An Open Letter to US Policymakers | Ray Gillenwater

[pghickster]

Twigs, we have a misunderstanding. I am trying to raise the alarm about the follow on effects from house arrest, not deaths directly attributed to house arrest itself. Just to make sure we understand each other, would you mind listing the top five unintended consequences that you’re concerned about if people are confined to their homes and not allowed to be productive?

Hi Ray,

I'd disagree about the house arrest comments. I've either been out running or lifting in my home gym everyday. Hardly wearing an ankle bracelet.

This isn't a constitutional crisis. This is about money. SS is a successful business and this situation threatens those profits. It's responsible and natural to be concerned about that. This situation has been devastating for gyms, hair/nail salons, restaurants. I do believe those businesses need some sort of financial support (payroll/tax/etc).

Honestly, I also can understand the feelings of folks that have spent a lifetime building a business being terrified of watching it crash to save some folks they've never met. I was running the US for a European company that closed up shop here in late February. No job and no health insurance in a pandemic isn't a great place to be. However, positioning the problem as government over reach I personally don't think is helpful.

While I'm not lumping you in this group, it also has been interesting to see my pro-life neighbors who also wanted the government to ban NFL players from kneeling, suddenly become so concerned about the government telling you what you can do with your body. All about perspective I guess.

So far we've dodged the major bullets here in Texas. Hopefully we'll all be back to normal soon.

Best regards.

[Publius]

There might be a way to thread the needle, to save lives while preserving some economic activity. But the strident way some politicians started that conversation foreclosed that possibility.

Rep. Trey Hollingsworth: "But it is always the American government's position to say, in the choice between the loss of our way of life as Americans and the loss of life of American lives, we have to always choose the latter."

Pres. Donald Trump: "We cannot let the cure be worse than the problem itself."

Choosing money over lives is not pro-life.

If these politicians want the country to open up, they should show some leadership and make it easy for the country to open up. For example, the federal government could help expand testing. And rather than cattily telling the states "we're not a shipping clerk," the federal government could intervene in the market to stop price-gouging on ventilators and personal protective equipment. (Prices don't always incentivize more production; in this case, it is actually increasing the profits of middlemen.)

It is OK to accept that the free market is optimal under normal circumstances (which is most of the time), and also to admit some flexibility during extraordinary times. Clearly, the libertarian assumption that each man is a kingdom unto himself breaks down in a pandemic. You can't tell someone who's sheltering at home and no longer has a paycheck to feed his family, "You should have had the individual initiative to not have an underlying health condition. Your starvation is your own choice. Oh, you have no other choice? Well, muh Darwinism. Que será, será."

[Ray Gillenwater]

I'd disagree about the house arrest comments. I've either been out running or lifting in my home gym everyday. Hardly wearing an ankle bracelet.

This is the "it hasn't affected me" argument. A dangerous one.

This isn't a constitutional crisis.

Ordering free people to stay home and not produce - production that eventually equates to food in our mouths (directly or indirectly) - is not a constitutional crisis? What do you think the purpose of that document is, if not to guarantee our freedoms?

This is about money. SS is a successful business and this situation threatens those profits. It's responsible and natural to be concerned about that. This situation has been devastating for gyms, hair/nail salons, restaurants. I do believe those businesses need some sort of financial support (payroll/tax/etc).

Be careful here too. You are making assumptions and might be ascribing intent. SS is a successful business. SS Gyms is not yet a successful business, we are too new and haven't achieved profitability yet. I am concerned about myself and this business, but I'm more concerned about this. "The food supply chain is breaking." "We are being forced to shutter our doors." You are aware of this and its implications, correct? You are also aware that this is merely one of the millions of examples of what's happening right now? If you want to open your mind to the possibilities - possibilities that anyone with any position of responsibility needs to CAREFULLY consider - I recommend reading Mao's Great Famine. Mao inadvertently killed more people than Hitler and Stalin combined.

Food shortages are a big problem. Not being able to afford food, regardless of the price, is a bigger problem. If we can't produce, we can't earn money. If we can't earn money, we can't eat. The government is over leveraged. I haven't seen the math, but I would be shocked if we can afford to pay the interest on our debt at this point, let alone the principal. We were getting close to this catastrophic state before we erased $3T of productivity and printed an additional $3T.

I do believe those businesses need some sort of financial support (payroll/tax/etc).

