The Coronavirus Crisis Catastrophe Was Caused By The Actions of Government

by | Oct 22, 2020

What do the Great Depression and the Second World War have in common with the coronavirus crisis of 2020? They have all been caused by government! 

Few would disagree that we have been and are living through some unprecedented times in 2020. A global pandemic, government-imposed and mandated lockdowns and shutdowns of much of the world’s economic activities and social interactions, and total government debts that cumulatively are almost equal to the global economy’s Gross Domestic Product (GDP).

But while comparisons are being made between the impacts and effects of the coronavirus and the Great Depression of the 1930s and the war years of the 1940s, they are not really anywhere alike. To begin with, the Second World War cost the lives of an estimated 50 million people, combining military and civilian lives lost. Advancing and retreating armies and air bombardments undertaken by all sides in that conflict destroyed an immense amount of the world’s physical capital, especially in Europe and parts of Asia. Nothing during the last year comes even close to this from the coronavirus.

The Global Human Impact of Covid-19

According to the World Health Organization (WHO), as of the middle of October 2020, there were over 39 million global confirmed cases of the coronavirus, with almost 1.1 million deaths attributed to it. It is worth keeping in mind that the world population is estimated at over 7.8 billion people. This means that, as of now, .005 of the world’s population have caught the virus and .0000141 percent of all the people on the planet have died due to the virus.

So far this year, there have been over 46.8 million deaths, worldwide, from all causes. That means that so far in 2020 the loss of life due to the coronavirus has represented about 2.4 percent of all deaths around the world. In the United States, there are about 7.9 million recorded cases of coronavirus, with 216,100 virus-related deaths. The U.S. population is around 331.6 million people, meaning that total Covid-19 cases have equaled 2.4 percent of all the people in the country, and deaths from the virus have equaled .00065 percent of the population. According to the CDC’s National Vital Statistics Report (June 24, 2019), in 2017 almost 650,000 people died in the U.S. from heart-related diseases alone. That is, coronavirus-related deaths have equaled in 2020 about one-third of those just due to diseases of the heart in 2017.

This is not to belittle or detract from the seriousness of the virus. One of my own family members came down with the coronavirus and had what they said was the worst 10 days of their life before, happily and successfully, recovering. And I know people whose relatives have died from contracting the virus. The personal loss of a loved one, of course, has no measure.

Covid-19 Compared to the Great Depression and WWII

However, in terms of magnitude of impact, in 1940, the world population is estimated to have been around 2.34 billion people. If that number of 50 million lives being lost in World War II is more or less accurate, that was almost 2 percent of everyone on the planet over those years of war. And it took many parts of Europe affected by the Second World War more than a decade to economically fully recover from the physical destruction caused by the conflict. Thus, while the comparison to the cataclysm of World War II creates stark imagery, the effect of the coronavirus, so far, comes nowhere close to that war’s human and material ravages.

The other comparison often made is to the Great Depression of the 1930s. The start of the Depression is usually dated with the stock market crash of October 1929. In late 1929, U.S. unemployment was calculated by the government to have been 3.2 percent of the labor force. Four years later, in early 1933, unemployment stood at 25.2 percent of the labor force. Gross National Product had decreased in 1932-1933 by 54 percent of its 1929 size, with investment and consumer spending down, respectively by 80 and 40 percent during that period. Wholesale prices had decreased by almost 25 percent, with farm prices half of what they were in 1929. Over 9,000 banks had failed. In spite of all of the New Deal spending and “stimulus” programs beginning in 1933, in June of 1938, with a new recession occurring before the Great Depression had even ended, unemployment was still at 19 percent of the labor force, almost ten years after the stock market crash.

In February 2020, the unemployment rate in the U.S. was 3.5 percent of the labor force. With the government mandated stay-at-home lockdowns and the do not go to work or shop for “nonessentials” shutdowns beginning in March, GDP, which had grown by 2.3 percent during 2019, decreased by 5 percent in the first quarter of 2020 and dropped by 31.7 percent in the second quarter, at annualized rates. And unemployment in April of 2020 rose to just shy of 15 percent of the labor force.

But by September of 2020, unemployment had decreased to 7.9 percent, according to the Bureau of Labor Statistics, and the Atlanta Federal Reserve, in its October 16, 2020 GDPNow release, estimated that U.S. GDP increased by 35.2 percent in the third quarter of 2020 from its low in the second quarter of the year. If new government-decreed lockdowns and shutdowns are avoided for the remainder of the year, unemployment should continue to go down during the last quarter of 2020, with GDP reversing more of the dramatic decrease in the first and second quarters of the year.

