Mises Insitute on the unseen costs of government-imposed lockdowns

In 1850, French economist Frédéric Bastiat helped the world understand the “seen and unseen costs” of state policies. It is simple to see how quarantines and lockdowns will slow the spread of COVID-19. It is critical, but not so simple, to see the costs and harms caused by the economic shutdown.

Only then can we rationally understand the tradeoffs involved. 

How many Americans suffering from other illnesses cannot see a doctor now? How many Americans will lose their jobs, their life savings, their retirement prospects, and their incalculable feeling of self-worth? How many will succumb to depression, drug or alcohol abuse, and suicide? How many will lose their homes, divorce their spouses, or suffer abuse? How many will never recover in their careers? How many small businesses, including the vital ones of doctors, dentists, and veterinarians, will vanish from your community? How many young people will “fail to launch”?

~ Mises Institute editors, "End the Shutdown," Mises.org, March 31, 2020

Jim Grant on dealing with a complex, uncertain future

The scale of government response is something new. So these things are unprecedented and so one must be very careful about drawing lessons from the past....

But for me, the lesson I have learned, or reinforced, is that … I’m going to quote a screenwriter from Hollywood... William Goldman, who I think wrote Butch Cassidy and Sundance Kid, apropos of the predictability of box-office receipts, William Goldman, from his lips fell one of the great quotations pertaining to all attempts at forecasting and prognostication.

“Nobody knows anything.”

We can know tendencies. We can observe patterns of behavior. We can project. So what the events of the past, the violent events of the past two weeks, have reinforced to me is the necessary humility to stay relatively diversified, relatively liquid and to choke down any thought that begins to resemble certitude. We can’t be immobilized by our ignorance of the future.

We can understand how complex the future is and how predictably, indeed predictably, it can surprise you.

~ Jim Grant, "Nobody Knows Anything," interview with Albert Lu of Sprott Media, March 24, 2020

Jim Grant on the reasons for owning gold

The point is to have liquid wealth available when opportunity presents itself. Gold is many things but it’s not regenerative. And there’s nothing as an investment like a well-priced, successful, profitable well-financed business. So what you want is gold for opportunities. You also want it, not so much as a hedge against monetary disorder because we have that, you want it as an investment in monetary disorder. That’s a second reason. So I guess that’s a little bit of Scrooge McDuck reason but I hold it for those two reasons. I think that it’s going to be helpful for both.

I look forward to liquidating some of my gold bullion, as modest as that stack of coins is. I look forward to, at some point, liquidating that, if I have the nerve and the opportunity to accumulate something that is going to be yielding dividends and cash flow. But the other portion, well I think, I hope, I’ll never sell — that’s the bottom dollar: an investment in the evident tendency of monetary affairs. The arc of monetary evolution points to greater and greater interventions, more radical policy which begets still more radical policy, financial repression and more of that. We got more QE this week than they did under the Bernanke Fed.

So to me the arc of this is very clear and you want gold, both for the inevitable spills in the market for financial assets as well as for the seemingly inevitable destruction, or certainly impairment, of the government-issued money. Those are my reasons.

~ Jim Grant, "Nobody Knows Anything," interview with Albert Lu of Sprott Media, March 24, 2020

Jim Grant on how not to deal with the coronavirus

I was on CNBC a while ago... and somebody said, there’s no trade-off between health and commerce. Of course there is. We suffer, collectively, 40,000 deaths a year on the highways. We could reduce that substantially by posting a 20 mile an hour speed limit. We don’t do that, not because we’re callous but because we live our lives. We take chances. You get up in the morning, you’re taking a chance.

I speak, as few talking heads do speak, with certifiably no epidemiological knowledge at all. I skipped that course entirely. So I don’t pretend to speak from anything more than newspaper reading prejudice on this matter. But I think that the go-hide-in-a-hole approach is probably not well advised.

~ Jim Grant, "Nobody Knows Anything," interview with Albert Lu of Sprott Media, March 24, 2020

Jim Grant on unintended consequences of ZIRP and complacency about inflation

So one of the other unintended consequences of this 10 years of suppressed interest rates and predictable Financial interventions by the Fed, well they’ve given us near record-high equity valuations — they did about 15 minutes ago until it ended or at least paused. We don’t know. They gave us, perhaps, more corporate debt for unit of corporate earning power than ever before, and much of this debt is very low quality. They have given us unicorns. They have given us zombies. They have given us all manner of things, some pleasant to be sure but many corrosive.

