Why Is Unemployment Rising?

The obvious answer to the question in my title–that unemployment is rising because of the COVID-19 pandemic–is not quite correct. The virus is not causing unemployment to rise. The government’s response to the virus is causing unemployment to rise.

I won’t offer an opinion on whether the government response, overall, goes too far or not far enough. I will say that localized responses are more appropriate than national responses, because the degree to which the virus has spread varies from place to place. I’m in favor of states taking the lead rather than the federal government, for that reason, and also in favor of states giving local governments options instead of forcing everybody in a state to comply with a single set of policies.

In my state of Florida, the southeast has the highest number of cases, and some rural counties have no confirmed cases. But businesses in those counties are being forced to shut down by state-wide mandate. Sure, there are COVID-19 risks, but there are also costs of unemployment and likely business failures on the other side. I’m not saying I know what the best policies are. I’m not an expert on communicable diseases. I’m saying that best policies for one location surely are not the best policies to apply everywhere.

The crisis will pass, and when it does, the economy should recover rapidly–if government policies do not stand in the way. Businesses will be anxious to get back up and running, and people who lost their jobs will be anxious to get back to work, as long as government policies don’t make it advantageous to stay unemployed.

The United States saw substantial economic downturns similar in magnitude in 1982 and 2008. In 1982 President Reagan was inclined to allow the economy to recover on its own, and the recovery was rapid. In 2008 the federal government, along with the Federal Reserve, enacted huge bailout and stimulus programs, and the economy was slow to recover.

If those examples are not instructive, think back to the Great Depression, when New Deal programs created uncertainty and government dependence that caused the Depression to linger on for more than a decade.

These are uncertain times, and one of those uncertainties is how government policy will respond to the downturn that has been caused by government policies. Here’s hoping that once the current restrictions are lifted, government will step aside and let the market economy create jobs and increase productivity, as it has been doing since the beginning of the Industrial Revolution.

Randall G. Holcombe is a Senior Fellow at the Independent Institute, the DeVoe Moore Professor of Economics at Florida State University, and author of the Independent Institute book Liberty in Peril: Democracy and Power in American History.
Beacon Posts by Randall G. Holcombe | Full Biography and Publications
  • Catalyst
  • Beyond Homeless
  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org