"Pent-Up Demand" Won't Save Us from Economic Destruction
In responding to the coronavirus threat, governments around the world have committed themselves to a series of harmful and largely unnecessary policies which are likely to plunge the world into a prolonged economic depression. In the UK, the effect of our lockdown has been severe, with thousands of businesses, millions of jobs, and billions in GDP simply wiped out of existence. The consequences of these outcomes will be profound and, in some cases, fatal.
Yet it is often said that the destruction of our economy and the present misery of millions is a worthy price to pay for saving lives. Conceptualizing the economy as a smoky boardroom filled with men in top hats, many argue that the lockdown is a choice between Lives versus the Economy, and that therefore lives are more important than money—people lost cannot be reborn, but money can be remade. The economy will recover, they claim, and things will once more be as they were.
Such claims are a failure of perspective, born predictably out of a failure to educate the vast majority on simple economic principles. In reality, the economy will not just recover in some kind of Groundhog Day reset when the lockdown is lifted; rather, we have every reason to suppose that our current turmoil will be protracted, will likely intensify, and is by no means immune to a total collapse given the huge amounts of public and private debt and fresh-printed currency accruing currently.
In the first instance, it is self-evident that we will never be as rich as we might have been without the lockdown. Consider Frederic Bastiat’s parable of the broken window: a brick through the window of the baker’s shop is hailed for generating business for the glazier, ignoring that the baker had intended to buy a new suit, which will now not be made and added to the sum of wealth. Since March, a great many individuals and businesses have been subjected to a veritable hailstorm of bricks through loss of income and revenue, continuing overheads on rent and maintenance, the collapse of vital supply chain links, and other such disruptions, while at the same time neither producing nor demanding that things be produced.
Detractors may argue that the result of this break in production and consumption will be an explosion of pent-up demand—but excepting the great rush back to pubs, restaurants, and hairdressers when the barriers are lifted, it will not fully account for the total sum of demands that would’ve been realised if the economy has been left undisrupted, nor is it assured that the closure of many otherwise viable businesses will be answered by the emergence of equally efficient and productive replacement suppliers.
Further, this theory of pent-up demand proposes a false notion that the economy is merely incubated in some kind of suspended animation, as though all the people currently confined to their homes were effectively frozen in time, ready to resume hammering nails or typing emails with a click of the government’s magic pocket watch. But the economy is essentially a living entity, every beat of its heart and wave of its invisible hand the actions we take to foster and sustain it; and it lives now as an increasingly pitiable creature, shackled, starved of food and air by government shutdowns, and thus dwindling rapidly in health.
As with the person who leaves unchecked bodily discomforts to develop into serious medical concerns, the failure to treat the ongoing cardiac arrest of the economy will surely lead to a series of complications which belie any suggestion of a simple economic recovery, or of the conceit that lives and the economy are somehow disconnected, mutually exclusive phenomena.
At least for the period that our basic economic metrics like GDP remain lower than they were, individuals will clearly suffer in their quality of life, and this is especially true for the poorest and most disadvantaged in our society. An economy which immediately produces less than it did will inevitably be forced to sacrifice the availability of all kinds of privileges we might once have enjoyed. Reduced access to suitable facilities for the old, to recreation for the poor, to purpose for the unemployed will make life miserable, in some cases intolerable, leading to increased suicides. Deficient funding sources for the state will mean rationing of frontline public provisions like welfare and healthcare, as well as the policing of air and water quality regulations, meaning greater levels of deprivation and death.
Anyone who thinks that this period, marked by joblessness, bankruptcy, debt accumulation, and collateral deaths will be a simple recovery, in that predictably casual manner with which they say such things, is not really thinking. The length of the lockdown and its eventually quantifiable consequence on the general economy will ultimately determine the longevity and severity of the suffering we are bound to endure over the coming years. That suffering will neither be trivial nor necessarily temporary in the short to midterm.