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The Economics of Lockdown Panics


Former New York Governor Andrew Cuomo famously defended draconian restrictions and economic damage if measures saved “just one life.” President Trump’s first take on covid was to compare it to a seasonal flu. In a similar vein, UK Prime Minister Boris Johnson planned herd immunity as his government’s response. Both leaders flipped and went for lockdowns when their advisors presented them with doomer models. The lockdowns gravely damaged their respective nations which have still not recovered. 

We can not know their minds, but assuming that it was entirely a political calculus, the fear of being held responsible for any number of avoidable deaths – even one – outweighs the cost of destroying 25-40 percent of small businesses, many careers, years of educational opportunities, and mental health of young people. 

Do we value human life to the extent that we place no limit on the costs that we would bear to save one? What is that cost? Setting aside whether the measures saved any lives at all, is saving one life worth a torrent of horrendous costs imposed on many people? How can we know? Economist Thomas Sowell observed “there are no solutions, only trade-offs.” Economics can help us understand that this absolutist way of thinking is not conducive to human life. 

Ignoring Indirect Effects

Journalist Henry Hazlitt is the author of the classic work Economics in One Lesson. The work consists of 25 chapters that reinforce a single lesson. What is the “one lesson?” It is that the greatest economic fallacy is “overlooking secondary consequences.” Advocates of an economic policy base their support on its direct and most obvious effects. 

According to Hazlitt, there is a “persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be on only on that special group but on all groups.” But indirect effects may be harmful, at least as great in magnitude, but more difficult to understand. Counting the benefits while disregarding the unseen costs creates the illusion of a free lunch. 

Not every single one of the things that keeps us alive and thriving are economic goods – but a good many of them are. At an individual level, money gives you access to food, shelter, heat, air conditioning, clothing, medical care, and whatever services you need in any area of life. A wealthy society will have quality infrastructure such as roads, the power grid, cellular networks, and emergency services. The more advanced economies have a skilled labor force consisting of people who can build, install products, and repair things that break. 

The single factor that enables us to address all risks, harms, and misfortune in life is wealth. Wealthier societies can afford to build more stable buildings that will withstand earthquakes and extreme weather; better pipelines to move oil and gas; redundant power generation capacity; dams and aqueducts to move water; more inventory of food and medical supplies. 

Many people have pointed out that lives are not saved absolutely by any medical or public health measures. Because we will all die at some point, only years of a life can be saved by avoidance of an early death. The more forms of wealth and opportunities to be productive that exist in a society, the better that its members are able to sustain and extend their lives. The covid panic measures were alleged to save lives by isolating us from each other. However, they had the effect of isolating many people from productive work as well. 

Had life continued more or less normally, with those most at risk isolating or taking precautions, then younger and healthier members of society could have continued with productive work. This would have resulted in them having more freedom and more wealth. 

This would have put the well in a better position to help the weak and the ill. Suppose that, instead of general lockdowns, public health officials had created a sort of volunteer job-matching board where the quarantined or the ill could ask for whatever form of help they needed, such as someone to run an errand for them or cut their lawn, and the well members of society could have volunteered to help as needed? 

Planners told us that essential work continued and only “non-essential” work was paused. But it is not so simple to split economic activities into two buckets. Say’s Law of Markets is the observation that any supply of a good constitutes a demand for some different kind of good. Ceasing production of half of the economy makes us all poorer. The idled “non-essential” workers are no longer able to contribute their supply to the pile. Shutting off production deprives many workers of the resources that they need to sustain their lives in myriad ways. Trying to fill the gap by printing money only created inflation.

High Time Preference

Time preference is the degree to which people prefer goods and services in the present compared to the future. Having a good in the distant future is not of equal value to having it right away. Lockdowns were undoubtedly adopted because of the high time preference of politicians. 

Everyone has a positive time preference to some extent. We all prefer to access money or other goods in the present compared to the future – to some extent. But people differ in how strong their time preference is. People with relatively lower time preferences take actions such as saving for the future, showing up for work on time, pursuing a lengthy course of education and training such as the education and training required to become a doctor, and taking care of their health. All of these require upfront costs in order to obtain the benefits years later. 

