Today's Opinions, Tomorrow's Reality
By David G. Young
Ft. Lauderdale, May 19, 2009 --
The response to America's economic crisis may be as unnecessary and as costly as the response to swine flu.
You should not be reading this. Based on last month's reports from America's 24-hour gabfest that calls itself "cable news," you should be dead by now -- or at the very least unemployed so as not to be able to afford this internet connection.
But since you are reading this, we must conclude that cable news was wrong. The twin-headed monster of the "swine flu pandemic" and "the worst recession since World War II" has not laid waste to the American public. Two weeks ago, at the height of the swine flu scare, I was on surprised to see that my flight to Las Vegas was full -- not just full, but overbooked, and seeking volunteers to stay behind. Where were the panicked travelers too afraid of swine flu to board the close confines of an airplane?
When I arrived in Las Vegas, I fully expected to see empty hotels and casinos, hit hard by Americans' widely reported cutback in spending from "the worst recession since World War II." But the casinos were packed. People were burning money like it was going out of style on $15 minimum blackjack tables, $25 breakfasts, and $200 hotel rooms. This is the "worst recession since World War II?" This is an economic downturn that can be compared with the Great Depression?
Not by a long shot. Abundant anecdotal evidence aside, statistics show that the current economic downturn is nowhere close to being as bad as the Great Depression, a time when unemployment surpassed 25 percent in 1933. Compare this to the 8.6 percent unemployment rate reported by the Bureau of Labor Statistics for April. By this measure, even the 1981-1982 recession was significantly worse. Back then, unemployment topped out in November of 1982 at 10.8 percent.1 Remember this each time you hear the phrase "the worst recession since World War II." It's simply a bunch of hype.
The "swine flu pandemic" has turned out to be hype as well. As of last Friday, the official death toll in Mexico, the country hardest hit by the influenza outbreak, stood at a grand total of 66.2 Compare this to the estimated 50 million people who died in the 1918 flu pandemic -- there is simply no comparison.
But before you roll your eyes and dismiss such hyped news stories as unworthy of attention, it is important to consider that there are often very serious and very damaging consequences to manic group behavior. In the case of the flu outbreak in Mexico, the closure of schools, churches, and travel warnings issued by the American and British governments led parts of the country's economy, especially tourism, to grind nearly to a halt.
In the Mexican resort city of Cancun, the hotel occupancy rate dropped to 20 percent, leading 25 hotels to close down. Mexico's finance ministry now predicts the flu scare will cost the economy $2.3 billion.5
Defenders of an activist public health policy will point to the Mexican case as a success. It is precisely because of the closure of Mexican schools, churches and the warnings against international travel that the pandemic was kept at bay. That sounds good -- but this conjecture is not supported by scientific evidence.
As more and better data have been gathered, it has become clear that the death rate from the swine flu was not nearly as high as initially feared. The Center for Disease Control now says its "best estimate right now is that the fatality [rate] is likely a little bit higher than seasonal influenza, but not necessarily substantially higher."6
In light of such an assessment, was the world's activist response to the disease really worth the costs to the Mexican economy?
A similar scrutiny must be applied to the activist responses to the downturn in the American economy, which also have very real costs. Trillions of dollars in new debt will eventually depress the value of the dollar and raise the cost of borrowing. Government interventions in the banking, automotive and brokerage industries will distort the rules of business in ways that will break American fortunes.
Could these interventions be as unnecessary and cost-ridden as those used against Mexico's flu outbreak? Most certainly, but unfortunately, nobody will ever be able to prove it one way or another. Unlike with the harder science of microbiology, economics is an inherently squishy science. Politicians will always be able to claim their economic actions were a success. They can claim credit for any economic rebound, and even if the downturn continues, they can claim that it isn't as bad as it otherwise would have been. And nobody can ever prove them wrong.
This lack of accountability is why hype in the economic sphere is so much more dangerous than hype in the health sphere. It's also precisely why politicians' self-serving arguments for an "emergency" economic response must be treated with great skepticism.
1. Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, May 2009
2. Associated Press, Mexico Confirms 2 More Deaths, Toll at 66, May 15, 2009
3. Center for Disease Control, 1918 Influenza: the Mother of All Pandemics, January 2006
5. Staits Times, 25 Hotels in Mexico Close, May 12, 2009
6. Center tor Disease Control, CDC Telebriefing on Investigation of Human Cases of H1N1 Flu, May 18, 2009