Unfreezing the Economy After Lockdowns


I dare say that the end may be in sight for the horrors of lockdowns, perhaps for some sooner than later. With vaccine rollouts well underway and states beginning to slowly lift restrictions, it is likely that society may be in the gradual process of returning to normal. It is probable that the debate over who was right about lockdowns will rage for years. It goes without saying that they have certainly caused a mess and researchers have their work cut out for them in piecing together coherent arguments about what went wrong or right. While that debate may take years, a conversation that does not have the luxury of time is getting our economy back on track once lockdowns are lifted. 

Regardless of your stance on lockdowns, we need to ensure that people can get their lives back and society can emerge stronger once this is all over. That is the topic of a recent AIER book called Unfreeze: How to Create a High Growth Economy After the Pandemic, which was co-written by a team of researchers at RMIT University in Australia. Of all the debates to be had about Covid-19 and lockdowns, ensuring that society can recover quickly and effectively post-lockdowns should be something we should all agree on. 

Unfreezing an Economy 

Lockdowns on paper sought to accomplish a respectable goal. Shut down society to stop the virus, and then open it back up once it’s contained. Obviously, that’s not how any of this worked out in the end but I digress. The general logic of lockdowns was like sticking a person in a cryogenic freezing chamber because they got cancer, then awakening them when a cure is found. Theoretically, they would awaken, spend a little time recovering, and then live life like it was yesterday. Of course, it didn’t go as planned. Two weeks to flatten the curve turned into what is approaching a year. Businesses have been destroyed, the social fabric is in disarray, and permanent damage has clearly been brought on society. 

According to Yelp, 60 percent of polled businesses reported that they will not be reopening. At the same time, big businesses like large tech firms have been growing to capture more of the market as seen by their blowout Wall Street earnings and mergers. AIER writes about growing merger activity in the age of Covid-19 in an article here. Small businesses, social capital, and societal institutions like the arts have all been devastated by lockdowns while a few powerful economic interests like tech firms have prospered. 

This will not be the same economy when things reopen. Some people will be in a far better position than before while many others may not even have the resources to get back on their feet. In summary, our leaders have frozen society but instead of coming out of the freeze a little groggy, we will be coming out with severe tissue damage. If we’re going to return to an economy that can produce prosperity for all and not just those that have benefitted from lockdowns, we cannot reopen without making bold policy changes.

Policy 1: Establish a free and competitive market 

If lockdowns did anything good, they did show how many regulations were unnecessary and simply roadblocks to innovation. In the face of lockdowns, many governments removed regulations like prohibitions on alcohol deliveries from restaurants, allowed beverage companies to produce hand sanitizer, car companies to produce ventilators, and cosmetic companies to produce masks. Seemingly essential regulations were removed and society didn’t fall apart into disarray; in fact, it became more dynamic. The authors note,

“These changes are intended to be temporary, but in the process, such firms make new discoveries about how better to operate – and possibly learn about new markets to service.”

The foundations of the economy have seriously deteriorated under lockdown and if we want communities to bounce back better than before we need to allow adaptations to be made. The current regulatory apparatus is not conducive to bringing back a strong recovery and we have learned firsthand that many of these regulations have been counterproductive to begin with. 

Policy 2: Maximize Employment Flexibility 

The current 9-5 Monday through Friday work schedule is a remnant of labor ideals from the early 20th century. They are the result of labor advocacy stemming from industrial work reminiscent of the Gilded Age, not the digital age of the 21st century. Much like all regulations, labor regulations both private and public are outdated; they do not change with the times. If we want a strong and equitable recovery, we need to understand that such an overhaul is long overdue. When the traditional notion of labor regulations came to be, it was impossible to work from home. People labored on factory lines for set hours rather than participating in creative work. Companies like Uber and the sharing economy made possible by the internet were not even on the horizon. We live in different times and employment flexibility needs to be maximized so society can adapt. That could mean allowing companies to experiment with different work models which will require a focus on voluntary contracts made by employees with employers rather than a one-size-fits-all state regulation often put out by big labor unions and corporations. The authors write,

“Legislative proposals such as in California, seek to deem sharing economy workers as “employees”, threatening the livelihoods of those that rely on this work and also affecting more “traditional” independent contractors such as freelance journalists and photographers. This type of labor market regulation seeks to entrench old business models made for the industrial economy.”

We need less government involvement in the labor market and more power to workers to choose what types of work arrangements they want to be a part of. The economy has drastically changed since the days of Henry Ford. In order to allow the most people to transition we need to actually allow them to do so rather than hold them back with outdated labor regulations. 

