The "Magical Market Thinking" Meets the COVID Pandemic, and It Ends Up as a Catatrophe

July 2nd 2020

Stock Exchange, Covid-19, Financial Crisis (geralt)

By David Bice

The Magic Market, or, more precisely, Magical Market Thinking, has met the Covid-19 Pandemic and been found wanting.  Magical Market Thinking, the fantasy that Capitalism and the Free Market can address every problem better, faster, and more completely, has been ascendant among the proselytizers and acolytes of Capitalism for several decades and has now found a home in the White House in the persons of Larry Kudlow, Peter Navarro, and the President himself, Donald Trump.  Whatever the problem, whatever the outcome desired, all they have to do is wave the Magic Market Wand and everything will work out fine.  Need healthcare, let the Market do it.  Need education, let the Market do it.  Need to solve inequality, let the market do it.  No problem is too big or too complex that the Market cannot solve. 

(Never mind that the Market has been doing its thing in the US for several hundred years and we are no closer to solving these problems than we were at the beginning.) 

These beliefs can lead to poor policy decisions and, sometimes, very bad outcomes.  They can blind policymakers to urgent problems that need to be addressed in a different way.  They also led to the single most monumentally stupid decision by a President in the middle of a crisis - Trump changing our policy for dealing with a health crisis during the biggest pandemic in 100 years without warning, consultation, public discussion, or preparation.  The abrupt change from a Federal Government lead assault on the crisis where the Feds help to coordinate the response and supply assistance when necessary to one where every state and even individual hospitals are on their own and fighting it out in the markets for supplies is akin to the US being invaded and the President declaring that he wasn’t going to use the military to fight it, but each state would have to get their own tanks and planes to do it. Trump is the general who sits in his tent, holding back his troops, while the outcome of the battle raging around him remains in the balance.  No one outside the administration was aware the change was going to happen so when it was thrust upon the country, the public and private sectors were unprepared. 

There is a discussion worth having about whether the Federal Government, the states, or some mixture is the proper way to meet such pandemics, but in this case there was just a unilateral, unannounced determination by Trump  that the Federal Government would not lead in this crisis, but also would not serve as the supplier of last resort to aid those places which were overwhelmed.  Had the states, cities, and healthcare system known that this was going to be the case, they could have planned better for how to meet the crisis.  The same goes for the private sector, which would have worked with the public sector to parse out production and supply lines so that it did not turn into the Wild West where everyone competed separately for limited supplies, driving up prices and creating scarcities.  But that is the Magic for its proponents, especially Trump.  Demand and high prices, market signals, would draw more providers in and solve the problems of shortages. 

How did Magical Market Thinking do with the Pandemic?  It’s too soon for a final answer, but not too soon for a definitive one.  Markets performed well, but too slowly and inefficiently to keep the potential pandemic from becoming a real one.  A lot of companies responded, but no matter how quickly, they were starting at a standstill and unprepared for the speed of response required.  To the extent that supply has met demand, it is due more to efforts to slow or halt the spread of the virus than it is to increased supply.  Had the initial rate of spread prevailed, the healthcare system in many places would have been overwhelmed no matter what the supply increase was.  And some critical supplies, such as PPE, remain far short of need. 

It is not fair to blame the private sector for this shortcoming; they were just as surprised by the policy change as anyone.  It took longer for them to realize just what their mission was and slowed their response.  When you have a crisis where the only thing you cannot waste is time, any lag is too much.  It only allows for the further spread of the virus.

Why would such a destructive change be made so abruptly and secretly in the middle of a crisis?  Other than the mercurial nature of the President, that is.  Magical Market Thinking and the use of The Magic Market Wand have led Trump to this moment.  His absolute belief in the power of the Magic Market to save the day.  All that was needed was to let loose the Animal Spirits and the pandemic would be beaten, defeated utterly.  The Market would seamlessly move to ramp up to meet the challenge.  The Gospel of Capitalism and unfailing Market Success are the roots of this.

But Capitalism is not a religion and the Market does not perform miracles. There is no economic system more powerful than Capitalism and nothing more efficient than the Market, but there are times where they are insufficient to meet the challenge of the moment.  The damage is not limited to the Covid response, either.  It is no coincidence that as Magical Market Thinking has ascended, the attraction of socialism among the young has too.  They see that Capitalism is failing them and many of those around them and are looking for an alternative.  The inflated claims cannot be met in reality and this failure has disillusioned many.  We saw a similar outcome in post-colonial countries which embraced Socialism in counterpart to the Capitalism of the colonial overlords. 

So, let’s put down the Wand, start thinking clearly, and begin to tackle the pandemic the most effective way, leadership from the top.