How do we get out of this? We know how we got into it, but solving our problems is what concerns us now. The answer to economic questions is probably just to stop closing things down. Where the world has been doing exactly that, the economies have opened up again.
There is a natural experiment going on. China closed down and then opened back up a month or so before the West started to do so. Looking at what’s happening there gives us some sense of our future, if we stay the path, that is.
Sadly, we have very few forward-looking economic statistics. Nearly everything is about what has already happened. It’s driving by the rearview mirror and makes planning an economy difficult. One exception is the purchasing managers’ indices. The working assumption there is that everything has to be made of something. So, if we survey those who are buying products in order to make products, we get a good idea of what will be made. Setting the answers as an index, more than 50 is an expansion and less than 50 is a contraction, what those purchasing managers are doing now tells us about what will be produced in a month’s time, or perhaps two months’ time. It’s not a perfect one, but it is that window into the future.
The results are encouraging. China’s manufacturing production has been expanding for five months now, and this latest month’s expansion was the fastest rate in a decade. The United Kingdom has been expanding for two months, the eurozone for just the one. The sneak preview (the “flash”) for the United States shows manufacturing expanding again for the first time since February, with the economy about level.
These numbers refer to the month before, so we might be growing again, but that doesn’t mean that we’re back to where we were before lockdown. It only means that we are growing again from that bottom. Then again, from other information sources, we know that China’s economy is now larger than it was this time last year.
It’s possible to make all sorts of forecasts in theory, such as that everyone will go bust and that the economy is doomed, or that some massive burst of inflation is just about to arrive, which could indeed happen. Or that if Congress does this, or doesn’t do that, disaster will surely follow. Then we can look at reality outside that window, and we’ll see the truth of Adam Smith’s remark that there’s a lot of ruin in a nation. Yes, the virus and the lockdowns have been an impoverishing economic event. Much of the economic damage would have happened as we changed our behavior, whether lockdowns were legally implemented or not, but the economy is not shattered as a result. As places open up again, their economies do restart.
Therefore, assuming that we like having an economy, incomes, and things to consume, we had probably better open up the economy again so that we can have those things. As to how much hand-holding the economy needs, how much Congress must or must not do with another relief bill, it appears the answer is not a lot. Widely disparate policies are being enacted around the world, and yet everywhere starts growing again once the lockdown ceases. It makes sense, really. Governments went out and told vast swathes of the economy to stop, and when governments cease doing so, those economies start to operate again.
We should do more of that. The way to have a healthier economy is to stop closing it down. Sometimes this is all rather simple.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
