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Lessons from Crises Past

Government policies restricting the operation of markets usually do more harm than good. Even in times of crisis, such as the current coronavirus pandemic, policymakers should do everything possible to keep markets working and private incentives strong.

STANFORD – The unprecedented shutdown of much of the US economy that has been ordered by federal, state, and local governments is understandable given the need to slow the coronavirus’s spread. Too often, however, well-intentioned and often long-lasting government interventions prevent markets from working properly and thus do more harm than good. Even in times of crisis, markets solve problems well, because they provide the right incentives to use resources effectively.

Policymakers dealing with the COVID-19 pandemic should therefore do everything possible to keep markets functioning and private incentives strong. And history can serve as a useful guide in this regard.

For starters, government should impose minimal restrictions on firms and employees when harnessing the private sector for temporary emergency purposes – whether producing tanks in World War II or ventilators now. Extraneous or overly aggressive government policies often hinder both recovery and the economy’s long-run health. Indeed, in most cases (with some sensible exceptions), less regulation is a good prescription for economic success. Today, for example, why not relax occupational licensing requirements for retired doctors and nurses to help relieve pressure on overwhelmed hospitals?

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