Edit: Sorry for forgetting the title. Doh!
I’m a little late in posting, apologies, but thank you Stephen, for another fine post. Everyone stay healthy!!
With the Wuhan virus raging about killing everyone in sight, well spreading at a normal rate for any other flu and relatively normal mortality rates outside of Italy’s nationalized healthcare disaster, panic has gripped the world in particular America and everyone has been placed under martial law.
Okay, technically not martial law as the dictates are coming from the civilian authorities acting in an autocratic manner, but neither is it the normal course of affairs and business as usual throughout the nation for the next few weeks or even months.
I am more than a little disturbed that a number of state governors has asserted an authority to close down businesses, cancel events, and claim to suspend the right of people to peaceably assemble all in the name of combating the contagion by a method euphemistically labeled, “social distancing”.
Okay, strategically it is an effective way to slow the spread of a virus, and might even be warranted because of the potential strain upon the availability of certain medical devises helpful in treating the effects of this particular strain in those most affected. This is designed as a means to “flatten the curve” as they keep reminding everyone, not that any fewer people will get the disease, just that they will delay getting the disease so as to not overtax the hospital resources.
Some readers may be unfamiliar with the person of Typhoid Mary, Mary Mallon. Typhoid Mary was the name given to a woman working as a cook who was a “healthy carrier” of typhoid fever, meaning that she did not suffer from the disease yet she carried the bacteria and could infect other people. Her freedoms were curtailed by the law because of this status, even though she had done nothing wrong, in the name of protecting the public health. https://www.thoughtco.com/typhoid-mary-1779179
It is in this vein that some governors have ordered the closing of public schools, entertainment events, bars and restaurants, and large public gatherings. Certain companies have taken it upon themselves to close down or suspend operations for a period of time in order to combat this particular strain of virus.
As you know the stock markets have reacted quite negatively to the news, though some of that may just be coincidental in timing with strains already showing on the banking system particularly in connection with Chinese banks, but for the moment let us presume it is all related to the current pandemic.
In an effort to combat some of the deleterious economic effects of this outbreak various people have floated ideas for “stimulating” the economy to offset the hampering of that same economy their other dictates have had.
One of the enactments by President Trump has been to suspend interest in student loans for the duration of the outbreak, which seems a completely meaningless idea as that in no way stimulates the economy and has no actual connection to harms resulting from the viral outbreak.
On the other hand, Alexandria Ocasio-Cortez, amidst a number of similarly unrelated proposals, has proposed an extension of unemployment benefits, which at a time when many businesses are being compelled to suspend their operations seems to be reasonably and directly related to the effects of the nation’s approach to the virus.
‘Tis an odd day when Trump’s economic proposals make no sense yet AOC’s economic proposals appear correct and justified.
As any decent economist knows, all subsidies or stimulus are bad policy far more detrimental to the nation’s economy than helpful, whether that subsidy is proposed by Republicans or Democrats. It is foolish, manipulative economics.
On the other hand, economic institutions and media resources are fond of telling everyone that most Americans are just a paycheck or two from being homeless because they missed a mortgage payment, have no savings, and are living paycheck to paycheck. In light of this is does seem quite odd just how cavalierly the media and the politicians are willing to simply close down businesses.
Anyone who knows much about business knows on just how thin a margin many private business operate, and just how large a component of the expense side of their ledger books employee wages are, particularly bars and restaurants.
Moreover, the economic impact of closing down all of the public schools has upon families which have long been removed from the stay-at-home mom model as they either scramble to get someone to watch their children or are forced to miss work to stay at home amplifies this disruption even more.
What would be the proper principles, legally justifiable, for the government to engage constructively in the market to alleviate unwarranted and unjust hardship in such an emergency situation so as to not engage in economic favoritism or engage in wanton and destructive unconstitutional usurpation of state authority?
This is an extremely important question for a well functioning capitalist republic such as ours.
Clearly when a business chooses, or by circumstances is forced, to shut down due to some unforeseen event or calamity, such as a flood, fire, or even a disease, those events are legally classified as “an act of God”, for which no person and no government is liable.
