Capital Homogeneity in the Time of COVID-19
By David Henderson
Michael Thomas, an economist friend at Creighton University in Omaha, Nebraska, has made an interesting conjecture (I have edited it slightly):
What has surprised me is how quickly people have converted production into alternative products (for example, local distilleries making sanitizer–extremely homogeneous). For all products that face high levels of regulation the costs of switching into new production are very high, artificially high, and the result is fewer life-saving products being made for health care workers and patients.
Of course, that’s one example. I wonder if there are others. It was the COVID-19 disease that led Michael to this thinking, but the point could easily be much more general.
We shouldn’t forget Adam Smith’s famous truth, which is that the division of labor is limited by the extent of the market. The more extensive the market, the greater will be the degree of specialization. But holding market size constant, would we have less heterogeneity (more homogeneity) of capital if we had less regulation?