The Day After

I have a number of reservations about Brian Wesbury’s post at RealClearPolitics about the havoc that the measures adopted in reaction to SARS-CoV-2 is wreaking on the U. S. economy including his analogy of “mark to market” during the late financial crisis with the reliance on models of likely mortality due to COVID-19 and that the financial crisis reenforced the notion of “government as savior” but I think this is a good, succint description of the likely aftermath of the lockdowns:

Millions of small businesses will never reopen. Hospitals, universities, and state and local governments are all facing damage that will take years to overcome. Our children missed graduations, proms, sporting events, and more. The mental damage could last them a lifetime. And when their parents lose their jobs and must go on the government payroll, it will cause even more pain. What is more “essential” than taking care of your children? But, that doesn’t matter because the government has decided what is essential and non-essential. And this has all been caused by models that most experts now agree were wrong.

I don’t think, however, that he has come to terms with the implications of a fiat currency:

There is not enough money in the Treasury to fix all this. Every dime the government spends ultimately comes from the private sector. If we shut the private sector down for just a couple of weeks, let alone months, the cost will take generations to repay.

The Treasury is in no danger of running out of money. It can merely extend credit to itself (or, more precisely, the Federal Reserve can issue the credit and buy up the Treasury’s bonds). And repay? It will never be repaid. We haven’t repaid the money that was borrowed to finance the War of 1812.

However, there is a risk. If the money is used to spur consumption rather than to increase production and we simultaneously try to reduce our reliance on overseas supply chains, there is an increased risk of hyperinflation. For the time being we’ll be so worried about deflation that the idea of hyperinflation won’t even occur to most.

There’s one thing that should never be forgotten. COVID-19 isn’t wrecking the economy. The government response to COVID-19 is wrecking the economy. That’s at all levels.