The Great Depression of the 1930s continued for practically the entire decade in the United States in terms of output and, certainly, unemployment. The economic catastrophe of 2020 has had devastating effects on small and medium sized businesses, and even some of the larger corporate enterprises as well. People’s lives have been severely disrupted and harmed in terms of income and jobs lost, along with businesses that will take years to fully recover, with some of them gone for good. And social life, with all of its meaning and human connectedness and intimacy, has been turned upside down in terrible ways, especially and most certainly for those of children’s lives inside and outside of school.

But as damaging and of a duration similar to either the Great Depression or the Second World War? So far, these comparisons are gross exaggerations.

The Common Cause to These Catastrophes: Government

What, then, do these episodes of the Great Depression and the Second World War have in common with the coronavirus crisis of 2020? They have all been caused by government!

The actual cause for the coronavirus outbreak in Wuhan, China in late 2019 remains uncertain and controversial. But there can be no doubt that the Chinese government’s response to it has set the tone for the rest of the world. Beijing’s decision to impose draconian lockdowns over tens of millions of people, accompanied by surveillance, arrests, and punishments for those failing to fully obey government orders became the model political template for many of the leading countries around the world. (See my article, “The Conquest of America by Communist China”.)

Once Western governments noticed the arrival and spread of the virus in their countries, they almost immediately put in place entire lockdowns. The fears were spread by what are now understood to have been highly exaggerated estimates and claims about the threatened loss of lives, if governments did not “do something” and in a big way, because of the estimates of impact by institutions such as London’s Imperial College in March 2020, with an hysteria-causing projection of 40 million deaths in 2020, if governments did not act in those draconian ways.

So, in effect, governments in Europe and North America introduced Chinese-inspired command and control central planning in an attempt to stop the spread of the virus. The media dramatized this with pictures of towns and villages in places like Italy or Spain that were forcibly and literally cut off from all contact with the rest of the world.

Economic Disaster and Disruption from Government Shutdowns

Commercial and vacation air travel came to a virtual halt between countries and continents due to government decree, and even with modest letups the air travel industry’s scheduled flights are down more than 46 percent compared to October 2019, with airline revenues down by nearly half. Worldwide, the travel and tourism industry, alone, could possibly lose 100 million jobs.

The severe impact from government responses to the virus, both domestically and internationally, has led the World Bank to revise its estimate of the effect on poverty around the globe. In 2017, it was estimated that only 9.2 percent of the world’s population still lived in “extreme poverty” anymore, or about 690 million people. But because of the coronavirus and government halts to work, jobs, and trade, the World Bank projects that as many as 115 million additional people will sink back into the category of severe poverty, “setting back poverty reduction by about three years,” the Bank estimates.

Governments not only cut off their citizens from their economic interdependencies with those in other countries, but with their fellow citizens within the same country, due to the mandated lockdowns and shutdowns. More than anything else, an important economic lesson from this episode of government command and control is how delicate and reliant any society’s social system of division of labor is on the uninterrupted flow of resources and goods between sectors of the market.

This is needed to assure not only output in general, but coordinated balance in and between various lines of production and the respective stages of production in each, without which the goods demanded by consumers and other producers cannot and will not be available when, where, and in the relative amounts desired by demanders throughout the economy.

Another way of saying this is that “supply-chains” matter, in that all production takes time, and invariably in a developed economic system pass through a sequence of stages or steps before a particular good can be fully brought to completion, ready to be bought and used by someone, somewhere in the global economy.

Complementary to this is that everyone’s specialized place in the division of labor as the basis and source of their employment and earned income is equally dependent on everyone else doing their job somewhere in the same or some other process of production to enable everything to constantly go smoothly. In addition, going constantly smoothly also means adapting and adjusting to changing supply and demand conditions and circumstances so that things go on more or less smoothly even when market situations do not stay the same as they have been in the past. (See my articles, “How Lockdowns Shattered the Structure of Production” and “There Will be No Recovery Without Production”.)

Market Adaptation and Price Coordination

Even if governments had allowed the coronavirus to run its course without any of the imposed restrictions and prohibitions on work, employment, buying and selling, and social interaction in general, noticeable economic disruptions and imbalances would, no doubt, have emerged and shown themselves.

The changed demands for and the required production adaptations to needed medical and health-related materials and equipment, for instance, would have required reallocations and adjustments to what, where, and how a variety of goods were being manufactured and made available on the market. Even without government decree, how people worked and where would have still been noticeably modified, through the self-interested and voluntary associative decisions of many participants in the marketplace.

Crucial to all this, in a “crisis” time such as this year of 2020 as much as in “normal” times, is the competitive pricing system of the market economy. Market-based and originating prices have work to do, without which complex networks of human association are essentially impossible in what is now a global system of interdependency and cooperation.

There is no workable alternative to a functioning price system to integrate or coordinate the diverse and dispersed knowledge, skills, abilities and knowhows of the 7.8 billion people who populate this common planet of ours. Through those market-based prices we communicate and “converse” with multitudes of others, both next door and on other continents about what it is we want as consumers and what we might be able to do as producers and suppliers, including the “costs” for us to do so.

