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Why This Disastrous Experiment Also Hurt States that Did Not Lock Down

Imagine 100 people on a wholly deserted island. Life would be pretty dreadful, right? With only 100 people producing, work would be endless in return for very few of life’s comforts.

At which point imagine if suddenly a shipwreck deposited 100 more, able-bodied people on the same deserted, desperate island. Would the first 100 lose their jobs as a consequence of the arrival of the second batch of humans?

The obvious answer is no. In truth, 200 extra “hands” arriving onshore would signal boom times in a relative sense for everyone on the island. The more hands at work, the more that there would be work specialization. And when workers are specialized, they’re logically quite a bit more productive.

Looked at in a country sense, contrary to the view that China’s modern prosperity has been a threat to American workers, the happier truth is that it’s been a blessing. The division of labor is just another term for labor specialization. Just as automation has over time massively increased work productivity and the range of ways that humans could express their workplace talents, so has the entrance of hundreds of millions of humans into the global labor pool boosted productivity, and by extension, economic growth.

On the other hand, if suddenly China were to return to the command and control, collectivist policies that caused mass starvation in the country from the end of the WWII to the late 1970s, readers can rest assured that its exit from productive economic work would have a profoundly negative impact on the U.S. economy. U.S. equities would collapse too.

As Nobel Laureate Robert Mundell has long made plain, the only “closed economy” is the world economy. So much U.S. prosperity is a function of Chinese workers freeing U.S. workers from what they used to do, plus so much of it is a consequence of demand from Chinese workers for U.S. plenty. As is increasingly well known, Apple sells a 1/5th of its iPhones in China, it’s the second largest market for capitalist symbols Nike and McDonald’s, it’s the second largest box office for Hollywood. If China shuts down or goes communist in the collective sense, the pain will be substantial right here in the U.S.

Conversely, if the U.S. ever moves in a seriously collectivist direction, the subsequent global economic contraction will be brutal. In reality, we’ve seen a snapshot of this over the last several months. Thanks to the imposition of command-and-control policies in the U.S. that were a consequence of the lockdowns, economic growth plummeted in countries reliant on U.S. prosperity. Think Bangladesh, think El Salvador, think the Philippines. Even if all three countries had remained fully free amid global hysteria related to the virus, each would have been crushed by the economic errors made stateside.

Which brings us to Iowa. It was one of the states that didn’t lock down in response to the coronavirus. New York Times reporters Ben Casselman and Jim Tankersley have alerted their flock to a growth slowdown in the state despite. Supposedly Iowa’s economic struggles are a sign that lockdown opponents have overstated the impact of the latter on economic growth. No, they haven’t.

While it’s surely true that some businesses in Iowa chose (as Casselman and Tankersley make plain) to stay closed or to operate in limited capacity on their own, by their own admission the lack of lockdowns hasn’t been the same as a lack of rules. Though there weren’t lockdowns, there were and are restrictions that limit economic activity.

More important, it cannot be stressed enough that Iowa’s economy would have declined even if the state’s legislators hadn’t imposed any limits at all. To see why this is true, just re-read the opening paragraphs of this write-up.

Iowa isn’t just an economic portion of a U.S. whole, so it’s only natural that its economy would suffer the lockdown errors made in other states. Per Times reporter Patricia Cohen back in May, over 40 million American workers had filed for unemployment. Since Iowa is one of the U.S.’s “breadbaskets,” logic dictates that economic contraction elsewhere in the U.S. would harm Iowa much as contraction in China would harm the U.S. economy.

And then the loss of 40 million jobs would signal at least for a time, the exit of 80 million “hands” from the U.S. workforce. This is important when it’s remembered that even something as basic as the pencil is a consequence of global cooperation. Fewer workers means reduced productivity for workers overall because it means reduced labor division.

All of this in mind, the better way to address Iowa’s slow growth is to consider the unseen. How much more shrunken would the state’s economy be if the state had locked down in the way that California or New York had? That’s the more important measure.

In Cassleman and Tankersley’s case, their reporting on an economic slowdown in Iowa had a redundant quality. Naturally Iowa’s economy has contracted when it’s remembered that by April, a quarter of the U.S. economy was locked down, along with parts of the global economy. Slower growth was a given. One state or one country’s impoverishment doesn’t lift other states or countries; rather it impoverishes them in a relative sense.

That’s is so because wealth isn’t a fixed pie. Instead, wealth is created. And the more that labor is divided, the more economic growth overall.

In short, Casselman and Tankersley mis-spoke or mis-wrote. The lockdowns crushed the U.S. economy. Period. That they also infected the part of the U.S. and world not locked down was and is a statement of the obvious. The only “closed U.S. economy” is the U.S. economy.

Reprinted from RealClearMarkets

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