Why a report saying a mask mandate would boost the economy is flawed | Peter Crabb

In times of trouble, we often can’t help ourselves. We immediately cry out, “There ought to be a law.”

However, when making current laws, a principle of economics keeps rearing its ugly head. This principle is sometimes referred to as a law itself: the law of unintended consequences.

Much economic research has shown that the actions of people and institutions have effects that are often unanticipated or unintended. Such consequences may be positive, others negative. The latter are most easily spotted.

A widely used classroom example is pollution. When an industry’s operations spill harmful chemicals into the air or water, it’s relatively easy to see the negative consequences and negotiate new laws or restrictions in response.

But what about a virus? There’s no “evil” corporation to condemn in such a case, and negotiating how best to respond to the public consequences becomes even more difficult.

Nonetheless, policy makers still have to consider potential consequences of any new regulations. The laws of economics won’t go away.

Frédéric Bastiat, a 19th-century French economist, distinguished between the “seen” and the “unseen” in any action. Bastiat wrote extensively about the unanticipated or unintended effects of economic policy and concluded that policy makers should guard against unwanted results. That is, they should first do no harm.

To illustrate the problem, Bastiat told a parable about a broken window. A rock was thrown through a shop window. As community members viewed the damage, they began talking about the economic benefits that would flow to the glazer and others when repairs were made.

The fallacy in this line of thinking is that the money spent to repair the break could have been spent or invested elsewhere on new and otherwise more productive ventures. This “broken window fallacy” is an easy mistake to make.

A recent economic report suggested that statewide mandates for face coverings during the coronavirus pandemic would “persistently” promote economic activity. While it’s true, as the authors suggest, that more people may be willing to venture out and shop under such laws, the analysis assumes that such spending would not occur otherwise and ignores potential negative responses to the mandate.

According to the U.S. Bureau of Economic Analysis, consumer spending is currently only 0.5 percent below its level at this time last year. There isn’t any new spending to promote. Further, some households or businesses may respond to statewide COVID-19 mandates by reducing spending and investment, because they interpret such government announcements as a signal the situation is worsening.

If there ought to be a law, it’s not an economic one.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. prcrabb@nnu.edu

This story was originally published December 15, 2020 at 5:00 AM.