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Pandemics, Stimulus, and the Limitations of Flash Policy

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Over the past two weeks, America has faced the onset of a pandemic, an oil-price war, and a stock-market crash. In the face of these three crises, calls for economic stimulus are understandable, even expected. Yet the nature of the crises means that traditional fiscal stimulus measures could be counterproductive.

While there are some things policymakers could do, the most important thing is to avoid “flash policy”— hasty reactions that create the illusion of “doing something.” Instead, they should work to reform or repeal policies that may have made the crises worse, and implement ones to make us more resilient in the future.

Traditional economic stimulus is inappropriate for a simple reason. It attempts to encourage more economic transactions between people. Increased economic activity is not necessarily desirable in the presence of a contagious pandemic, insofar as it encourages personal interactions.

Therefore, we should only rush to change policies on the basis of stimulus if they prevent effective response to the crisis, reduce resilience to changed economic behavior, or make the effects of the crisis worse than they would otherwise be.

An example of the last category is tariffs affecting supply chains. The administration’s tariffs are aimed at changing how American businesses source materials and labor. If the tariffs are effective, they will put stress on supply chains as businesses shift their activities in response. And now, these supply chains are also under threat from the effects of the virus in supplier countries.

A temporary lifting of the tariffs will reduce the effects of that second stress and help keep many firms afloat. This would be preferable to announcing exemptions for firms under severe strain, a process that has proven difficult, bureaucratic, and prone to political influence.

Some policies have reduced effective responses. These include FDA regulations that prevent genetic testing firms from offering medical insights into individual’s genetic traits, which have delayed the development and deployment of tests for COVID-19. That may have contributed to early spread of the pandemic. The FDA has lifted many of the restrictions, but any vaccine or cure still faces tremendous regulatory hurdles before it can be deployed.

Even accounting rules are a problem. For instance, SEC rules discourage the stockpiling of medical devices such as respirators, which are likely to be needed in large numbers and quickly — exactly what stockpiles are meant for. Mark-to-market rules that helped exacerbate the last financial crisis are still in place, and could pose a major problem as assets turn illiquid with the market downturn.

Then there are policies that discourage resilience. For instance, delivery services are likely to be needed more than ever in the coming weeks. Yet many states are trying to put delivery services like GrubHub out of business by attacking their use of independent contractors.

Similarly, many states refuse to recognize out-of-state medical proficiency certifications. When doctors and nurses are desperately needed, these employment restrictions will cost lives. Fortunately, some states are leading the way to change this policy, such as Massachusetts and Florida.

Yet while there are things we can do, the most important may be to learn lessons for the next time this happens. Drone delivery is currently neither technologically feasible nor permitted by regulations. In a future pandemic, it could prove vital. So easing up on regulations that could delay experimentation and deployment could prove beneficial. Similar issues present for autonomous vehicles. There are examples like this across the board.

Moreover, we should take a good hard look at the institutions designed to tackle these challenges. The Centers for Disease Control and Prevention has spent less than 35 percent of its budget on fighting anything that can described as an infectious disease. Instead, it has focused on lecturing people about lifestyle. There’s a reason few listened when the health authorities warned against buying surgical masks. Narrowing the focus of the CDC back to infectious-disease control could help.

People want effective government during crises like these. That does not mean large government. If anything, government’s sprawling nature has made it less responsive and effective in facing these genuine crises.

Fixing those problems isn’t a question of “doing something,” spending more money, or having the right people in charge. It will involve a hard look at what government does — and should and should not do. A resilient society requires a lean and flexible government. Flash policy won’t achieve that.

Originally published at National Review.