Such costs are justly absorbed by the affected individual and they have no claim upon their fellow man, even through the government, for any recompense whatsoever. However, that is the very reason for which the concept of insurance was created that a man may share the financial burden of such foreseeable risks, thus a wise business mitigates such risks by the purchase of insurance.
However, an entirely different legal situation presents itself when the government, whether state or federal, directly or indirectly is the very cause of the harm visited upon the citizens of the nation.
“No person shall . . . be deprived of . . . liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” – 5th Amendment, US Constitution.
While it is not disputed that the state has the certain authority to limit a person’s liberty for such limited purposes as preventing the spread of some contagion, the 5th Amendment places strong limitations upon the actions of the government.
First, there must be a due process of law, and not an ex post facto law as that is prohibited by the Constitution, but some pre-established system and formal laws for the authority of the state to impose such things as curfews or close down businesses. No bureaucrat of official can simply decide that it is expedient for such things to happen, that would be illegal and of no effect.
Having gone through the proper steps, such as declaration of a “state of emergency” as required by the due process requirement, there can be no practical legal authority for any government to prohibit its citizenry from earning a living.
Thus we are seemingly placed with a conundrum, that the state may legally shut down a business for reasons of public health for some limited duration, but may not thereby deprive the citizen of their life, their ability to work, eat, and survive. “We hold these truths to be self-evident, that all men are . . . endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”
The solution lies in a more modern understanding of the latter part of that 5th Amendment section pertaining to the taking of private property for a public use. By a more modern understanding, I do not mean to imply a different interpretation but the application in a more modern context of the work environment.
To order the shutdown of a business to halt the spread of a contagion is for the state to assume control and ownership of that business for that limited time. As such, it is not unreasonable for that state to be expected, nay demanded, to compensate the owner of that property the lost profits of that property whilst it is being employed, or unemployed, for the purposes of the public welfare.
Thus, it would not be unreasonable, unlawful, or unconstitutional for the government to directly compensate businesses for the economic losses imposed by that government’s own actions in battling a contagion. That is not an “economic stimulation”, it is in the nature of a compensation for property temporarily taken.
Yes, I hear the argument long standing in legal principle that the state may out of necessity tear down a house to create a fire break to stop a conflagration from spreading without any obligation to compensate the owner of that house. I posit that such situation is distinct in that the house would have been lost to the fire even without the intervention of the state, thus its loss may not be attributable to the actions of the state, directly nor indirectly. The house was already lost regardless of the actions of the state.
Further, one must consider a person’s labor to be their private property, just as much as the store or shop is owned as private property. For those citizens placed out of work by order of the state, those regular employees working for those establishments and venues thus closed, then have a legitimate claim for compensation of their lost wages.
That claim falls not upon their employer, as the employer normally purchases their labor in order to make use of that labor to earn money to cover their own expenses, but such claim must fall upon the state as the state is directly responsible for the taking of their lost income in the form of ordering them to not work.
Of course, that compensation due a business owner does not include their expenses such as labor as that expense was not incurred by them, but it would include such expenses as rent as the landlord must still be paid whether the business is in operation or hiatus.
Of a more questionable note would be those costs which are of a more indirect and thus less measurable nature. For example, the mother who has to miss work because she has to stay home with the children because the schools have shut down, or that woman’s employer suffering a loss because of the absence of that employee. I think it easy to objectively measure the lost wages the woman suffers, but far more difficult to prove the lost profits to the business, thus I would hesitate to require the state to compensate the employer in this context, but see no hardship in the government paying the wages of the worker indirectly laid off by the closure of the schools.
These are just claims that the citizenry can make against the state for compensation when a state orders the temporary closure of businesses, directly related to the costs imposed upon said citizens by the state’s actions. The state is not unjustified in ordering those actions, but it would be tyrannical to order some citizens to bear the entirety of the costs of a state’s emergency actions.
If those in offices of public service really seek to stimulate the economy, this is the only proper way to do so, based upon the principles of just compensation to those who bear the injuries directly. Legal principles and reasoning provide the proper answers, but I’m not sure that those in positions of authority are particularly interested in the proper economic principles of governance.
