Pandemics are costly and destructive, no matter what we do

24 April 2020
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Periodically, during a time of a disaster – whether natural or of our own creation – we hear individuals who try to find the silver lining attached to the dark cloud.

But there is no such thing as a free pandemic; they are costly and destructive.

There's no easy way out. Whatever we do, we will pay and pay dearly.

There will be costs, some obvious but some not so obvious.

To get through this, we must try to discern the hidden costs that lurk behind the so-called silver lining of beneficial effects.

Some years ago, I remember a well-intentioned commentator pointing to the high crime rates in South Africa and arguing how, at the very least, we should be glad because it created thousands of jobs.

His reasoning was that various communities were hiring private security, individuals were buying security equipment for their homes and immobilisers for their cars, and thus there was a miniature economic boom because of crime.

As this horrible Covid-19 pandemic spreads in the US, grocery shelves suddenly emptied as people tried to buy weeks’ worth of food so they could shelter at home and ride out the virus.

One result was that those sectors of the economy started hiring people.

In neither case is this kind of job creation really a good thing. It might be making a bad situation less bad, but the net result is still negative.

As the Nobel laureate, Milton Friedman, liked to remind people, and as Leon Louw has emphasised for decades in South Africa: "There's no such thing as a free lunch."

Similarly, there's no such thing as a free disaster, or even a free pandemic.

In all cases, like it or not, there are costs and they can be substantial. The net impact is negative, no matter what silver linings you manage to find.

The French economist Frédéric Bastiat warned that good economics requires not only noticing the obvious but also noticing that which is not immediately apparent: "Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account of both effects which are seen, and of those, which it is necessary to foresee.

This difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse.

Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, – at the risk of a small present evil."

Bastiat gave an example, now widely known as the broken window fallacy.

A shopkeeper’s careless son breaks a window at the shop.

Neighbours try to console the shopkeeper by noting how beneficial this is to the glazier and what would become of him if no windows ever broke.

Bastiat says that is bad economics at work – it looks only at the obvious. Bastiat, however, asks what would have happened had the window not been broken.

He suggests the shopkeeper was planning to buy new shoes.

Now the shoemaker has lost a sale, but no one notices the sale that didn't take place –that is not seen.

What they do notice is obvious –the sale of a new window by the glazier.

Without the broken window, there would still be a window and a new pair of shoes. The shopkeeper would have more than he started with.

After the broken window, he gained nothing. He had a window before and has a window now.

What he doesn't have is the money he would have used to buy shoes, nor does he have the shoes.

The total amount of wealth declined.

This pandemic is making us all poorer and not just in economic ways. We are losing people we care about.

We are also losing the most valuable resource on the planet – human capital. People are the only resource that produces wealth.

Every other thing isn't even a "resource" until someone figures out how to turn it into something useful.

Human ingenuity and entrepreneurship are the source for all wealth. People are the ultimate resource, and the source for all other resources.

No matter which option we try to pursue to end this pandemic, we will be poorer because of it.

Yes, some shops are hiring more people, but many more people are losing jobs. We cannot just let the virus run its course and expect to get away cheaply.

Other than killing lots of people, it will hospitalise millions of otherwise healthy people.

Contrary to widespread myths, all age groups are at risk.

Older individuals might be more likely to die, but deaths are not just limited to them.

Medical workers are dying after caring for victims of the pandemic. This not only destroys a massive amount of educational investment, it lowers the supply of medical care and thus harms everyone.

Hospitals filled with viral victims don’t have resources for those who suffer strokes, heart attacks or car accidents.

Everywhere we look, wealth and lives are being destroyed and all of us are being made poorer by it.

This article was first published on City Press on 16 April 2020

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