus.

To state the obvious, we must find the best balance of mitigation of the spread of the virus and economic activity, which itself is required to conquer the disease. We have no grounds for confidence that politicians and bureaucrats can find this balance. Decentralization, with many information-generating centers, is indispensable. And let's not forget that "the vulnerable" include not only the medically vulnerable but also the economically vulnerable. (Also see this.)

Unfortunately, American governments have shut down much market activity. (Strangely, "socialist" Sweden has not shuttered businesses and prohibited gatherings.) So what can we do now? I'm persuaded that mass testing would pave the way for the resumption of more or less normal market activities, for it would identify those who have the virus antibodies and thus constitute no danger to others. (See this and this.)

Third, advocates of liberty and respect for people should demand that the U.S. government end all economic sanctions against other countries. In normal times, economic warfare is crueler than cruel since it deprives blameless people -- not rulers -- of food, medicines, and other necessities. Can you imagine what sanctions are doing now?

Fourth, libertarians should demand that any government emergency spending ought to come first from the so-called national-security budget, which, if you count everything, comes to over a trillion dollars a year. Liquidating the empire should be the order of the day. It's always been bad for Americans' and other people's health.

Fifth, we libertarians must teach our fellow men and women about what Robert Higgs has named the "ratchet effect." This is the well-documented phenomenon that extraordinary, intrusive government measures adopted during a crisis do not go away entirely once the crisis ends. (For details, see Higgs's classic, Crisis and Leviathan: Critic Episodes in the Growth of American Government.) We can't let the extraordinary become ordinary.

Sixth and related, libertarians must help people to understand that measures adopted during a bona fide emergency are unacceptable in other circumstances. Politicians and bureaucrats might enjoy their expanded powers in a crisis and so might try to invoke them under more typical conditions -- but we cannot let the bar be lowered.

We must not let our society come to see restrictions on individual liberty as the new normal. This is an emergency, and we must not forget it.

We Need Markets Now More than Ever

Jeff Tucker's "In a Disease Panic, the Free Market Is Your Friend" ought to be atop everyone's reading list. As libertarians well know, people who are under the delusion that government is a creative element in society, rather than a predator, will never let a good crisis go to waste. (Barack Obama's first chief of staff, Rahm Emanuel, put it just that way.) The historian and economist Robert Higgs has documented the history of exploitation of crises to expand power and consume liberty in America in his classic, Crisis and Leviathan. We can see this process on vivid display with the outbreak of the coronavirus, or COVID-19.

What propels the expansion-through-crisis process is the belief that only government can respond effectively to the crisis. Most people, busy with their lives, don't know enough about economics and politics to see the flaw in the statist's case. By and large, and through no real fault of their own, they operate at a primitive level intellectually. Plus they take for granted what they've enjoyed all their lives: the increasingly accessible abundance of necessities and luxuries, which even a couple of generations ago would have made people green with envy. That is all the result of the fact that, despite all the obstacles, government has not managed to abolish markets, the price system, and entrepreneurship.

Enter Jeff Tucker's article:

The truth is that the market loves you right now, more in the midst of a disease panic than ever before. It would love you even more if companies were not being browbeat by government into curbing sales of essential items. Let the prices of sanitizer and masks rise and you draw more into production and distribution. Throttle the market and you reduce supply. 

The market would have loved you more had the Centers for Disease Control not failed to authorize private companies to test for the virus. It was only after the aggressive protests of the governor of New York that the CDC gave in and let people do what they wanted to do....

In a disease panic, we are learning, people lose their minds and stop thinking clearly about things that matter. They also reach out to authority to save them. All of this is expected. And it’s very sad. Even sadder is how the unscrupulous power mongers among us use such times to enhance the power of the state over our lives and claim it is for our own good. 

Libertarians need to speak up -- now more than ever.