What they have not given us is any economy wide or political community wide new revelation into the dangers of the manipulation of the most sensitive prices and capital, namely interest rates. That’s my hobby horse but I think it’s a very dangerous road. We haven’t even talked about inflation. Nobody talks about inflation, right?

Imagine we were even in this conversation, like 35 or 40 years ago, when inflation was still at thing, and I said, Albert, what do you suppose the consequences might be of an immense infusion of new bank credit and to the fiscal program that is likely to reach 10% of GDP? How will you guess that would affect the price level?

And you would think to yourself, that idiot. And you would say, because you’re polite, Jim, I suspect that might lead to above higher inflation. But today no one thinks that. You can look at the futures curve and various interest rate derivatives that reflect current thinking on the likely course of rates and inflation and they’re flat.

Nobody is anticipating any adverse inflationary outcome from this, which I find is a remarkable commentary on the complacent thinking. You’re not thinking of complacency with, on most days, VIX readings at 75 and 80. But with respect to inflation and its prospects, there is certainly complacency rampant[ly] so.

~ Jim Grant, "Nobody Knows Anything," interview with Albert Lu of Sprott Media, March 24, 2020

Ben Bernanke: "Easier financial conditions will promote economic growth"

Easier financial conditions will promote economic growth.  For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance.  Lower corporate bond rates will encourage investment and higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.

~ Ben Bernanke, Washington Post op-ed, November 4, 2010

Neel Kashkari on the $2 trillion rescue package

Think of firefighters putting out a fire. If their primary aim is to conserve water, they increase the odds of losing control of the fire.

The $2 trillion legislation includes many provisions to help both businesses large and small and the millions of Americans who are losing their jobs. As implementation begins, officials will be tempted to develop complex rules to decide who will qualify. For example, if each of the thousands of struggling small businesses needs to be individually vetted, the program is likely to be too slow to meaningfully help the economy. While the U.S. economy can bounce back from a crisis fairly quickly, it took more than 10 years after the 2008 crisis to rebuild the labor market. We can’t let that happen again. Let’s learn from history and douse the raging fire — before it becomes uncontrollable.

~ Neel Kashkari, "What the 2008 rescue package can teach us about today's relief bill," Washington Post, March 27, 2020

Neel Kashkari on Covid-19 bailouts and moral hazard

If there is a principle policy makers need to keep in mind going forward, it’s this: Err on the side of helping as many workers and businesses as possible rather than on prudence. This is not the time to worry about moral hazard or whether people are incentivized not to work.

~ Neel Kashkari, "What the 2008 rescue package can teach us about today's relief bill," Washington Post, March 27, 2020

Maryland Governor issues stay-at-home order in response to the coronavirus

This is a deadly public health crisis.  We are no longer asking or suggesting that Marylanders stay home.  We are directing them to do so.  This executive order will become effective at 8 pm today.

~ Larry Hogan, Governor of Maryland, "Hogan issues stay-at-home order for Maryland to stop spread of coronavirus," Baltimore Sun, March 30, 2020

Jeffrey Tucker on how the coronavirus has "opened up a barrel full of toxic ideology"

It’s been extremely difficult in these times to think clearly as a professional medical service provider might. To them, this is a virus and the people who contract it need to be identified, isolated, and treated. Maybe that doesn’t sound complicated but sometimes the hardest thing is to think simply. It’s darn-near impossible when a perfect storm of media mania, political ambition, and public ignorance combined to open up a barrel full of toxic ideology that has poisoned people’s ability to be rational.

Even now, many people aren’t reading news or looking at data. They are confirming their biases. Our political culture has fully bled – a tsunami of blood – into one of the most essential tasks of civilization: caring for and curing the sick, and hence drowning rationality, science, and medical professionalism, and doing so at the expense of a billion lives.

Yes, that’s the tragic cost of an ideologically obsessed culture. Instead of defeating the virus, we are using its presence among us to defeat each other.

~ Jeffrey Tucker, "Coronavirus as Ideology," AIER.org, March 30, 2020

Jeffrey Tucker on Trump's positions on the coronavirus

There are those who shape everything they believe in opposition to Trump who is the Great Satan. These have been challenging times for them because Trump has whipsawed from one end to the other. He began as a dismissalist who couldn’t even be bothered to follow the news about it, much less look into the egregious failures of testing that were the fault of his own regulatory agencies. Then possibly sensing a chance to exercise the powers of an emperor, he flipped the other way. Now he is this extremely strange mix of opinions but with one overriding theme: he is the hero.

