The policy response to the Covid-19 pandemic has throttled the global economy in what Gene Epstein calls the Great Suppression. If we want to get out from under its crushing weight, we would do well to embrace economic freedom. Thats the conclusion reached in a new paper in Contemporary Economic Policy by the economic historian Vincent Geloso of Kings University College in London, Ontario (also my colleague at the American Institute for Economic Research) and the economist Jamie Bologna Pavlik of Texas Tech University. Geloso explains more here.
They come to this conclusion by studying how economic freedom mitigated some of the effects of the 1918 global flu pandemic. The measurement of economic freedom has a long and venerable history, and in a 2016 paper in the Economic History Review, the economist Leandro Prados De La Escosura introduced historical measures for OECD countries.
Economic freedom, importantly, gives people the flexibility to adapt to changing, on-the-ground conditions in real time instead of waiting around for permission from regulators or elected officials who, during the Covid-19 pandemic, have actively obstructed peoples efforts to deal with the new reality.
Contagious diseases are textbook examples of market failures in that one persons actions spill over onto others. If you get a flu shot, for example, you lower the probability that the people around you get the flu even though they dont compensate you for it. If you go out to a restaurant or other public place, you might spread germs that infect people you wont have to compensate. According to the theory, people get too few flu shots and spend too much time spreading their germs.
This need not be a pretext for command-and-control policies, however. A lot of people were already going into action buying masks before the CDC discouraged it (later, of course, CDC guidelines would make masks more or less obligatory). I took an at-home Covid-19 test last week as a condition for being able to return to my office (it came back negative). It was hard not to think about the March headline San Francisco startups have suspended sales of at-home coronavirus test kits after the FDA issued a warning.
The aggregate responses of free people with free minds cooperating in free markets will by no means be perfect if we have as our standard the best world we can possibly imagine. As Geloso and Pavlik show in their study of the 1918 flu pandemic, they are better than the regulatory alternative.