Given how trendy it is to blame capitalism for all the world’s ills, from wars to climate change, it’s no surprise that some have been quick to pin the current crisis on the failures of free markets too. Many have also used the need for unprecedented government intervention as evidence that the state should play a much bigger role in normal times as well. This is, to put it as politely as I can, rather disingenuous.
Let’s start by slaying a couple of strawmen. First, even the fiercest critics of the “nanny state” would agree that public health cannot be left entirely to the markets. As Chris Snowdon has explained, the risk of a great many deaths from coronavirus is a textbook example of serious negative externalities that can only be dealt with by collective action. This is uncontroversial.
Second, most economists, whatever their leanings, would agree that it can sometimes be necessary for fiscal policy to play a more active role in responding to economic shocks, especially when, for whatever reason, the usual monetary tools are less effective. But a countercyclical increase in government spending during a downturn is very different from a permanent expansion in the size of the state, regardless of the circumstances.
Indeed, the circumstances of this crisis are unprecedented and, hopefully, unique. The aim of economic policy is no longer to prevent a recession: a collapse in normal economic activity is inevitable and even desirable. Instead, the aim is protect the most vulnerable and prevent a temporary shock from becoming a prolonged depression.
Put another way, governments around the world have made the exceptional decision to shut down large parts of the market economy to save many thousands of lives. It is only right that this is matched by exceptional policy responses to protect businesses, jobs and incomes.
What’s more, the new economic measures are designed to be temporary. At some point, hopefully soon, the restrictions to protect public health can be lifted and the normal functioning of free markets can be restored. Wage subsidies would then no longer be needed, loan schemes can be wound down, and so on.
This is something that many leading figures on the left still do not seem to understand. In particular, the outgoing Labour leader, Jeremy Corbyn, who has used his valedictory interviews to argue that the emergency responses to coronavirus prove he was “right” on public spending and that his plans were “affordable” after all.
This misses the point. Of course, it would have been possible to increase government spending in the ways that Labour had proposed during the 2019 general election campaign. The real question is whether it would have been wise to do so.
One huge difference is that the current increase in government spending is only a stopgap until the emergency health measures can be removed and the market economy rebooted again. In contrast, Labour was proposing a permanent increase in the size and role of the state.
The additional government spending today is also still being channelled through the markets, as far as possible. For example, it is still private businesses that are employing people under the coronavirus job retention scheme, even if the state is picking up most of the wage bill.
Similarly, while the government and the Bank of England have provided additional cheap finance and loan guarantees, it is still private businesses that are doing most of the lending, borrowing and spending, rather than the state.
Last but not least, the costs of the individual measures being taken today are still relatively small compared to many of Labour’s proposals, such as the cost of free broadband for all, renationalising utilities, or paying £58 billion to women affected by changes to the state pension age, regardless of any actual need.
The unprecedented nature of this crisis is reflected in other policy measures too, such as deregulation, which those on the left would presumably not like to see in normal times. A good example here is the relaxation of the usual limits on working hours in order to allow delivery drivers to help cope with exceptional demand. Or the relaxation of the planning rules that usually prevent some pubs and restaurants from operating as takeaways.
If a free marketeer argued that these changes should be made permanent, I’m sure others would be quick to point out that they are only emergency measures for the duration of this crisis. And I wouldn’t accuse them of being “hypocritical” for doing so. Similarly, it doesn’t seem hypocritical for a pure libertarian to accept the need for the temporary closure of pubs and clubs and other restrictions on our usual freedoms.
Finally, it’s a bit odd to see many on the left trumpeting examples of how private businesses have been willing to work together and cooperate with all their stakeholders in the wider public interest. These examples simply demonstrate that free-market capitalism and the profit motive are perfectly compatible with socially responsible behaviour. And in most cases, the state hasn’t had to do anything – apart from get out of the way.
In short, it should be possible to rein the state back in again once the emergency health measures are lifted. But in the meantime, it is important to push back against any attempt to exploit this crisis as an opportunity to expand the role of the state more permanently. The sooner we can restore our normal economic freedoms and civil liberties, the better.