Governments Can’t Plan Economy’s Reopening


President Donald Trump and governors around the country are clashing over who has the authority to decide when and how to “reopen” the economy. Yet government officials can’t know how to plan that reopening for precisely the same reasons that they can’t know how to plan an economy that’s already open.

Centrally planned economies have a 100-year history of stagnation, inefficiency, and shortages of basic consumer goods. It didn’t take a global health crisis to empty the shelves in Cuban or Venezuelan grocery stores. Mistakes made by central planners, who hold monopoly power over economic decisions, did that all on their own.

The future is necessarily uncertain. So, anyone forecasting supply and demand for a given product is bound to make mistakes. But market economies decentralize decision-making. The mistakes of some entrepreneurs are usually made up for by the correct actions of others, while profit-and-loss signals guide mistaken entrepreneurs to adjust their behavior.

The miracle of the market consists of this: allowing entrepreneurs, guided by prices, to make their own production decisions guarantees that our store shelves will be reliably stocked with a massive array of products. That’s how it’s been until recently.

The recent shortages are the result of a demand spike: consumers rushed to buy weeks’ supplies of some goods all at once. Government anti-price-gouging laws aggravated the situation, but most markets are working, and entrepreneurs are restocking the shelves.

Unfortunately, the health care sector is one of the most regulated sectors of the U.S. economy. Government planners limit the ability of entrepreneurs to discover better ways of providing health care—with predictable dismal results.

When the COVID-19 pandemic began in the United States, the Centers for Disease Control (CDC) exercised its monopoly power to produce tests and then botched their development. Numerous health entrepreneurs have developed new and more effective tests since the government relaxed the CDC’s monopoly.

Similarly, the Food and Drug Administration’s (FDA) safety and efficacy requirements impede entrepreneurs from bringing new drugs to market. But the FDA does not have a monopoly on the knowledge of what works. Doctors, patients, and entrepreneurial drug companies need the “right to try” in order to rapidly learn the best treatments. Fortunately, COVID-19 treatments and vaccines are getting special fast-track approvals, but the need for special approval illustrates the problem.

Hospitals have been ordered to cancel non-essential surgeries and appointments. Yet hospitals in most of the United States are not overrun with COVID-19 patients, and banning hospitals from their normal activities has dried up their revenue and resulted in their furloughing workers amidst the health crisis.

Clearly the health care sector needs to be freed from central planning.

As for the rest of the economy, federal, state, and local government officials will be coming forward with their own plans for when, how, and which businesses can open in the coming weeks. Each level of government will exert monopoly authority in its jurisdiction. But none of them knows how to structure the reopening.

Government planners at all levels need to cease giving us orders on how to run our economic and personal lives. Individuals need to be free to choose how to interact with others, including businesses. This, however, does not mean a return to the “normal” that existed before the COVID-19 pandemic.

Customers are now less likely to frequent, and employees are less likely to work for, businesses where health risks are high. As a result, business owners’ own profit-and-loss incentives will force them to absorb the cost of preventing a potential spread of COVID-19 in their establishments.

Entrepreneurs will balance these risks against the desires of people to make mutually beneficial exchanges. In short, entrepreneurs will be incentivized to discover the best ways to lower the risk of infection in their businesses in order to encourage people to deal with them.

Going back onto airplanes and into stores and restaurants will not be the same. However, the best solutions in each of these situations won’t be uniform everywhere. Thus, no government planner can know how to best reopen the economy. How consumers and employees respond needs to be discovered through the entrepreneurial market process. That can only happen if government planners liberate us to choose for ourselves.