~ Jeffrey Tucker, "Coronavirus as Ideology," AIER.org, March 30, 2020

Jeffrey Tucker on the coronavirus panic

Consider this. On Thursday March 26, [New York governor Andrew] Cuomo dared question the orthodoxy that has wrecked countless businesses and lives. He revealed what actual experts are saying quietly all over the world but had yet not been discussed openly in the endless public-relations spin broadcast all day and night.

[...]

It’s true that anyone following the unfolding fiasco and the gradually emerging data behind it knows that Cuomo is right. The response has not been modern and scientific. It has been medieval and mystical. The theory behind the policy has been nothing but a panicked cry of run and hide before the noxious gas gets you. Lacking reliable data – which is the fault of the CDC and FDA – we replaced knowledge with power.

~ Jeffrey Tucker, "We Were Wrong: So Sorry That We Ruined Your Life," AIER.org, March 28, 2020

Terry Dwyer on the pretense of knowledge

The pretense of knowledge is more dangerous than mere ignorance.

~ Dr. Terry Dwyer, LinkedIn comment, March 29, 2020

Peter Klein on a future world of "pandemic theater"

Actions by the Fed, by the Treasury, by Congress, by the President, that are really striking and distressing to people in extraordinary times can quickly become the new normal.  And I worry that, in a future age which might be constituted by all kinds of crises - real or imagined - the notion that bold, decisive action by the state is necessary to protect us and keep us safe is just going to become more and more part of peoples' expectations.

You know how we use the term "security theater" to describe all of these policies since 911, you know no liquids, more than 3 ounces, taking our shoes off and going through the corn house scanners and so forth.  Young people today have grown up in that environment and don't know what it was like to travel before 911.

I wonder what kind of pandemic theater we'll have to live through after this is all over.  Will you have to have your temperature taken by some TSA-equivalent worker every time you enter a public building?  Will there be random health checks?  I just worry that socially, culturally people are becoming more acclimated to a world in which the state controls the movements of persons and goods and the division of labor is retarded and so forth because it's just too dangerous to allow for a global division of labor.  And maybe I'm overly pessimistic on that score, but I think we need to be especially vigilant, those of us who care about liberty, and try to push back on those things in the months and years to come.

~ Peter Klein, "The Economics of the Shutdown," The Tom Woods Show, March 26, 2020

Bethany McLean on the shale boom and bust (2018)

These days, the rhetoric of “energy independence,” meaning an America that no longer depends on anyone else for its oil, not even Saudi Arabia or OPEC, is in perfect harmony with “Make America Great Again.” But rhetoric doesn’t produce profits, and most things that are economically unsustainable, from money-losing dot-coms to subprime mortgages, eventually come to a bitter end.

~ Bethany McLean, "The Next Financial Crisis Lurks Underground: Fueled by debt and years of easy credit, America’s energy boom is on shaky footing," The New York Times, September 1, 2018

Phil Duffy on the Covid-19 scare and telecommuting

The electronic cottage idea was at first opposed and mocked by the old order.  Today, during the COVID-19 scare, many organizations are requiring employees to telecommute and use the Internet from their electronic cottages.  At first we rushed to mob grocery stores to hoard staples such as toilet paper, then realized that we were compounding our exposure to this newly discovered risk.  Reacting, we started to return to a method of acquiring groceries abandoned in the 1950’s ordering on line for delivery...

Futurists, curiously, do not predict the future – they open our eyes to the possibilities.  But only if we allow our minds, which are certainly capable, to consider the deeper forces of progress and resistance that are in constant conflict.  We are in the middle of the newer force for decentralization against the old order of centralization.

~ Phil Duffy

Dan Ferris on government intervention

If you think more government is the solution, you are the problem.

~ Dan Ferris, editor, Extreme Value, tweet, March 27, 2020

Ed Bugos on the difference between the interventionist and laissez faire positions

One big difference between our perspective and the one you hear from mainstream is that they presume the central bank and government exist to save you from unbridled capitalism and the negative effects of freedom while we see them as bad actors/tools used to exploit and control you, and which produce all the negative effects that you blame on freedom.

