The wisdom of crowds is an extension of the wisdom of markets – and it's better than most experts at processing information.
John Tamny, Director of FreedomWorks’s Center for Economic Freedom, makes several important observations about the problem with lockdowns and bans on “non-essential” business that has eluded the so-called “experts”:
“Experts are routinely called on as the answer to ‘crises,’ when it’s more realistic to assert that the experts are the crisis,” he writes in a recent piece for Real Clear Markets.
In particular, the one-size-fits all diktats handed down from on high prevent the discovery of information from small-scale experiments. Individuals, acting freely as adults, possess local knowledge, which accumulates and multiplies across the millions of participants in society. This phenomenon has been called “the wisdom of crowds,” but perhaps the “wisdom of markets” would be a better term.
Thankfully, the crowds are beginning to wake up, and along with them, markets are coming back to life without any central planning required.
Two weeks ago, Randal O’Toole showed how government distorts incentives in transportation, and how that distortion has exacerbated the COVID-19 epidemic in New York City via mismanaged mass transit. Yet we continue to pour billions into these failing systems. When the market operates without intervention, mistakes tend to be limited — not subsidized — and the firms and individuals with bad judgment quickly go out of business.
Ideally, Tamny notes, the government wouldn’t need to declare an end to the shutdown — people could simply re-open as they see fit, taking into account the risks and rewards, and learning from each other’s experience.
Some will say that this situation is different because of the invisible nature of the coronavirus, and its infectious potential. Tamny is no stranger to this refrain that “this time it’s different.” He joins me this Sunday to debunk the central planning “one-size-solution” crowd and to discuss his article, “Don’t Plan to Reopen; Just Reopen,” for the American Institute for Economic Research.
We dissect the recent stock market rally — is it a Fed-inflated bubble or something more sustainable? Tamny is an optimist, assuming people are allowed to go back to work on their own schedule, rather than on the governors’ fickle timing.
Finally, we discuss the possibility that states are exceeding their constitutional powers in continuing the lockdowns. Are we witnessing the kinds of “grassroots tyranny” that Clint Bolick warned of decades ago? And if so, should the Federal government step in as Trump seems to want to do, or is there another solution?
Bob Zadek: We all know the old saw about the robber who pushes you into an alleyway, points a gun to your head and says, “your money or your life.” Isn’t that what all Americans are being asked to pick today in America as a result of the worldwide pandemic and substantially the result of unfortunate decisions which governments around the world have forced us to make. We are all being told that we have to make a decision, “our money or our life,” except we don’t get to decide. The government has decided for us by dint of the national lockdown and the shutdown of gainful employment for all but essential industries.
There is a different approach than our money or a life. And that approach has been expressed in a recent column that caught my attention. The column says it all: “Don’t just plan to reopen, just reopen.” The author of that column is author John Tammy. John is the editor of Real Clear Markets. He’s a vice president of director at FreedomWorks. John has written many books, The End of Work, a wonderful read about the growth of jobs and the importance of jobs. Prior to that, John wrote Who Needs the Fed? and also Popular Economics. John will help us make the choice of our money or our life and why we ought to not plan to reopen, but just reopen. John, welcome to the show this morning.
John Tamny: Hey Bob, thank you so much for having me. I appreciate it.
Life or livelihood? The Best Policy is No Policy
Bob Zadek: The government seems to have decided, in the words of the Governor of Pennsylvania, “life before livelihood,” an absurd statement. We’ll explore that this morning. How should that decision be made and what should be the considerations of our money or our life?
John Tamny: Well, obviously in our perfect world, there would be no policy. I think the mistake is always to lead with policy. Free people achieve all sorts of amazing outcomes without it. But in this case, to pretend that we will just choose life over livelihood. It is a remarkably absurd statement as you allude.
Easily the biggest killer of mankind the world has ever known and nothing else comes close is poverty and starvation. To pretend that the choice of economic growth is somehow anti-life. In fact, economic growth is why we live longer and better with the exponentially better living standards all the time. It is why we’ve suddenly discovered diseases like Alzheimer’s. It used to be that people around the world didn’t live long enough, hence they never got to that point. And so it’s economic growth that helps us to live. If you take it away, we will live less and we will live in much worse fashion.
Bob Zadek: Governor Cuomo recently said with righteous indignation, all capital letters, italics and underlined, that the policy of New York will be that EVEN LOSING ONE LIFE WOULD BE ONE TOO MANY. Therefore, he said he will not reopen the New York state economy until basically there is no danger. In other words, it is sort of like zero tolerance for Covid-19 deaths. He is deciding for life over livelihood. Now, both livelihood and life is at risk. Tell us, in your opinion, what the process should be? How do governments and governors make the important decision? How do they sort out how best to behave? What are the beacons which lead the way or which should leave the way to our governments state and local in making that decision? What are the guiding lights?