A financial instrument offering 8 percent interest would return, after one year, principal and interest of $1,080 on an initial investment of $1,000.  In the recently passed era of ultra low interest rates, a return of 8 percent per year would look pretty good – to an adult. But for a child: not so much. Experimental measurement of the rate of time preference of children has found values of several hundreds of percent per hour. 

As I pointed out in an earlier article, our finance policies of “slowing the spread” did not avoid sickness; they only pushed cases of illness into the future. Does it make sense to endure all of the intervening costs of the lockdowns when everyone who was going to get covid got it anyway? For most people, going about their life and dealing with illness when it happens would have made more sense. Delaying by two years the time when you got covid could only have been worth doing if you had very high time preference. 

In Democracy: The God that Failed, economist Hans-Hermann Hoppe argues that the time preference of democratic political systems is higher than that of hereditary monarchies. The king considers the consequences of his rule in terms of decades or even generations because he considers his entire realm to be a stock of capital goods. A good king wants to maintain his family lineage. He does not destroy his country because he intends to inherit the assets to the next in line of succession intact, or even appreciated in value. 

Elected representatives, on the other hand, have a term of several years. There is no guarantee that they will not lose their next election. They must accomplish all of their looting within their current term. They are incentivized to balance extracting as much wealth from the system as quickly as possible and maximizing their chances of winning the next election.

Many members of US Congress make millions of dollars on their stock portfolios while in office using their superior knowledge of how pending legislation and subsidies will impact various industries. Nancy Pelosi, former Speaker of the US House of Representatives, to cite one example, “raked in as much as $30 million from bets on the Big Tech firms Pelosi is responsible for regulating.”

Our lockdown response – run by politicians – is going to operate on a higher time preference than if the preferences of people with a longer time horizon and businesses, careers or educational plans were taken into account. 

“The Economy” is not a Thing

I have been reading about the history of economic thought in the past few years. I don’t know when “the economy” became a term but it was not present in the 18th century. I suspect that this came along with the British economist John Maynard Keynes, who advanced a theory of macroeconomics based on an excessive degree of aggregation. 

Economic theory for over a century has become overly fascinated with equilibrium states. While equilibrium theories tell us something about end states, they don’t tell us how we get there. Some economic theories posit that an auctioneer is involved in setting the prices of all goods before any transactions. This does not seem realistic.

In the real world, we never reach the end states described by the equilibrium theories because things change before we get there. The competitive market process pushes the direction toward an end state, but equilibrium theories tell us nothing about competition. The theory of competition is less well-developed than the theory of equilibrium. 

The economic world is a process. People are building, buying, selling, planning, and solving problems. Organizing firms and splitting them up. Opening and closing. Competition is messy. Firms bid for the same workers, build the wrong products, or have production accidents. People change jobs, ask for more pay, and try out new careers where they see more opportunity.

If there were such a thing as “the economy” then maybe it has a pause button, like a music app. Or maybe an on-off switch that we can flip in off direction for a year or two while we deal with the virus, and then flip it back on. Perhaps “the economy” has a hibernate mode, like a laptop when you close the lid. When you flip the lid open, your incomplete email is still there just as it was. 

The public health lunatics apparently did not know that there is such a thing as fixed costs. Many businesses have leases which they were required to continue to pay even if they had no revenues. They had employees that they had to either pay or lose. Inventories have a limited life. Some cities had residential rent moratoriums, which caused great economic damage to landlords; and had landlords continued to receive services while exempted from paying their costs, it would have harmed banks, construction workers, plumbers and landscapers.

Economic activity does not have a pause button. There are many critical steps that require months or years of planning and investment, that need to be synchronized in time with other steps. People work in one job to acquire experience for another job, or to save up money to buy a home and start a family. When a large range of options are blocked without warning, waste is inevitable because some plans cannot be realized. There are costs to holding inventories. Things perish. Recurring costs such as rent and insurance do not go away, even when revenues stop. 


Former President of the Mises Institute Jeff Deist wrote in The New Anti-Economics: “Economics starts and ends with scarcity, an inescapable feature of human reality. Any conception of freedom from material and human constraints requires a post-economics world, either an earthly utopia or a heavenly abundance.” 

Economics alone cannot tell us if any cost is too much to “save one life.” But economic thinking can help us understand that preserving human life entails bearing costs. It requires resources and people with skills. We must provide ourselves with the means to bear those costs if we wish to continue to have the ability to preserve human life in the future. 

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