Where does this support come from? Tax revenue (at least eventually). What do tax revenues look like in a recession (current state) or depression (potential future state). See above.

I was running the US for a European company that closed up shop here in late February. No job and no health insurance in a pandemic isn't a great place to be. However, positioning the problem as government over reach I personally don't think is helpful.

There are two problems. A pandemic. And the government's response to it. I don't think conflating the two is helpful. I believe it is very dangerous.

While I'm not lumping you in this group, it also has been interesting to see my pro-life neighbors who also wanted the government to ban NFL players from kneeling, suddenly become so concerned about the government telling you what you can do with your body. All about perspective I guess.

Ideologues are predictable. I appreciate not being labeled and categorized, thanks for saying that.

[Ray Gillenwater]

Choosing money over lives is not pro-life.

Think about your basic human needs. Food, medicine, shelter, security, etc. Which of those are you capable of providing for yourself? Which require money? Do you see that money is a representation of value? And that trading stored value is necessary to get the things that we need to survive?

The federal government could intervene in the market to stop price-gouging on ventilators and personal protective equipment. (Prices don't always incentivize more production; in this case, it is actually increasing the profits of middlemen.)

If you haven't already, I recommend reading this. I'd be curious to hear what you think the unintended consequences might be of attempting to control price.

Clearly, the libertarian assumption that each man is a kingdom unto himself breaks down in a pandemic.

Assumptions are a problem in constructive discourse. It looks like you've made an assumption about my assumptions. Feel free to ask questions if you're unsure of my position.

You can't tell someone who's sheltering at home and no longer has a paycheck to feed his family, "You should have had the individual initiative to not have an underlying health condition. Your starvation is your own choice.

This hypothetical person may have lost their job due to Covid. Or they may have lost their job due to the government's response to Covid. Do you see my point?

Careful with the straw-man style of argumentation, it is a good way to make the discussion of ideas personal, instead of aimed at coming to a better mutual understanding. What's the steel-man of my argument, just so I'm sure you're clear on my position?

[Mark Le Comte]

Hi Ray, you asked about my position a few posts ago. To be clear, I'm talking about my position on the role and powers of Government (not the Covid response) and I'm largely uninformed on the specific application and precedents of the US Constitution.

Government exists to provide what cannot be provided by the individuals or free market. Examples of this that are agreed by most people are things like law, police, enforcement of property rights, national defense. Depending on your perspective, it also provides a 'safety net' for people like disabled care and unemployment benefits, noting there are large disagreements about the scale of this.

To look at what can't be provided by free markets, we need to look at sources of market failure. Common examples are monopoly power (where government can intervene to prevent/break monopolies that are making excessive profits or implement price controls), externalities (examples like pollution controls that are not explicitly priced in by interventions like cap and trade, emissions charges, regulation), free-riding (where asset use cannot be excluded so the government provides or enables charging e.g. roads, toll roads) etc. For each market failure there are a range of interventions that should be considered (including doing nothing) against the intended and potential unintended consequences. Note that some unintended consequences can be difficult to determine in advance. Almost always this decision making is made in the face of considerable uncertainty.

The question is whether a disease outbreak can be handled completely by the market response. As each person that is infected can also pass on the disease, there are considerations that are external to their own value assessment. Therefore, the Government could consider doing something. This could range from nothing, to education, to treatment, to quarantine, to lockdown. Each of these would have costs and other consequences, some of which the government may also have to fund (e.g. business/employee relief) Clearly, most Governments have chosen a very high level of intervention. I don't want to get into the discussion about whether that is right in this particular circumstance, but simply say that the Government can choose to respond.

In any case the government is spending the people's money on their behalf. There will always be disagreements about whether any expenditure is appropriate, so your elected representative have a lot of power as they will upset a lot of people whatever they do. Ultimately, the people decide by keeping or changing their representatives. I dont understand why more people dont vote and take choosing their representatives very seriously.

[Robert Santana]

To look at what can't be provided by free markets, we need to look at sources of market failure. Common examples are monopoly power (where government can intervene to prevent/break monopolies that are making excessive profits or implement price controls), externalities (examples like pollution controls that are not explicitly priced in by interventions like cap and trade, emissions charges, regulation), free-riding (where asset use cannot be excluded so the government provides or enables charging e.g. roads, toll roads) etc.

