True Federalism: It’s America’s People Who Will Restart Economy

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Quite a turf battle is erupting between President Trump and Governor Andrew Cuomo over who has the authority to restart the American economy. Mr. Trump insists that the president of America “calls the shots” and that the states “can’t do anything without the approval of the president.” Mr. Cuomo insists that the President is off base and that authority lies with the states.

Our own view is that they’re both wrong. It’s one thing to shut down an economy. That’s something at which governments are highly skilled. The states and the federal government each played a role in curbing the country’s economy in the face of the coronavirus. They did so for good motives, namely to try to buy time for hospitals overwhelmed with Covid-19 patients.

The power to start up an economy, though, that’s another matter. In America, that authority rests with private individuals, companies, and labor unions. The government can regulate them, close the arteries of commerce, take measures to stop the spread of infections. We have seen such actions, by both the federal government and the states, taken and obeyed.

Neither Messrs. Trump nor Cuomo, though, is vested with any authority to force Americans to go back to work, risk their capital, hire employees, and open their machine shops, retail outlets, and restaurants. No, that authority is vested solely in individual Americans — be they entrepreneurs, say, working stiffs, taxi drivers, barbers, loggers, dancers, or soda jerks.

The best thing the government — state and federal — can do is get out of the way, refrain from levying onerous taxes and tariffs, maintain independent courts to handle business disputes, and accelerate the deregulation of commerce. Plus establish an honest, convertible currency to transmit prices. Then let the market work its magic.

That is how to restart an economy. We know that from history. One precedent was the depression that gripped America between 1920 and 1921. Haven’t heard of it? Well, it was cut short by pro-growth policies. James Grant tells the story in “The Forgotten Depression.” Our Paul Atkinson reminds that it’s been called perhaps the century’s “most underrated event.”

Then there’s occupied West Germany, where even three years after the war the economy was in ruins and — as our Amity Shlaes once wrote in the New Yorker — citizens were fighting over individual potatoes. The currency was worthless, credit was scarce, factories idle, and shop windows bare. People were hoarding. Then a visionary economics minister of the occupied zones, Ludwig Erhard, had his epiphany.

Erhard went to General Lucius Clay and proposed replacing, in a fell swoop, all the currency in the country with a new currency called the Deutsche Mark and lifting wage and price controls. Herr minister, the general said, my advisers tell me it won’t work. Herr general, Erhard said, my advisers tell me the same thing. The two proceeded, despite the experts.

The economy restarted overnight. Banks started lending, factories started humming, and the German economic miracle began. We wouldn’t want to make too much of either example. The German event records plenty of inequities. In some ways, Mr. Trump incentivized a boom like the 1920s. Both, though, responded to frozen economies with free market methods.

This is something for Messrs. Trump and Cuomo and all the other federal and state officials and legislators to remember. We don’t belittle the epidemiological issues or the risk of a new breakout of Covid-19. Neither do we belittle the constitutional questions. We’re making a broader point, one that goes beyond federalism and the competition among our leaders.

Until three months ago, it was called the Trump boom, and fair enough. It was, though, really the people who built it. They will be the decision makers on when and how to bring the economy back. The most important factor will be for government at all levels to get out of their way and let the American people do what they know how to do, including weighing the risks to which government might alert them.


Drawing by Elliott Banfield, courtesy of the artist.

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