The government has no money of its own, and monetary pumping won’t help ailing businesses, but this will…
In the midst of the emerging economic chaos triggered by the COVID-19 coronavirus, individuals are seeking answers from governments as to how to prevent the emerging economic disaster.
Most economic experts are sympathetic to this and are urging the authorities to push massive injections of money. Thus in the US the central bank has embarked on a $2 trillion stimulus. At the same time government officials are imposing draconian measures to keep the population in isolation. The isolation is expected to arrest the spread of the coronavirus.
Even if one were to accept that the total lockdown of the population will slow the spread of the virus, this will inevitably reduce the production of goods and services needed in the economy—needed to support individuals’ lives and well-being. This could lead to a global economic problem the effect of which is likely to be much worse than the damage inflicted by the coronavirus.
The response of most experts is that it is the role of the government to stage the war against the virus. Even if we were to agree with this the question that must be addressed is: how will the measures to counter the virus be funded?
No Economy Means No Action: Government Has No Money of Its Own
Most people are of the view that the government has some extra resources that can be employed in a time of crisis. Unfortunately, this is a dream. The government has no resources apart from those it takes from the private sector. That at present the lockdown of individuals also means an absolute freezing of private sector activity means that the government will not be able to pursue the fight against the virus for very long.
Therefore, a more reasonable solution to the problem is to let life go on by freeing the economy from total lockdowns. Contrary to the notion that government bureaucrats know best about which direction to take the economy in, entrepreneurs are the only individuals who will know how to handle the current crisis. Only they can generate an infrastructure that will enable individuals to coexist with the coronavirus while making sure that the production of goods and services not only continues but expands.
Human ingenuity works best during the times of greatest challenge. If, however, government bureaucrats paralyze individuals’ ability to confront the challenges imposed by the coronavirus, then the modern world as we know it could well end up in the Stone Age.
Monetary Pumping Won’t Help Ailing Businesses; Freeing Up Resources Will
As for the issue of keeping alive various businesses that require urgent help, the government could release the necessary resources by severely cutting its expenditure. The resources thus released would end up in the private sector and the machinery of wealth generation would likely move ahead rapidly.
With more wealth it would be much easier to confront the side effects of the virus. On the company level, every chief executive knows that the key to survival is having a very strong net worth, i.e., the gap between the value of assets and that of its liabilities must be expanding.
To enable companies to succeed in their mission of securing an ever expanding net worth, the last thing that is required is massive monetary pumping. Such pumping merely distorts resource allocation and further weakens the machinery of wealth generation, diminishing prospects for people to counter the damages inflicted by the virus.
Government Must Step Aside
The biggest problem is not the coronavirus, but authorities’ responses to it. Contrary to popular thinking, government bureaucrats are not trained to generate real wealth. This is not the job of government.
No one is surprised that bureaucrats’ response to the coronavirus is to lift the dosage of restrictions and controls, and commence increasing rounds of monetary pumping. This is what they know.
For the sake of individuals’ well-being, however, we should ask the bureaucrats to leave the battlefield and allow the private sector to take over in order to stand up effectively to the new challenges.Author: