The Economic Stakes of the Election

Donald Trump and Joe Biden have numerous economic policy differences. In my view, the most important concerns the largest social and economic experiment in American history: the COVID-19 “lockdowns.”  

Coronavirus lockdowns are a trade—a cost-benefit decision—made by state and local governments. We cannot know as of yet whether the underlying cost-benefit calculus makes sense, but we can at least explain the trade—the decisions  we have made to give up one thing in hopes of achieving another. Let’s start with costs. What are these costs, and who bears them?  

Cost #1. The lockdowns mean that the right to earn a living is much more fragile and contingent than we thought. Consider that because of the lockdowns, my right, and yours, to earn a living depends on whether a governmental official allows it. It is not clear to me how this does not reduce a free people to a kind of economic slavery in which economic status depends on being declared “essential.”

Cost #2. The right to earn a living has been replaced with a kind of dependence on the central bank. The millions of people whose already-fragile economic position has been destroyed now depend on the Federal Reserve to immediately monetize the Treasury’s funding of direct payments to them. What is this other than a new and technocratic form of subservience?

Cost #3. The economy, and our country, is now much more vulnerable to viruses. It seems obvious that terrorists and other enemies now understand that to take down America they do not need a coordinated nuclear attack. They just need to engineer a virus and release it anywhere into the world. I am not a virologist, but I understand that this is very feasible.

Cost #4. The surveillance state has a legitimacy that it did not have prior to COVID-19. It is now apparently legitimate for state and federal agencies to observe, as well as regulate, my daily social interactions. It seems to me that part of the trade here is not merely “privacy,” but rather a significant erosion in the right to free assembly.  

Cost #5. The idea of “externality” as justification for social intervention has been sharply expanded (an externality is a cost imposed on one person by another, and for which the “victim” is not compensated). Sickness is social—every human interaction carries with it the risk that illness will be passed from one person to the next. It follows from this that social interaction carries with it an externality problem. For economists and other social scientists, the main justification for policy intervention is that it solves an externality problem. In the past, the extent to which disease justified policy intervention was limited. It was limited to vaccination and perhaps general healthcare subsidies. Now, the idea that externality requires regulation has been taken to its logical conclusion: All social interaction entails a potential negative externality called “disease.” All social interaction is potentially dangerous and can be regulated.

Cost #6. There are significant psychic costs, including severe ones that result in suicide, associated with the lockdowns.  

Cost #7. Normally, deficit spending is a trade of current costs for future ones. However, at some unspecified level of debt, additional deficit spending (monetization of transfer payments) will pose a threat to the global financial order. This can in theory be ignored for a long time, particularly at very low interest rates, but at a minimum the lockdowns and their associated high levels of deficit spending have brought this risk forward in time and increased systemic fiscal and monetary risks.

Cost #8. Small retail suffers relative to large online retailers. America’s middle class historically developed out of three things: widely distributed, relatively small landholding farmers; widely distributed manufacturing capital and associated high-paying jobs; and widely distributed small retail. Of these, only small retail remained pre-COVID—and it was holding on by a thread in the face of Amazon, Walmart, and a trend toward retail bigness. COVID lockdowns may be the nail in the coffin.

So who bears these costs? Costs 1, 2, 6, and 8 are borne by people whose jobs cannot be done mostly on computers—people other than Robert Reich’s “knowledge workers.” These include barbers, restaurant workers, bus operators, small retailers and their employees, and most of the “deplorables.” Costs 3, 4, 5, and 7 are borne by everyone.

Now to the benefits. The chart below is all you need to know. It shows Sweden’s COVID-19 deaths, which peaked April 15. Because Sweden did not order a lockdown, it is the best “control group” we have in the massive social experiment that we have conducted since March 2020.

Sweden Daily Deaths from COVID-19

In short, we have traded away many of our basic liberties and some of the most basic facets of “real life” for a supposed benefit that is also seen in the control group—the society that did not give up on real life.

Now to the election. Trump argued during the October 22 debate that we cannot lock ourselves up. In his view, we have to learn to “live with” COVID-19, or we will not have a country. By contrast, Biden argued that we have been learning to “die with” COVID-19. In his view, lockdowns were—and presumably will continue to be—necessary or potentially necessary interventions.

Admittedly, neither candidate was clear about what, specifically, he meant by “living with” or “not living with” (to paraphrase Biden) COVID-19. However, neither candidate has to be. We know that Trump prefers to allow—and to allow states to allow—life that retains some semblance of normalcy. We know that Biden does not.  

If you choose to believe that the costs of lockdowns were, and in the future will continue to be, worth the lives saved, and if you are comfortable with the distribution of these costs, then Joe Biden is your man. Otherwise, he is not. 

Timothy Reichert is an economist living in Denver.

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