Policy 3: Simplify the Tax System 

It goes without saying that tax systems across the Western world are a convoluted mess. Although every time is a great time to simplify the tax code both in its complexity and its demands, post-lockdown would be essential. For one, simply lowering taxes will provide a marginal boost to economic activity and reduce burdens on newly employed individuals. However, it would also be important to update the tax collection system to reflect the modern economy with all its innovative ways of generating revenue. The authors note,

“Tax complexity tends to cement business models because decisions often inform long-term investments. Ultimately, these structures may hamper the ability of businesses adapting to changing economic circumstances.”

The authors note that not only is a complicated tax code beneficial to only entrenched economic interests, but it also crushes small businesses who can’t afford to run compliance. Complicated tax codes not only create loopholes for the well-connected but also require expensive lawyers to navigate. These are complications that recovering businesses can ill afford post-lockdown. They also encourage wasteful spending on lobbying that could have gone to hiring new workers or inventing new products as the authors note that between 2002 and 2011 $27.6 billion was spent on lobbying in the United States alone. 

Policy 4: Permissionless Innovation

Nobody should have to ask the government for permission to invent something new as long as it doesn’t hurt anyone or violate voluntary agreements. That is of course not how the current regulatory state works. Often it works to preserve the status quo in favor of entrenched interests. Such a system cannot continue to exist post-lockdown. Although we have seen much carnage as a result of lockdowns, we have also seen bright and heroic entrepreneurs step up to provide new services in a changing world. We should allow these innovators to lead the way, not hold them back with regulation. The authors note,

“This is particularly evident in the space of public health, which is heavily supported by public spending, extensively governed by patent protection, prescribed by government-approved business models, and highly regulated in all aspects of inputs ranging from medical devices and treatment protocols, to therapeutic drugs and occupational licensing.”

Oftentimes regulations like occupational licensing and drug controls are made mostly to protect big players in the market against disruptive innovation. They have long plagued our system before Covid-19 and if left to stand will continue to cause headaches. If we want society to bounce back healthier and wealthier across all levels, we must even the playing field for disruptive innovators to compete. 

Policy 5: Polycentric Governance 

If this pandemic taught us anything, it was that a one-size-fits-all approach is a recipe for disaster. The leadership in Washington, DC, and local state governments have left much to be desired. In New York’s case, Governor Cuomo is now under FBI investigation for his administration’s conduct. Now more than ever we need decision-making rights to be dispersed to local communities so they can decide what’s right for them specifically. The residents of rural South Dakota have very different problems than those in New York City. 

In particular, many things should be removed from the political process altogether. How should businesses manage themselves in the context of their communities? These are questions that should be answered by the businesses themselves in relation to their specific circumstances, not by a central plan from DC or a state capital. Responsibility for governance must be shared and dispersed in a manner that prioritizes the individual so that people can find empowerment in their specific context. That requires a separation of powers not just on the federal and state basis but on the private and public sectors. The authors quote Nobel Laureate Elinor Ostrom when they write,

“While all institutions are subject to takeover by opportunistic individuals and to the potential for perverse dynamics, a political system that has multiple centers of power at differing scales provides more opportunities to innovate and to intervene so as to correct maldistribution of authority and outcomes. Thus polycentric systems are more likely than monocentric systems to provide incentives leading to self-organized, self-correcting institutional change.”

In essence, get the government’s boot off the people’s backs and allow voluntary associations to have a larger role in organizing society.

Key Takeaways

The policy proposals in this book are nothing new and there will never be a time when it wouldn’t be great to implement them. However, now more than ever is the time to embrace permissionless innovation, polycentric governance, and economic as well as personal freedom. That is because these tools will allow society to adapt and innovate to address the damage that lockdowns have caused. Covid-19 has fundamentally changed society and inflicted permanent scars. 

If we thought that the dysfunctional and outdated systems of yesterday were bad then, just wait to see how they will fail us today when we attempt to reopen a society that has been comprehensively changed from the inside out. The institutions of the past will only serve to hold back one part of society in a state of decay while those at the top prosper, creating a rotten foundation. In order to emerge with an economy that can produce prosperity for all and not just those who benefited from lockdowns, we need to embrace the ideas of sound economics, innovation-friendly rules, and individual agency. It was the principles of a free society that brought the wonders of modernity into existence, and it’s the same principles that will lead us back.



* This article was originally published here
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