John Tamny: There should be no guiding lights. The guiding light can only be freedom. And the reason for that is that because if people are free to make their own decisions, it’s not as though they’ll disregard the new coronavirus. They’ll just approach it in different ways. Some businesses will open up completely and say we are not going to worry about crowds. Some will open up halfway. Some will say we’re not going to open up at all. That would compromise our business over the long term. Let’s also add that some individuals will not go out at all for fear of being infected.
John Tamny: I would add that with this we would create abundant information. We’d find out whether the new coronavirus really passes on through touching one another, shaking hands and things like that. Let’s remember that in the 1980s, it was assumed that AIDS could be passed on just by being in the same room as someone who had AIDS. We now laugh at that. So through people interacting freely, some people taking enormous precaution, some taking very little caution, we create the information that tells us how to live in this new future. The problem with plans is they blind us. We have no information when the government is planning things because people, if they’re not able to go back freely, they can’t produce the information that we need.
The Experts Create the Crisis
Bob Zadek: John, you have written eloquently and passionately and with fact-based observations on the providing of information by experimentation– by letting humans in their behavior produce in effect the data –which experts can then use perhaps to make decisions. So in effect, you have railed against the reliance upon experts. Tell us more about that. Why is reliance upon experts a bad idea as opposed to observing behavior?
John Tamny: Well, let’s think about Anthony Fauci. According to some, he’s a formidable intellect. So let’s just agree that he is enormously smart. Okay. If he walks into Redskin Stadium next fall to the first Redskin game, it may be that he’s the smartest personal person at FedEx field, but the 80,000 fans collectively are much smarter than he is and it doesn’t even come close. The reason they are is that they bring 80,000 different bits of knowledge and information about how the world works.
So what I’m describing there is markets. It is not as though there weren’t experts in the former Soviet Union. It’s not as though there aren’t experts in North Korea and Cuba now. But anytime you substitute the genius of the very few for the broad genius of the marketplace which has decentralized information, invariably you create problems. That’s why the formerly centrally planned economies fail.
These were smart people, but you can’t plan the infinite decisions people are making every second of every single day. And so it’s the same idea here. Government’s decree a crisis, at which point they hand over handling of the crisis to experts. In doing so, it’s a self-fulfilling prophecy. The experts are the crisis because suddenly rather than letting market signals guide how you respond to things, how you approach a new virus or any kind of health issue or any issue, you suddenly have the very few planning in centralized fashion. Whereas, in normal life, decentralized planning guides us on the way to plenty. And so governments in relying on experts create the crisis every single time.
Bob Zadek: The most important word in your last statement was the “collective” wisdom of millions of people acting independent of one another. That collective judgment of those people is superior to the wisdom of experts. That information that cannot be discerned other than by observing behavior. The price of something is only the price that a seller is willing to sell it for and a buyer is willing to pay for it. The government can set the price by fiat, but that is just using a gun to determine the price. That’s not the real value. You cannot set the price except in the market. And the same with policy. Policy is humans acting in their own self interest on the basis of information.
And that is crucial. Our founders knew that, economic scholars in the past have known that. The decision of individuals acting in their self interest is valuable, but only to the extent that it is informed. So the government does have a role to play by providing unbiased, objective information, even guidance and suggestions, so individuals in their self-interest will determine the policy. It’s not an individual alone who is smarter than your hypothetical Dr. Fauci, but it’s the collective wisdom, the sum of all those independent decisions which tell us the right way to behave. The default has to be to freedom. Expand on that concept if you will.
John Tamny: It has to be stressed that I would be for low taxes, no regulation, free trade, and the dollar that holds its value throughout time even if you can prove to me that the court, that those policies correlated with slower economic growth. I am for freedom. It’s as simple as that. I think free people make the best decisions. That does not mean we are left alone. Let’s never forget that free people are guided by all sorts of people. People in the town live with influencers in that town. Free people are not individuals acting alone without any sort of information. There will be all sorts of people around who say this virus is pretty dangerous and we ought to consider staying at home for a while.
Or, we will decide it is not very dangerous for young people. This is probably a good time for 23 year olds to get into the job market while other people are pulling themselves out of it. This would be a chance for you to shine at a time when labor is much needed. And so again, I am for freedom no matter what. Holeman Jenkins says the government should be providing information right now about the Coronavirus. I disagree. Government of course always expands beyond what it is supposed to be. But does anyone really think that if there weren’t a government, we would know about the virus? Let’s be serious.
