The Cost of Lockdowns
Post from First Trust Economics Blog
Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist
Oct 4th, 2021
Last March, when the government was considering whether
to lockdown the economy, we argued that the longer we stayed
locked down the more permanent the damage we would do to the
It is now clear that the cost of the lockdowns is immense.
We aren’t just talking about the $5 trillion in government
borrowing from future generations, but the clear damage done to
small businesses and supply chains.
The US economy cannot be switched off and on like a light
bulb. Every day, countless decisions are made in order to get the
simplest of things on store shelves. One of our favorite economic
essays is “I, Pencil” by Leonard Read in which he writes, “not a
single person on the face of this earth knows how to make me
Think about it. We all know the simple components of a
pencil (wood, graphite, paint,…etc), but it’s a complex chain of
people and events that put it together. Loggers need equipment,
food, and clothing. So do all the other suppliers. Each part of
the process depends on those before, and if just one part is thrown
out of whack, making a pencil gets harder.
Locking down the economy threw complicated supply
chains into chaos, and restarting them is not as easy as many
seem to think. Markets are robust, and sturdy, but government
decisions (made by bureaucrats who, at most, can handle a dozen
pieces of information) destroy the information flow necessary for
Add into this mix that government locked down the supplyside
of the economy, while simultaneously providing rocket fuel
(through printing and borrowing money) to the demand-side. A
massive spike in consumer spending by people who weren’t
producing is a recipe for unbalanced markets.
It’s like causing a car accident and saying that morphine is
the cure. Once the morphine wears off, the injuries remain, and
the pain resurfaces. Here, inflation is one clear result.
We have seen ports in Los Angeles and New York thrown
into chaos as ships wait weeks to be unloaded. And the cost to
ship those containers has soared by nearly 500%. Dollar Tree,
which sells items (many imported) for a dollar, now says they
can’t do it anymore and will sell more items for above a dollar.
Oil, gasoline, and natural gas prices are rising. Europe,
which also locked down, is heading into the winter with a
shortage of fuel. Government attempts to alter a well-established
industry by forcing it to create more green energy are failing.
Government can’t possibly manage such a complicated system.
The United States Postal Service is slowing down deliveries
to save money as financial losses go ever higher. Automobile
manufacturers cannot get semiconductors and are seeing
production levels, in the face of strong demand, fall behind.
All of this was predictable. A market economy only works
when information (through the price system) is allowed to flow
freely. Turning it off, or trying to manage it to fit some
politician’s utopian vision of the future, creates chaos.
In the economy, there is the “seen,” and the “unseen.” The
seen is the fact that you can’t buy toilet paper, or food prices are
going up. The unseen is the market system; what Adam Smith
called the “invisible hand.” The market provides because people
work together as a team, even though they don’t know each
other. They do it to earn a paycheck or make a profit.
To call this system “greedy” misunderstands the role of
profit, and how resources are allocated by the marketplace. Free
markets require unimpeded information. Locking down the
economy and attempting to manage it from Washington, DC is
guaranteed to create more problems.
One of those is inflation. It isn’t transitory, it’s a natural
outcome of decisions that have been made in the past year.
Lockdowns will cause more problems than COVID itself.