~ Ed Bugos, LinkedIn post, March 27, 2020

Jim Grant on ZIRP and "a compromise in the corporate immune system"

For ten years, or thereabouts, central banks of the world have taken it into their power to guide - indeed some might say (Grant's has said) - to suppress or to manipulate what is arguably the most sensitive or most important rate in capitalism, which is the rate at which we discount future cash flows, measure financial risk, and set investment hurdle rates.  That rate of interest, on average, has been under the thumb of our, to be sure, dedicated public servants.  Arguably, the price set by the central banks has been - certainly it's a controversial price - on the evidence of the massive buildup in financial leverage in the corporate and financial sectors - not the banks, mind you, but elsewhere - that price has been too low.  And is it not possible that the consequence of the manipulation of the rate of interest has led to as it were, since we're all epidemiologists now, a compromise in the corporate immune system such that an exogenous shock like this has dealt a blow to finance - has instituted a panic - such that might not have occurred had risk been priced in the market and rather than through administrative means?

~ Jim Grant, Grant's podcast interview with Mervyn King, March 27, 2020

Saint Augustine on hope

Hope has two beautiful daughters; their names are Anger and Courage. Anger at the way things are, and Courage to see that they do not remain as they are.

~ Saint Augustine of Hippo, City of God (426 AD)

Kevin Duffy on the coronavirus, experts, simple narratives and statistics

Beware the following:

1. Self-appointed "experts" provide a simple explanation to a complex problem.

2. Their message gets promoted by non-objective authorities (more "experts") like politicians and the mainstream media who have their own biases and agendas.

3. The crowd swallows this simple explanation whole and repeats over and over until it becomes accepted truth.

This explains the reaction to the coronavirus warnings to a "t."

"Experts" like CDC and WHO said Covid-19 could infect 40-70% of the population and that the average mortality rate is 3.4%.  True, but not true...

The average case mortality rate is 3.4% (U.S. so far is 1.5%).  This is not the overall mortality rate because the denominator only counts confirmed cases.  (This does not include everyone who caught the virus, but was asymptomatic or never got tested and reported it to the authorities.)

People are freaked out because 3.4% sounds a lot scarier than the 0.1% mortality rate from the seasonal flu. However, the flu rate is based on estimated cases.  If we look at confirmed cases, the case mortality rate from the seasonal flu is more like 10%.

Now I'm not suggesting the seasonal flu is 3x as deadly as Covid-19.  I'm only suggesting that Covid-19 is nowhere near 34x as deadly as the flu.  To multiply 40-70% by a 3.4% mortality rate is to make an obvious and gross statistical error.  This would imply between 4.5 mil and 7.8 mil deaths in the U.S.  No wonder people freaked out!

How could everyone miss something this obvious?  That is the nature of crowds... and blindly following "experts."

Does anyone remember the Beardstown Ladies who wrote three bestselling investment books during the mid- to late-'90s?  They became minor celebrities for beating the stock market for an 11 year period, doubling the S&P 500's annualized return.  As it turned out, they miscalculated their performance (honest mistake). In fact, they underperformed the market by 3% per year.  This gross error wasn't caught for three years!

~ Kevin Duffy, Facebook post, March 26, 2020

Mark Skousen on response to coronavirus: "Government officials are using a sledge hammer to crack a nut"

Today the Wall Street Journal issued its best editorial regarding the current crisis: “No society can safeguard public health for long at the cost of its economic health.”

The WSJ is finally saying what a lot of us have been saying all along — government officials are using a sledge hammer to crack a nut.

What various government officials are doing is over the top, shutting down entire states, closing airports, and threatening to take over private businesses “for our own good.” This will cause a true Depression if it lasts more than a couple more weeks.

~ Mark Skousen, "Using a Sledge Hammer to Crack a Nut," FreedomFest Forum, March 20, 2020

Kevin on bubbles and bailouts

When the tech bubble burst, nobody got bailed out.
When the credit bubble burst, Wall Street got bailed out.
Now that the everything bubble is bursting, everyone wants a bailout.

~ Kevin Duffy

William Anderson on experts and the coronavirus panic

There are a number of pictures that come to mind in the current situation. One is the picture that people such as Donald Trump and Anthony Fauci would like us to see, which is of experts in charge who are monitoring changes on the ground as they occur and giving orders to fix problems. However, there is another picture out there, one that will not be as well publicized: a herd of politicians careening from one crisis to another, giving conflicting orders and creating chaos and economic ruin.

