By Frank Hollenbeck
The current coronavirus strategy of most governments is a recipe for a worldwide economic disaster. In many countries, the strategy of confinement and forcing shops to close is a sure-fire path to large-scale business failures. The cascade of economic and financial repercussions to come is likely to lead to another Great Depression.
The Costs of Prolongation
Italy, for example, already had a 135 percent debt-to-GDP ratio before the crisis. It is hard to imagine how it will be able to borrow more without a commitment from other European countries to jointly be responsible for more Italian debt—something the northern European countries are still strongly opposed to. The ECB is already printing money like crazy, and another Greece-like situation will make it ramp up the printing presses even more. We have been down this path many times before, where the cure is clearly much worse than the disease. The German hyperinflation of 1921-1923 created a resentful, impoverished middle class which ultimately led to Hitler’s rise to power.
The coronavirus (SARS-CoV-2) that originated in China is highly contagious. More than 80 percent of the patients show only mild flu-like symptoms but for the remaining 20 percent, mostly the elderly or people with preexisting conditions, the virus can be life-threatening. To save lives short term, the entire population in Europe is currently being held under house arrest and many businesses have been put into a pre-liquidation state by no longer being able to realize a profit due to inactivity.
The current strategy is not to stop the virus in its tracks but to spread out the contagion so that the peak is a level that will be more manageable for the health care system. Governments took the biased advice of health care professionals without a real weighing of all the pros and cons. This prolongation in time, however, will come at a steep economic and human cost.
Unemployment Correlates with Death
In the longer term, more lives will be lost if we continue this strategy. How many victims of financial ruin will end their own lives? In the modern era, for every one percent increase in the unemployment rate, there has typically been an increase of about one percent in the number of suicides. A study conducted by Brenner in 19791, found that for every 10 percent increase in the unemployment rate, mortality increased by 1.2 percent, cardiovascular disease by 1.7 percent, cirrhosis of the liver by 1.3 percent, suicides by 1.7%, arrests by 4 percent, and reported assaults by 0.8 percent (see here). How many lost lives out of 300 million in the USA does a 10 percent, 15 percent, 20 percent unemployment rate represent?
The use of the free market gives another strategy to control the spread of the coronavirus. For example, we now have strong evidence from trials in France and China that in 75 percent of the cases a combination of two extremely well-known antimalarial drugs (hydroxychloroquine in combination with the antibiotic azithromycin) can bring the viral load down to nearly zero after just six days (complications usually arrive after the 6th day). These drugs could make the latent effects of the Wuhan virus as mild for 20 percent as the other 80 percent, and they were recently cleared for use.
There are many other possible drug combinations that might offer similar results, but FDA and EMA regulations requiring long term testing make it much more difficult for these drugs to be available in time to treat the virus. Yet the world economy is at stake and we cannot sit and argue on the quality of the water while our house is burning down.
An obviously better solution than sinking the world economy into a great depression is a greater use of “laissez-faire.” The current lockdown strategy is a bleak choice of (allegedly) fewer short term deaths against a much larger long-term death toll. We must return to a business-as-normal situation as soon as possible. We need to free drugs from overbearing drug regulations and make them widely available (with appropriate dosages and warnings) everywhere at a market price without the need for a prescription. We need markets to be free so they can provide a wide choice of medications.
The argument is not for a non-strategy; it is for allowing the markets to define the strategy. For example, the elderly might consider taking chloroquine preventively; it has a long history of being taken to prevent malaria in Africa. It is naïve to think that people can’t inform themselves and take appropriate actions for their own health benefits.
It is also naïve to think that businesses and people won’t adapt to the perceived threat. Restaurants can seat patrons several meters apart. Waiters and cooks can wear masks and gloves. There is an infinite number of innovative ways people will adjust. Just because we cannot imagine a voluntary market solution does not mean one does not exist. South Korea is an example to emulate. Instead of an authoritarian locking down of its people, it took a much more libertarian approach to the problem and is already showing promising results.
This market-oriented strategy is obviously not without risks, but we must move away from the current defensive 16th-century bunker mentality and consider less disastrous economic alternatives.
1. Brenner, M. Harvey (1979). “Influence of the Social Environment on Psychology: The Historical Perspective”. In Barrett, James E. (ed.). Stress and Mental Disorder. New York: Raven Press. ISBN 978-0-89004-384-4.
Frank Hollenbeck is a financial consultant who worked for the State Department as senior economist, Caterpillar overseas as chief economist, and Director of Research at the Banque Eduard Constant in Geneva.
This article is republished with permission from Fundation for Economic Education.