Bob Zadek: But of course individuals do need information. Whoever provides it is sort of almost besides the point. But individuals acting in their own self interest with free choice. Some will make the wrong choice. Some will make the right choice. Collectively, the right choice will be known to all. What is most important is that individuals are acting, as you have said, by exercising free choice and without coercion.
An Essential Deprivation of the Pursuit of Happiness
Now, John, you have written an entire book on the importance of jobs in the economy and to the worker. That becomes crucially important because right now individuals are denied by fiat and by the government access to their job. Tell us some of the conclusions you have reached in your study of jobs and the relationship of an individual to their work.
John Tamny: Well, it’s a great question. I’ll say in my case that I couldn’t not work. I can’t get enough of it. If I weren’t able to do my job as a writer in these eight weeks of lockdown, I don’t know what would become of me. I can’t get enough of it. Warren buffet could easily make it possible for me to retire in grand fashion today. If he offered me the money to do such a thing I’d feel pressured by my wife to accept the money, but Warren Buffet could not give me happiness. Work to me is an endless source of happiness, of accomplishment, of identity. It gives me everything. One of the many things that I found so distasteful about what the government did. On the local state and national level they imposed lockdowns that put tens of millions of Americans out of work. That was bad enough because it was unnecessary.
I don’t need a law to protect myself from illness and potential death. Worse than that is that as they took from people what gives them purpose. Their response was, here’s $1,200 to make you feel better. Is my work so cheap to you that you think you can buy it for 1,200? The very arrogance of the political class that they said, here is your compensation for that. My work means exponentially more to me than that. Really there’s no way you could put a dollar value on it. And so when you think of the fact that so many Americans lost their chance to do what makes them great, what makes them shine, what reinforces what is brilliant and unique about them. The levels on which politicians destroyed lives and livelihoods, you can not minimize what a horrific act they have conducted in the past eight weeks.
Bob Zadek: Your point is so profound. Imagine if the government said, “we are going to take away something else you value, we are going to take away contact with family members, but here is a nice-sized check.” Do you now say to yourself, well that’s a wash! I’m losing contact with family members but I’m getting a nice big check so I’m just as happy as I was before.
I think your point is that getting paid for work is only part of the exchange. What workers get is far more than simply a check. They get self-esteem, they get self-respect, they get satisfaction, they get control over their lives and they are not, I can’t even say the word, dependent upon somebody else. This is yet again another example of replacing all of the positives that come from work and replacing it with dependency.
We are sitting around looking at our bank account, waiting for the transfer to hit the account so we can buy groceries. But where do we get the transfer of self-esteem? And that is what the government has not built into the equation. So when the government says “your livelihood or your life,” they are misunderstanding everything. Your life is your livelihood. They are not separate. They are one in the same. Your life is the amalgam of all those components including work. Isn’t that kind of the point you’re making John?
John Tamny: Without question work is happiness. Warren Buffett could retire many of the listeners on this show to a life of grand fashion. He could give us money, but he could not give us happiness. I think happiness comes from doing things and doing them well. To be clear, this has been a long struggle with me and conservatives and libertarians too. They say, well the government creates dependency. I disagree. I think most Americans would work even if they have lots of money, Americans need that self esteem that you talk about. They need that sense of accomplishment.
I think you put it so well in talking about family. I don’t raise my kids because of a check. It’s something I couldn’t not do. For the government to separate me from them and say, okay, in return for that because you’re a lethal menace, because you might give them the virus, we will pay you to move away from them, there is no way.
There would be mass revolt. People just generally want to be good parents. They want to be good workers because they get something from it that is far more important than money. It’s so sick. In our call last night you put it so well. You said governments think that we just work for money. You put it much better than that. They’ve devalued what we do by pretending it’s all about money. It’s so much more than that.
An Undiscussed Wealth Transfer
Bob Zadek: The undiscussed concept of what is going on now with trying to buy off workers by giving them money is the mother of all income transfers. Income transfers is kind of an abhorrent word among those who prefer to live in a free market environment. Income transfers are simply compelled by the government with a point of a gun or a jail cell, transfer of any wealth from those who have it to those who don’t.
What is happening today is, and we will explore this after our break because it is under discussed and under reported, is that since the overwhelming majority of the victims of the virus are people in their sixties and seventies, the older people to be sure. They are therefore the less productive elements of society. I mean no offense. They have been productive for so many years, they are allowed to be. But the wealth transfer once again– just like Medicare and social security– in the trillions, is from the most productive elements of society to the least productive, without any debate or discussion.
