Peter Morici: Washington should back off and let the governors manage the crisis

The Spanish flu spread in the context of World War I, whose participants included Japan containing the German military in the Pacific. COVID-19 spread thanks to trade and travel with China, and the whole episode calls into question whether the Middle Kingdom should have been granted so much access to the Western international commercial system.

The economic shutdown could ultimately push U.S. unemployment above 20% and impose output losses of $5 trillion. At the $10 million that the federal government places on the value of human life when crafting environmental and safety regulations, another $1 trillion if 100,000 Americans are killed by the virus.

Adding the permanent damage that depressed stock prices impose on risk taking begs the question: Are cheap coffee makers and iPhones worth the apparent risks of more pandemics?

Both parties in Congress, former Vice President Biden and politicians in Europe increasingly share President Donald Trump’s disaffection with China, and one way or another trade will be managed and limited with the Middle Kingdom—far beyond diversifying sources of components to harden supply chains and ensure critical ingredients for drugs.

Should the Democrats win in November, they may at first give a nod to European preferences for multilateral solutions. However, if the World Health Organization, the World Trade Organization and other international institutions cannot be reformed to limit Beijing’s corrosive and destabilizing behavior, more-unilateral American actions will be forthcoming.

The Constitution reserves primacy over public health, police powers, education and the like to the states—not to the president or big city mayors. In a continental nation, pandemics reach metro areas in a sequence of waves. The virus may have peaked in metropolitan New York but not likely in all other states—especially where lax rules and compliance for social distancing are applied.

Governors are best positioned to weigh tradeoffs between impositions on personal liberty associated with social distancing, testing, tracking and quarantining, and the risks of a second wave of infections. And between the economic costs of enduring longer shutdowns and the human costs of more infections.

Given that metro areas and regional economies overlap states, the coalitions established by governors in the Northeast, West Coast and Midwest make sense.

Trump was politically expedient to back off asserting federal authority and should continue to offer Center for Disease Control guidance and financial support and apply international travel and border controls.

The $3 trillion in relief spending approved by Congress contains many new federal interventions into the economy — for example, extended unemployment benefits for gig workers, protections for collective bargaining agreements and union organizers for large companies taking aid, and limits on executive salaries and payments to shareholders.

Virtually all have limited life spans that Democrats may hope to extend indefinitely but if they try, likely will be frustrated.

The incentives that enhanced unemployment benefits create for businesses to lay off workers and the disincentives that excessive benefits impose on workers to find new jobs illustrates why historically unemployment insurance has been run by the states—with some fiscal backstop from Washington in a crisis. Those benefits are best tailored to regional labor markets and to be effective, power should stay with the states.

Unions won’t have too much luck organizing with double-digit unemployment and their ranks in the private sector will only dwindle further if they don’t voluntarily adjust contracts for the airlines and auto sectors. It’s no accident that unionized Ford F, +0.20% had its bonds recently downgraded to junk but Toyota TM, -0.05% remains investment grade.

Congress likes to talk about limiting executive compensation and wealth, but Democrats and Republicans alike rely on rich folks to finance their campaigns.

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