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Managing and Mismanaging the Covid Shock

Summary:
An important lesson from both economic analysis and economic history is that when people are relatively unregulated and free to adjust, they can adjust quickly to various economic shocks, even large ones. But when governments heavily regulate people’s economic activities, these governments slow and often prevent adjustments. The good news is that in 2020, the federal government and many state and local governments have temporarily relaxed regulations to make adjustment easier. The bad news is that many of these same governments have added regulations that make adjustments difficult or impossible. And the further bad news is that many pre-existing regulations have not been loosened and, therefore, act to slow adjustment. One of the most extreme regulations is the

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Managing and Mismanaging the Covid Shock

An important lesson from both economic analysis and economic history is that when people are relatively unregulated and free to adjust, they can adjust quickly to various economic shocks, even large ones. But when governments heavily regulate people’s economic activities, these governments slow and often prevent adjustments. The good news is that in 2020, the federal government and many state and local governments have temporarily relaxed regulations to make adjustment easier. The bad news is that many of these same governments have added regulations that make adjustments difficult or impossible. And the further bad news is that many pre-existing regulations have not been loosened and, therefore, act to slow adjustment. One of the most extreme regulations is the Food and Drug Administration’s heavy requirements that limit testing for the Covid-19 disease.

This is from “Managing (and Mismanaging) the “Covid Shock,” my latest article on Defining Ideas, October 22, 2020.

Another excerpt:

However, there’s a responsible solution for restaurants and bars that want to serve drinks: insist that they serve people outside and insist that they require people to stay seated and socially distanced. But governments seem to have problems with letting people have fun. The California Department of Alcoholic Beverage Control insists that bars may open only if they offer “bona fide meals.” Those meals cannot be pre-packaged sandwiches and salads, side dishes like fries and chicken wings, bagged pretzels or popcorn, or, the horror, dessert.

And then one of the worst:

In the midst of a pandemic, one of the things we would like most to know is whether we have the virus. Testing can tell us that. But existing tests are expensive. After recently traveling, I decided, at my wife’s urging, to get tested. I paid $180 for results within twenty-four hours and got them in six hours. I can afford that. But that’s a lot of money for many people, and six hours is still a lot of time. Wouldn’t it be nice if we could have even cheaper tests that we can conduct on ourselves and get fast results? That way, each of us would know whether to isolate or go to work, bars, football games, or restaurants.

Actually, we can, but we may not, because the FDA stops us. These tests cost under $10 and give results within fifteen minutes. But the FDA won’t allow them because they’re not as accurate as tests it does allow.

Read the whole thing.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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