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When politicians and pundits tackle international trade matters, discussions inevitably end up focusing on whether Americans get the short end of the stick when they trade with foreigners. The consensus among these folks is that they do. The evidence: Americans buy more goods and services from foreigners than they sell to them.
As of the week of April 1, there have been 11,591 fatalities due to COVID-19 reported in Italy. This is as the number of cases in the country has skyrocketed to 101,739. Of those affected, 29,761 have been hospitalized, 3,732 of whom are in an ICU. These numbers are only expected to climb, as experts fear a rapid rise in cases in southern Italy.
[This article is part of the Understanding Money Mechanics series, by Robert P. Murphy. The series will be published as a book in 2021.]
Quick, what do Amazon, Gilead, and Netflix have in common? Obvious answer: they are getting valuable, even lifesaving, goods to people stuck in their homes; working hard to develop treatments and cures for the new strain of coronavirus; and helping relieve the tedium of government-enforced lockdowns. What a privilege to live in a mostly capitalist society, in which the pursuit of profit, rather than government directive, leads entrepreneurs, inventors, workers, and investors to move resources to higher-valued uses.
As has happened before with many natural disasters, the COVID-19 panic is leading to complaints of shortages and “gouging,” which about two-thirds of US states have passed laws against (often in terms so vague that it makes any enforcement discretionary, and thus discriminatory). But rather than complaining of shortages and gouging, critics should realize that “gouging” is the solution to shortages, not a cost in addition to them. It is just raising prices when circumstances raise the value of the last (marginal) unit of a good available.
September 17, 2019 was a significant day in American economic history. On that day, the New York Federal Reserve began emergency cash infusions into the repurchasing (repo) market. This is the market banks use to make short-term loans to each other. The New York Fed acted after interest rates in the repo market rose to almost 10 percent, well above the Fed’s target rate.
It is generally the case that simple concepts in nature produce incredible complexity. This applies to the genome, where simple base pairs have evolved to express complex and multifunctional instructions that would take thousands of lines of code for any human to create. This applies to the economy, where simple ideas such as the price system become infinitely complex at scale. Any free market advocate should be familiar with this proposition—Austrians, for example, often offer simple solutions, because they understand how emergent complexity might best resolve a given problem.
