POLICY BP
Remove regulatory friction to accelerate economic recovery Todd Myers The coronavirus quarantine is causing an unparalleled economic shock, creating a record number of unemployment claims in Washington state. During the first months of 2020, the unemployment rate skyrocketed, with the state receiving 1.9 million initial unemployment claims by the end of May. This represents an unprecedented loss of jobs. Some of these jobs may reappear when the quarantine is relaxed, but many of the jobs—and the small businesses that created them—will simply be gone. To find a new economic equilibrium, people will have to search for new business opportunities and new jobs, and consumers will have to change how they spend their money. In his book “Specialization and Trade: A Re-introduction to Economics,” Economist Arnold Kling provides a useful way to think about shocks to the economy, pointing to the disruption of “patterns of specialization and trade.” In a market economy, businesses and consumers can predict to some degree what they will purchase and what needs to be supplied. Prior to the coronavirus hitting us in February, restaurants knew how much food they needed to buy, and supermarkets knew how much toilet paper to stock. One month later, those patterns were completely disrupted.
Once that disruption occurs, it takes time to discover a new, sustainable pattern of specialization and trade. Patterns of specialization and trade in the market, Kling explains, “emerge from the actions of countless individuals, not from the minds of a few designers. And the factors that affect the value of market production or Internet resources are many, complex, and not all quantifiable.” There will be a reshuffling of jobs and businesses, requiring experimentation on the part of millions of people who have been displaced. Will people want the flexibility of working from home or other remote locations as
answers more quickly. To speed up our response to the virus, some regulatory barriers are already being torn down. The governor has issued a significant number of emergency orders affecting the economy and health care. Rather than adding restrictions, however, the executive orders waive regulations. For example, cities are waiving rules about using paper and plastic bags, acknowledging the health risks associated with reusable bags. At the federal level, the Food and Drug Administration is (slowly) waiving restrictions, such as one that limited the availability of sterilized protective gear. It took a public scolding from the governor of Ohio,
People will disagree about the role of financial support from government and taxpayers, but at the very least, government should not hinder the process of creating and finding new work. independent workers in the gig economy? Or will they want the security— but constraints—that come with being employees? How much more will people be willing to spend on iPhones, prescription drugs and other products made in the U.S.? Will more of us be working from home and ordering from Grubhub? The answers to these questions will emerge over time. Reducing friction in the economy by eliminating costly regulation will help entrepreneurs and workers find these
but the FDA finally backtracked. The once-hidden costs of these regulations have now become obvious. Each regulation adds friction to the process of putting resources where they are most needed. As more quarantine-related restrictions are lifted, hundreds of thousands of people will begin searching for new jobs, putting their skills to use where they are most needed. We need to reduce friction in the economy and allow businesses to create jobs without regulatory barriers.
47
JUL/AUG 2020 | BUSINESSPULSE.COM
