A deep and painful misunderstanding about how economies work
There’s a consensus emerging and as with most forms of groupthink it’s the wrong one:
A consensus has emerged that the only route out of the lockdown is with government cash. From across the political divide there is support, offered reluctantly in some quarters, for the idea that only state-funded agencies will have the financial muscle and the will to put the wheels of the economy in motion once the pandemic has receded.
And:
Economists warn that the coronavirus crisis could see a return to the persistent and damaging levels of unemployment of the 1980s, with the jobless rate averaging 10% or more for the next five years.
Therefore government must do something and job guarantees and planning and creating jobs and……we agree that government must do something but we insist that what must be done is less.
At heart here this is a misunderstanding of the basics of how an economy works. We have those human desires and wants, we have scarce resources with which to sate them. What can be sated and how at any one time depends upon tastes, fashions, the state of technology. It is possible, of course it is, to mix and match those varied resources to meet different human desires and to do so in different ways.
So, who are those people who do so? By definition of the word those who essay attempts to meet desires by combining the extant resources are entrepreneurs. That’s just what the technical meaning is to run alongside the economic definitions of land, labour and capital.
So, we have an excess supply, at current prices, of one of those resources? That’s what unemployment is, more labour than can be usefully employed given the current structure of attempting to sate wants. You see the implication here? We want more experimentation with the employment of that surplus resource. We also want to make sure that actual human needs and desires are sated by the resultant output.
Cool - that means we want more entrepreneurs doing more entrepreneuring. What’s the greatest barrier today to being entrepreneurial? The regulations, licences, permissions, required to do anything new or something old in a new manner. Thus, to get those unemployed usefully back to work we need to reduce those barriers.
We need more free marketry red in tooth and claw, free of the restraining hand of the bureaucracy, because that’s how new businesses that employ people get started.
Sure there’s something for government to be doing in these trying times. Less.