The Future, as Things Are Going
The way things are going, it may not be that difficult to predict the future, even admitting that it certainly hides new surprises. In 650 words, here are some predictions informed by economics (and birds’ entrails), whether the epidemic itself is being exaggerated or not.
The shortages—real shortages, not “smurfages”—created by government price controls (the state governments’ “price gouging” laws and whatever may come from the federal government) illustrate many crucial facts about economic and social life. Black markets will develop because of the self-interest of both sellers and buyers: many people prefer to have toilet paper at $4 a roll than not have it at all, even if its theoretical price (the one capped by government price controls) is $1 but the thing is not available; and at $4 a roll, it’s in many entrepreneurs’ or middlemen’s interest to sell some. Black markets were a constant feature of communist systems. It is the recent story of Venezuela. As a result, in America as elsewhere, governments will strengthen their intervention and repression against self-interest, which they will call “profiteering,” as so many governments have before them.
It is not difficult to bring a country from prosperity to second-world status (or perhaps even third-world poverty). At the beginning of the 20th century, Argentina was one of the rich countries of the word. Populist governments pushed it back to a second-word country. We may discover that there is much less “American exceptionalism” than many Americans thought. Who would have imagined that, like in Venezuela, toilet paper would become difficult to find?
Back to self-interest. A crucial fact of the social world is that individuals are mostly self-interested and that they remain so when they become politicians or government bureaucrats. This explains, among many other facts otherwise incomprehensible, why government intervention usually worsens a crisis if it hasn’t created the crisis in the first place. Leviathan is not Mother Teresa; it never was and is not now either. Who seriously thinks that Trump is more interested in saving the poor and the sick in America than to be re-elected if only for another four years? (The same is true, even if perhaps not as obvious, for Sanders or Biden). There is alas not much American exceptionalism there either.
The most hardly hit people will likely be those at the bottom of the social ladder. Already, high-middle-class people work remotely; the poor are laid-off. As others of my co-bloggers have hinted at, stagflation may follow, if we are lucky enough to avoid hyperinflation. Imagine a $3-trillion budget deficit financed with money creation. Whatever the extent of the damage, the huddled masses will claim for their illusionary savior: the state.
One of the main dangers in a crisis is the mob’s reaction; and it is often in the state’s interest—in the interest of politicians and government bureaucrats—to follow the mob instead of restraining its irrational fears and wrath. Interestingly, Trump tried to instill some calm at the beginning, quite probably because he saw the epidemics as compromising his reelection chances. At any rate, he was not helped by the fact that he has a habit of lying in-your-face or pontificating about what he doesn’t know. And he was finally unable to avoid following the panicked mob.
In the process, state power expands, planting the seeds for future crises where the state will further increase its power in order to minimize the detrimental consequences of its previous controls on social and economic life.
As I tweeted,
Isn’t it fascinating that, after a century of communism, four centuries of dirigiste price controls, and two centuries and a half of economic analysis, we still have to explain what causes shortages and that falling into the arms of the state is the recipe for economic, social, and political disaster?
And isn’t it troubling that people have to rediscover this through painful experience again and again?