Paper-towel shortages at a grocery store in Quincy, Mass., March 26.
Photo: Steven Senne/Associated PressRemember Econ 101? Bo-ring. Something about marginal utility, blah blah, and some Keynesian claptrap about wondrous government spending. “The Soviet economy is proof that,” you’ll learn from Paul Samuelson’s 1989 textbook, “a socialist command economy can function and even thrive.” It’s the “con” in economics. But we don’t need no stinkin’ textbooks—just look around. Amid this pandemic and protest perturbed period, Econ 2020 will teach you everything you need to know—no classroom required.
• Price signals. After nights of looting, Los Angeles announced curfews. I watched as protesters trying to make a point (not looters) quietly sat down in the street and were arrested one by one, zip-tied and taken away in modern-day paddy wagons. The next night, crowds dispersed right at curfew. Turns out the police issued $1,000 tickets for breaking curfew—a lot for protesters’ parents to pay. Now that’s a price signal. On the flip side, New York City’s recent restriction of cash bail meant many arrested looters were quickly released so they could loot again.
Health care has the same problem, because so much is “free.” A study published last year in the Journal of the American Medical Association suggested 25% to 30% of health-care spending may be waste. This is especially true of notorious MRI and CT scans and heart angiograms. “Let’s just take a look to rule things out,” the thinking goes, “because insurance pays.” Then came the pandemic, which the American Hospital Association says caused hospitals to lose more than $200 billion. Why? Because frightened consumers skipped procedures, including unnecessary ones.
• Supply and demand. Bob Barker told us, “The price is right.” Well, except in the case of shortages of toilet paper, hand sanitizer, rice, sourdough ingredients and more. Stores wouldn’t raise prices lest they be accused of gouging. Customers tried Amazon, but it had its own antigouging rules and was selling out of many items, like kettlebell weights for home workouts. So savvy sellers began listing “classic,” “vintage” or even “collectible” kettlebells so they could set market-clearing prices. Voilà, no more shortages.
• Jobs. The most important role of an economy is job creation, for many reasons. Hong Kong’s pro-democracy protests last summer took place mostly on weekends, because so many people worked. In the U.S. this year, 40 million have lost work with many willing to be fired to collect the $600 a week unemployment add-on kicker. That meant lots of people sitting around being paid to do nothing—kindling for protest bonfires.
• Insurance. When protests broke out in Minneapolis and elsewhere, looting followed, with $400 million in damage the first weekend. It’s OK to loot a Target store, vandals rationalized, because insurance pays. Maybe, but good luck getting decently priced insurance again in violence-stricken neighborhoods. Same with business-interruption pandemic claims. Judges may force payouts, but insurers might just drop most coverage in the future. As with flood insurance, the government may step in, with awful consequences.
• Government. Can we trust officials to save us? Ask the Centers for Disease Control and Prevention about the months lost on its Covid-19 test fail whale. And government regulation can be deadly: Notice how quickly rules were dropped to allow doctors to practice across state lines when in short supply. Please don’t reinstitute.
Then there’s that offensive New York Times op-ed. No not that one—I mean the one by economist Stephanie Kelton endorsing Modern Monetary Theory. If she actually believed this debunked notion that deficits don’t matter and America should spend, spend, spend, she would gladly be paid with wheelbarrows of Weimar German Papiermarks or trillion-dollar Zimbabwean notes.
The stock market has kept allocating capital, starving the basket cases (Hertz, Chesapeake Energy) and funding the expected winners. It may be working too well. The Federal Reserve’s zero interest rates, thrilling the MMT folks, caused the market’s internal guidance system to spin wildly. Tesla’s stock tripled this year, and at $286 billion it’s selling at a pretty high multiple on its zero-emissions regulatory credits. That’s a lesson in itself.
• Tariffs and immigration. We also learned that trade barriers failed. China stopped buying goods it had agreed to purchase, including lobster. The subsequent glut means you can order lobster online, have it Fedexed and eat for less than a feast from your local Chinese restaurant. It’s good for lobsters, I guess. And immigration works. You probably Zoom hourly but may not know that its founder, Eric Yuan, after listening to a speech by Bill Gates and trying nine times to get a visa, moved to Silicon Valley in 1997.
• Productivity. The Covid economy didn’t collapse further because so many Americans could work from home. We could use Zoom free for 40 minutes, keeping meetings somewhat efficient. But think about it: If Zoom reduced meeting times to 20 minutes, or better yet 10, the productivity boost would be an economy popper. Find that in an economics textbook!
Write to kessler@wsj.com.
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