Monopolies often exist because of the government. Free riding is a naturally occurring effect that the the government has labeled a problem to justify the revenue. These are only examples of market failure preciselybecause of government involvement not lack thereof.

[Mark Le Comte]

Monopolies often exist because of the government. Free riding is a naturally occurring effect that the the government has labeled a problem to justify the revenue. These are only examples of market failure preciselybecause of government involvement not lack thereof.

Yes, agree that Government can, and does, create monopolies and probably too many of them. Partially balancing this is that Government has a lower cost of capital and doesn't generally set out to make a profit. Government should try to minimise the bad effects of monopolies (including those of their own creation),

Can you give an example of your take on free-riding not being a 'real' problem? E.g. without government we wouldnt have many public sports grounds for kids.

[Ray Gillenwater]

Hi Ray, you asked about my position a few posts ago.

Mark, we have a similar understanding of the way things work, although we may disagree on where the line should be drawn in terms of what gov can handle better or worse than the free market. My general view is that it is fewer things than most people imagine. My position on the Covid response is that, yes, it is certainly plausible that a government can manage an outbreak better than people left to their own devices. However this is not the only measure of a successful response. We need our elected leaders to make an attempt at calculating true costs - short term, mid term, and long term. I am suggesting that the hidden costs may be so severe that in addition to death and suffering from a pandemic, we'll have massive death and suffering as a result of the government's response to the pandemic. This is what I'm attempting to warn against. I'm also attempting to warn against the size of the task the government just signed up for and how wholly incapable they are of performing it. If people can't work, they can't provide for themselves. If the government prevents them from working, the government will need to provide for them. Whether or not you believe this is sustainable for more than a month or two, I hope we can all agree that is must come to an end at some point, to avoid economic collapse. What happens if the end date is past the point of no return for millions of businesses? I believe the answer is years of death and misery due to economic contraction.

All- The purpose of my letter was to point out the potential follow-on effects of a lengthy, indiscriminate, forced business closure. I'll use this as an opportunity to summarize a few of my main points, with numbers, for those that are following this thread but didn't read the article. I'm open to having my mind changed:

• Small businesses represent roughly half of the nation's employment
• Of the ~30M small businesses, roughly half were deemed non-essential and were forced to close
• The debt vs cash situation for small businesses in the US is bleak
• The amount of time these companies can function without income is extremely limited
• The gov relief programs are incomplete, unclear, and not sustainable
• Income, GDP, employment, production, and the entire economy are at risk
• The pandemic poses a risk and as unintuitive as it may seem, so does the gov response to it
• The US response to date has been to stop Covid at any cost
• "Any cost" is not rational governance
• I would like this to stop

[ltomo]

Monopolies often exist because of the government. Free riding is a naturally occurring effect that the the government has labeled a problem to justify the revenue. These are only examples of market failure preciselybecause of government involvement not lack thereof.

Good point. True monopolies exist because the government has imposed regulations on a market. Just because a company is big and controls a market right now doesnt mean it won't lost control in the future.

For example, it's unlikely a company like Amazon will have the same level of control ovet the online shipping market in 50 years, unless they are able to enact legislation that pushes out competitors. Eventually some company will figure out that it can ship goods just as cheaply and quickly as Amazon is able to right now for less cost

Netflix effectively pushed cable television out of its place. But even Netflix didn't hold onto the market for very long, relatively speaking. Hulu, Disney+, and others have challenged the dominance Netflix had in the early 2010s. History is littered with all sorts of examples like this.

The big Michigan automakers had a large portion of the market for much of the 20th century, but even they never had a true monopoly, as evidenced by the rise of foreign competitors in recent decades. Even Microsoft was eventually forced to compete with Apple.

Off the top of my head, I really can't think of any companies in the US that are true monopolies. When true monopolies do exist, they tend to take the form of government bureaucracies.

[Mark Le Comte]

Thanks Ray, I agree with almost all of your summarised main points.Where I don't agree its either minor (yes the govt relief programmes are incomplete and unclear, but would you have rather they waited longer to get these to be more robust?) or Im not able to comment on with any certainty (US response is stop Covid at any cost - doesnt quite seem like that from overseas but Im not there so I dont know for sure with how much gets lost what appears to be unbalanced reporting).

I did find some of the other points in your letter detracted from your key messages though. I do think that someone (usually a Treasury boffin) would have been estimating costs and indirect impacts, whether or not their advice really impacted the political decision making.