This post appears here courtesy of the Civitas Institute
. The author of this post is Brian Balfour
- Cooper has repeatedly used a 'dimmer switch' analogy to describe his phased reopening plan
- But the economy is a complex pattern of decisions made by individuals, it isn't just something to be juiced by a switch
- Cooper's restrictions and uncertainty will have devastating consequences on North Carolina's economy for a long time
Gov. Roy Cooper has repeatedly referred to his economic lockdown strategy as a "dimmer switch approach" to gradually reopening the state's economy.
Presumably, Cooper uses the analogy to compare how a dimmer switch controls the amount of voltage flowing to a light bulb in order to control the brightness of the light with the flip of a switch, to his ability to control the amount of economic activity in the state's economy via his proclamations of moving between "phases" of reopening.
Such a comparison, however, reveals a severe lack of understanding of how an economy works. Moreover, it's also a recipe to inflict significant and lasting damage to our state's economy.
For starters, the economy is more like a complex ecosystem rather than a light bulb.
Indeed, a light bulb is consciously designed to accomplish one main purpose, and its parts fitted together to achieve that objective.
The economy, in contrast, is comprised of a complex, constantly evolving web of transactions between buyers and sellers. Elaborate and intricate patterns of production and exchange involving human beings emerge, based on the multitude of their individual preferences and desires, not according to one centralized plan. These patterns are constantly in flux.
Unlike a light bulb, which is made to accomplish a singular goal or purpose, the economy does not have one goal or purpose, but billions of them. Moreover, economic actors are forward-looking, which makes uncertainty and risk a significant calculus — especially on the part of entrepreneurs.
This complex process is not something just waiting for an increase or decrease of voltage from a flip of a switch to increase or decrease activity, like a light bulb.
Can't flip on a burnt-out bulb
What does Cooper think happens to businesses — especially small businesses — when they are deprived of revenue for months? Bills still need to be paid, particularly those related to fixed costs like rent, insurance and property taxes. Some entrepreneurs may have enough saved up to pay their bills for several months without the aid of customer revenue, but most do not.
Some businesses have been thrown a government lifeline in the form of PPP loans and other programs. For many businesses however, the amount is not enough to stave off bankruptcy, or the requirements coming with the government money are too burdensome to make the loan worth it.
For these bankrupt businesses, and their now out of work employees, Cooper's proclamations of moving to the next "phase" on his dimmer switch are meaningless. You can't get light from a burnt-out bulb.
Actors in the economy are forward looking. They plan their future actions, and base their current decisions based upon anticipated future conditions. For instance, a restaurant owner will invest in a new establishment based upon his future expectations for the revenue that location will bring in. The entrepreneur is taking a risk based on his best estimations for an uncertain future.
With Cooper's open-ended, and unpredictable schedule for loosening restrictions, an already uncertain future becomes far more so. Will Cooper move us back to phase 2, or 2.5, or move into a modified phase 3? When will these changes take place? Will my business be exempt from some restrictions, but not others? Why is it considered safe to have a drink at a restaurant but not a 'bar?'
Economist Robert Higgs referred to such grave uncertainty over government rules and restrictions as "regime uncertainty
." Higgs argues convincingly that such uncertainty played a significant role in prolonging the Great Depression.
Is Cooper so ignorant as to not recognize the devastating consequences his uncertainty will have on North Carolina's prospects for economic recovery?
Not only will Cooper's scattered and unsteady shutdown proclamations and reopening "phases" bankrupt many small businesses, his uncertainty will gravely hamper future investment.
The result of Cooper's ill-thought out and destructive "dimmer switch" approach will be fewer (mostly small) businesses and fewer jobs. As is always the case with a struggling economy, low-skilled and low-income people will be the hardest hit.
Who will benefit? Big businesses, of course. With fewer options for consumers due to the elimination of small businesses, consumers will have little choice but to increase their patronage of big businesses. The same type of big businesses that Cooper likes to brag about
doling out taxpayer dollars to.
The economy is not something that can be controlled by a dimmer switch, like a light bulb. It is not a tool or an engine that can be simply turned on or off.
The economy is you and me. To believe otherwise is not only wrong, but also hurtful to the families and businesses most in need of help.