The economic effects of government policy is the core subject this morning. Most importantly, we are talking about the economic effects. In a discussion of the economic effects of the virus, we are required to make a decision about how much we should spend to save a life. What is the value of a human life? That conversation is very painful to many Americans and many people in the world. Many would say you cannot put a value on human life. But of course, government in almost every policy government puts a value on human life. Policy decisions are made for the collective wellbeing of how much to spend for how much benefit on people’s health and longevity all the time. That is not special to the virus. Isn’t that really what should be driving the policy on opening or closing work, by the government? Shouldn’t that be the determining factor, and how should it be made?
John Tamny: I have no policy and I have no plan.
I think it’s dangerous. I think people should be free to put their own values on life. I know that in my case, I’ve always just assumed that the new virus was very lethal. Let me explain. I don’t know the difference. Because it’s viewed that way, I put on a mask on occasion. I wash my hands. All these different things. It’s not my place to say whether or not this is lethal. What I want to stress is that even if it were true that the original Imperial college projections of millions of Americans dead, my approach still would be freedom simply because freedom is what produces the information that makes us most able to limit the lethality of it.
We know more and let’s be clear why we know more. Some people in response to the possibility of millions of dead would have gone into hiding and quarantining and they wouldn’t have allowed anyone near them. But some people also would say, are you kidding me? I refuse to change my lifestyle at all. Some businesses would say, are you kidding? We’re going to continue to serve. Come one, come all.
Let’s be clear. Those who don’t take the virus seriously are as crucial to combating it as those who take it very seriously, because in their actions they tell us how easily or not easily it’s transmitted and what happens to us if in fact it is transmitted. Let’s never forget drugs are illegal, but people still use drugs. Some say that cocaine and heroin can kill you, yet people still use it, and the fact that they do provide information to us all about the implications of use.
“I have no policy and I have no plan.” – John Tamny
In the same way here you want massive amounts of information. You want people creating information. Let’s also remember that when people are free, the economy is abundant. As recently as the 1940s the biggest expense for hospitals was bedsheets and bandages. Since then, because of massive economic growth that has been matched with scientists on the way to myriad cures, hospitals can actually elongate lives. Doctors can elongate lives.
The virus is lethal. Oh my gosh! Keep the economy open. We’ve got to create as many resources as possible so that we can match them with doctors and scientists on the way to finding the answers to this. The answer is always freedom, not because people if they were free would just go out and kill themselves. Of course they wouldn’t. Free people produce the economic growth and also the information that gives us answers.
Government Policy: Daily Decisions Between Life and Death
Bob Zadek: And if we think that it is tempting for individuals to say that has an element of thoughtlessness or even cruelty, to allow people to behave in self-destructive behavior, I will just remind our listeners that every single day of our lives our government in decisions, large and small, makes decisions that some must die for the ultimate common good. Now if that seems harsh. But, think of war. Think of sending troops overseas. Who do we send overseas? The most productive, the young, the future of our country. Government selects some of you who will die. Why? Because there is a collective benefit that more than offsets regretfully your life. We make that decision and we make it with a heavy heart but it doesn’t question the decision making if the decision, if war is essential.
Now we can debate that in another show. But if war is a given, it is essential that we send troops in harm’s way, some of whom will die. If that is the right decision, it’s the right decision because the collective benefit outweighs the damage to the few. So that’s a decision we are totally comfortable making. When we make decisions to permit driving, it kills 55,000 Americans every year. Would anybody suggest let’s save 55,000 lives and ban the automobile?
Now for sure you would save lives from auto deaths, but the collective damage from the absence of the automobile is obviously far greater than the 55,000 random Americans who will die. So it is the same decision. And as John points out, the decision to open up the economy, knowing that some people will die or will get sick is the same decision as sending Americans into harm’s way. Some will die for the collective benefit.
John Tamny: Letting people live itself can lead to harmful outcomes. Freedom to live includes death. Viruses will come up in life. It’s unfortunate, but because they will, it’s essential that people be free so that we can limit the collateral damage from viruses. Freedom is the path to understanding them as quickly as possible.
Bob Zadek: Even if it was indisputable that keeping the economy open would cause more coronavirus deaths, that is not a reason for keeping the economy closed. Is that a fair summary, that it is too important to us all to collectively keep the economy open?
John Tamny: Absolutely. I mean, again, theoretically they could reduce automobile deaths. They can take away our cars. Let’s consider more broadly what would happen if suddenly we couldn’t drive our cars. The economic contraction would be so profound when we would be reduced to autarchic individuals. We’d be far more reliant on local farmers for our food and everything. Life would suddenly become dreadful.