~ William L. Anderson, "The Costs Are Mounting in the Government-Imposed Economic Collapse," Mises.org, March 24, 2020

Kevin Duffy responds to the shut-everything-downers

1. EVERYONE has a bias. What makes us think these self-appointed "experts" are 100% objective?

2. Complex phenomena like the coronavirus tend to make everyone look bad, including the experts. In fact, often times experts suffer from focus illusion, or tunnel vision, and can be worse than generalists in their predictions. (See the book 'Superforecasting.')

3. As long as there is scarcity, all problems are economic. The most efficient way to allocate scarce resources is through the marketplace. The worst way is by central planners. E.g., Stalin thought penicillin was a miracle drug. It became overused and ineffective.

4. People are not stupid. Everyone around me is weighing the risks and acting accordingly. If you're at risk, self-isolate. Unless infected people are breaking into your house, they are not infecting you. Businesses can also be creative, e.g. having senior hour at the grocery store. If allowed to operate, the marketplace will experiment.

5. Hiding under a rock is not an option. It risks certain death.

6. If the experts are so concerned about contagion, why allow any business activity at all? Why aren't they suggesting the grocery stores be shut down? Double standard.

7. People who gravitate to power love a crisis. "Never let a crisis go to waste." We need to be vigilant about giving up our freedoms at times like this.

8. If we allow state and local governments to shut down "non-essential" businesses, where do they draw the line? People need to eat, but they can't go to a restaurant? Yet fast food is ok. If gatherings around a table enjoying a meal are dangerous, why allow people to do this privately? Slippery slope. 

9. Is government an essential business?

10. Shutting everything down will destroy wealth. Since money saves lives, people will die as a result. These deaths just won't be counted.

Kevin Duffy, Facebook post, March 24, 2020

William Anderson: "There is no better way to make the masses vulnerable to disease than to impoverish them"

What we are seeing is how many people want governments to respond to a situation characterized by uncertainty.  In such circumstances, they demand “solutions” that only can make things worse, and there is no better way to make the masses vulnerable to disease than to impoverish them.

~ William L. Anderson, "The Costs Are Mounting in the Government-Imposed Economic Collapse," Mises.org, March 24, 2020

Eric Boehm on how Trump's tariffs reduced imports of medical products from China

Hand sanitizer, patient monitors, thermometers, oxygen concentrators, medical protective clothing, sterile gloves, and more were targeted with tariffs in three phases since July 2018. Those tariffs were imposed despite repeated warnings from medical professionals that they would disrupt supply chains and erode the health care industry's ability to respond to a crisis.

Unsurprisingly, American imports of those Chinese-made medical products fell by 16 percent between 2017 (the last full year before Trump's tariffs) and 2019.

~ Eric Boehm, "Trump's Top Trade Official Says China Tariffs Didn't Harm Coronavirus Preparedness. Don't Buy His Spin.," Reason.com, March 24, 2020

Tom Galvin justifies New Economy vs. Old Economy valuations (2000)

Look, I think tech stocks are innocent until proven guilty.  If Veritas is growing earnings 40-50% and Gillette is growing earnings at only 1.5%, is Veritas worth 20 times the multiple Gillette has?  I don't know, maybe so.

~ Tom Galvin, chief investment strategist, Donaldson Lufkin & Jenrette, Barron's, "The Trader" section, April 24, 2000

Barton Biggs thinks Cisco Systems finances 20% of its networking equipment (2000)

In a recent research note, Morgan Stanley's Barton Biggs said he's been hearing that Cisco [Systems] will give some of its customers nine-year notes on some of its equipment with no interest or repayment during the first three years.  Biggs says some people at the company have acknowledged to him that a good portion of this equipment will be obsolete in three years...  So how much of Cisco's business is financed this way?  Biggs says he thinks it's somewhere in the neighborhood of 20%.

~ Barron's, "The Trader" section, April 24, 2000

Jeffrey Tucker on the knowledge of the marketplace

What is brought to bear in all of this is the knowledge, experience, informed judgments, and insightful hunches of all the individual participants of the entire global system of division of labor in the worldwide marketplace of goods and ideas. If, as the saying goes, two heads are better than one, then surely 7.7 billion heads are better than all of the best minds of the relative handful of those in government who would presume to know how to “get things done” in better and more balanced ways than when all those billions of minds are set to work through the motive of profit and the avoidance of loss in attempting to improve one’s own circumstances.

~ Jeffrey Tucker, "Leaving People Alone is the Best Way to Beat the Coronavirus," AIER.org, March 23, 2020