Coronavirus is hurting the economy. That doesn’t mean the government should try to prop it up with a stimulus package.
It’s impossible to know how much economic damage the coronavirus will do. As of this writing, the S&P 500 is down more than 20 percent since it peaked in early February. The list of Las Vegas conventions that organizers have postponed or canceled is long and growing. The NBA and NHL have suspended their seasons indefinitely. President Donald Trump has issued a travel ban covering most of Europe.
The pain that Las Vegas residents will feel is real. Tourism, whether for business or pleasure, still drives the Southern Nevada economy. Fewer tourists mean smaller paychecks for hotel and convention workers, restaurant employees and entertainment providers. Those people have fewer dollars to spend at local stores or for projects such as home improvements. If this drags on for months, people will start missing mortgage payments and facing foreclosures, triggering another downward spiral.
These are awful things. But they aren’t the government’s job to fix. Business failures are a reality of life. Twenty percent of businesses go out of business in their first year, according to the Bureau of Labor Statistics. The five-year survival rate is around 50 percent.
Every business closing represents a hardship for its owners, employees and the broader community. Paradoxically, those failures are vital to success of the overall economy. When struggling businesses close, it frees up their resources — both financial and human capital — for more productive endeavors. This is “creative destruction,” as economist Joseph Schumpeter called it, in action.
The counter to this idea is that when too many businesses fail at the same time, it causes the economy to fail. That triggers a wave of hardship for otherwise healthy businesses, which is why the government should intervene.
This argument is like saying that it’s wrong to steal unless you have a chance to steal a lot of money. Either “creative destruction” is an overall good or it’s not.
If the philosophical argument doesn’t sway you, the practical failures of government intervention should. Large-scale efforts by the government to run the economy result in utter poverty. In Venezuela, socialism has led to a shortage of food and toilet paper. Despite Sen. Bernie Sanders claims, Nordic countries aren’t socialist. They combine free-market economies with tremendously high tax rates that pay for their extensive social programs.
Domestic efforts to prop up the economy haven’t worked either. There is still public resentment from the bank bailouts of 2008. In 2010, then-president Barack Obama promised his stimulus package would quickly reduce unemployment. It didn’t. The Federal Reserve reduced interest rates earlier this month. The market kept tanking.
Now Trump has called for an economic stimulus package that could include payroll tax cuts and loan guarantees. Payroll tax cuts don’t make sense when the biggest economic concern is people avoiding public gatherings. Small business loans and delaying payroll tax payments are probably the least destructive measures the government could take.
Democrats are going even further afield. Democrat senators want to force companies to offer paid sick leave. Not a great help when businesses are facing financial ruin and coronavirus spreads when people are asymptotic. House Speaker Nancy Pelosi tried to sneak through a provision opening the door to taxpayer-funded abortions, according to reporting by the Daily Caller.
If the government was competent, it wouldn’t have botched the roll out of testing for coronavirus. That mistake prevented health officials from identifying and quarantining those with the virus, which could have dramatically slowed its spread.
Government ineptitude has already done enough to damage. Don’t let it do more under the guise of stimulating the economy.
Victor Joecks’ column appears in the Opinion section each Sunday, Wednesday and Friday. Listen to him discuss his columns each Monday at 10 a.m. with Kevin Wall on 790 Talk Now. Contact him at firstname.lastname@example.org or 702-383-4698. Follow @victorjoecks on Twitter.