Consider all the deaths that would result from that, all the loss of ability for people to earn a living that would lead to suicides. Let’s consider also in that scenario, the massively reduced amount of wealth created, which means there would be exponentially less investment in healthcare advances that consistently elongate lives. Flattening the curve, that decadent notion that that political types came up with, never said that was going to totally prevent the getting of the virus.
You can’t push it back forever. Assuming they even did that. There is no big virus outbreak in Indian people are very close in India. But even if you could do that, look at what we’ve lost. Tens of millions of jobs gone down the tubes, businesses out of business, wealth creation to some degree at a standstill. What are the long term implications of that in terms of investments that never happen in healthcare advances? What are the long term implications in terms of jobs never created? Companies never created that would have elongated life in countless other ways. You can always point to, yeah, well we saved 20,000 lives here, but how many lives will end too early because we basically put our ability to produce resources at a standstill. The long term implications are much worse.
Coronavirus’s Impact on the Invisible Lower Class
Bob Zadek: And you and I both know that you’re making an indirect reference through an observation by an economic journalist in the 1850s in France or Frederic Bastiat, who wrote persuasively about what he calls the unseen. Politicians often will point to the visual benefits of their policies, ignoring the unseen long term policies, which is exactly what you’re referring to.
And along those lines, John, and as an economic observation, you and I live in what we will call the managerial class. We are able to work from home. I find that all of my colleagues, professionals, attorneys, and business people, are able to work from home. So we can sort of shrug this off. Even my lifestyle, it is kind of unaffected. The people who are most affected are the hourly workers, those in the service economy.
A waiter cannot work from home. A factory worker cannot work from home. The concept doesn’t exist. So there is an ugly class implication. We have adopted a policy that favors the middle class and upper-middle class and profoundly adversely affects the lower classes. I can’t tell how much that fact drives the decisions made by the government to close down the economy. The only economy that was closed down is those that are the people who are dependent paycheck to paycheck on their salaries to live. They are the most affected. And John, you and I kind of get to coast through. So speak about the unseen effects on those people who are least able to protect themselves and how insufficient it is to throw them a bone, let them eat cake, $1,200 check is to them.
John Tamny: Going back to March, I was writing “Rich Man’s Coronavirus.” I find it incredibly distasteful seeing people from the class that you and I are part of. It was just several weeks off and you know they’re posting on social media. Look at us with our kids, with our cookie kits, and look at what we’re doing with our kids today. Oh look at me working side by side with my wife and everything! I thought the tone deafness of that. For America’s great vast middle this was about working from home. It’s easy. We’ve got jobs that we can continue to do. But for those low rent people that we just deal with when we go out, as you say, let them eat cake.
The super rich created these technological advances that made it possible for us to work from home. But the little people, those people see they have to go somewhere for work, who cares about them. So I find it so unsettling that the middle class in the United States could be so tone deaf and unaware of the implications of these policies for those people. And I hope politicians pay in enormous fashion for what they did to all too many. If I hear one more time that the middle classes are the backbone of our economy, spare me! The middle class accepted this. Oh, we’ll just bend the cost curve downward and bake cookies for a few weeks while everyone else gets it with a fist.
I find it disgusting how many people we know who have just gone along with us and pretend that all is normal, while people, desperate people, immigrants, illegal and illegal, have nothing and nowhere to go and no job to go to. I find it so offensive!
Bob Zadek: They’re invisible. They are not politically connected. Therefore they are the true victims of this economy. And as I said when I introduced the topic this morning, this is a profound wealth transfer in the trillions from those people against their will to have their wealth transferred from them to prevent fewer number of people from getting ill or from dying. They didn’t get to vote on this policy. You’re so right in writing what you did about the importance of jobs.
Can you help us understand why the stock market seems to be behaving as though we are not in the economic crisis we are in?
John Tamny: Yes. Markets never price in the present. They always price in the future. And this is what I have written throughout all my pessimism. I’ve written that the economy is going to roar back, but for the typical American entrepreneur, this is nothing.
Someone like Phil Knight faced death for 18 years in building up Nike. He just felt like every day was his last, and that’s what entrepreneurs understand. They’ll constantly tell you, I’m too smart for Trump, I’m too smart for Obama, I’m too smart for the people in politics, and so the entrepreneurs will bail out the political class yet again and so the stock market is just a reflection of the fact that these lockdowns have to end, because Americans will not accept having their livelihoods taken from them forever.