Political Commands Prevented Market-Based Cooperation

Yet, this interdependency of cooperation and coordination was seriously interfered with and in many instances brought to a halt by governments and their centralized decisions about who should still be allowed to go to work, producing what goods and services, and under what work conditions. And by telling people when they could leave their homes, for what purposes, and which goods they might demand and at what prices.

How do those supply-chains for manufacturing and marketing continue as needed and necessary when governments shut down the supplies and demands of the society? What else can be expected when governments dictate who can produce what “vitally” needed goods, and prohibit open competition from performing its “discovery” function of offering the opportunities and incentives for people to try to find ways to solve the problems created by the coronavirus crisis in the most effective and time- and cost-efficient ways? (See my articles, “Price Controls Attack Freedom of Speech”, “To Kill Markets is the Worst Possible Plan” and “Leaving People Alone is the Best Possible Way to Beat the Coronavirus”.)

Incomes, livelihoods, businesses, and the life savings of tens of millions of people in the United States, and hundreds of millions of people around the world have been weakened, disrupted, or destroyed by governments imposing command and control systems of centralized planning on their populations in the name of “defeating” the virus.

The abject failure of all these economic dictates are being shown with the resurgence of the coronavirus, after assuring people that after these extreme measures, the virus will be reduced to manageable proportions with a hoped for return to “normalcy.” The proponents of the lockdowns and shutdowns are often heard, now, saying, “If only they had been kept in place longer, if only they had been even more comprehensive and complete than they have been!”

It is worth recalling that, at first, the lockdowns were said to be necessary to limit the strain on health care systems, to “flatten the curve” of cases so as to not overwhelm hospitals and intensive care units. It was not suggested that the virus would be gone, but merely slowed down in its transmission to better handle the number of those needing treatment and care from medical personnel and facilities. By doing so, the anticipated time over which the virus would plague society would be extended, not shortened.

The coronavirus, in other words, is just continuing to run its course. Again, this should not be interpreted as calling for a passive fatalism. Very much to the contrary. But the logic of markets versus government planning strongly suggests that the responses to the pandemic by adjustments and accommodations by people inside and outside a free and competitive marketplace through the voluntary interactions and associations of civil society would have been not only no worse but far better than what has been disastrously experienced under the heavy hand of political coercion.

We have been paying a very high price in human lives and social harmony because of so many governments deciding to follow the Chinese model of totalitarian-type planning of human affairs during this coronavirus crisis. The extent to which an economy freed from those most draconian measures has the resilience to begin the process of restoring some balance and coordination is demonstrated in the United States, for instance, by unemployment falling almost by half from its high in April of 2020, and the likely strong recovery in GDP in the third quarter of this year, if the Chicago Federal Reserve’s advanced estimate is close to the mark.

The Great Depression and WWII as Instances of Government Failure

The Great Depression of the 1930s was also an instance of huge government failure. First by the misguided “activist” monetary policy of the Federal Reserve in the 1920s in generating imbalances between savings and investment that set the stage for the downturn, and second by the interventionist and fiscal activism of both the Hoover Administration in the early 1930s and then exacerbated by the New Deal programs of Franklin Roosevelt through the remainder of that decade, especially with FDR’s fascist-like systems of control and planning of industry and agriculture during the first three years after coming into power. It was the continued imposition of anti-market regulations, controls and restrictions year after year under two administrations that perpetuated the Great Depression for a decade. (See my eBook, Monetary Central Planning and the State, chapters 10-14, and my article, “When the Supreme Court Stopped Economic Fascism in America”.)

And the Second World War can be placed at no doorstep other than that of governments in Europe and Asia hellbent on war and conquest that resulted in a global conflict of immense death and destruction through modern weapons of war used by all belligerents in the conflict. (See my article, “FDR and Stalin Planned the Future of the World”.)

Treating the coronavirus as if it were a war-like national emergency, President Donald Trump had asserted in the spring of 2020 his supposed executive authority to shut down the economy and to determine when it should be reopened. In fact, the large majority of shutdowns around the nation were decided and dictated by the state governors and various municipal authorities. They were the ones, even more than Trump, who brought American society to a near standstill for either weeks or months.

What is making the economic impact of the coronavirus crisis in the U.S. far less severe than the Great Depression is that the commanded closing of America has only been a matter of months (so far!), rather than year after year of central planning, price and production interventionism, along with monetary and fiscal madness, as throughout the 1930s.

More than one historian has observed that crisis times often make for near “experiments” in the efficacy of various government programs and policies precisely because they are magnified in terms of their extent and impact.

The great lesson that the coronavirus crisis of 2020 should teach us is that government’s intervening and controlling hand prevents the far more effective and efficient means of mitigating and solving the problems surrounding a crisis that open and competitive markets offer and make possible.

Made available by the American Institute for Economic Research.

Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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