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How Well Can Governments Actually Deal With A Big Crisis?

By:
Joe Valachi
July 11, 2020 6:05 PM

Why do we always look to government at the first sign of trouble?

 

Every time society faces a crisis, the first question on everyone’s mind is, oddly enough, “What do the politicians say?”  Maybe we’ve just seen too many movies where Uncle Sam saves everyone from apocalypse.

 

However, a government’s capabilities are not infinite.  There are even situations where they can end up making things worse.  So, what are those situations and what can we do about them?  

 

First off, it helps to know what can government actually do.

 

 

Government’s three main abilities are:

  1. Incentivizing Behavior - using things like the law, the military, or tax breaks to make people behave a certain way
  2. Controlling a Country’s Resources - either through buying or nationalizing them
  3. Printing Money – pretty straight forward

 

During normal times, these three powers are the closest thing a person sees to God on Earth. However, they’re not infinite.  

 

 

These Powers Only Go So Far.

 

A government using all of its capabilities to their fullest extent in a crisis brings up some serious ethical questions.  But we’re going to ignore them since the government probably will too.

 

Instead, let’s focus on the practical limitations of these powers.

 

Behavioral Incentives only work if they are both attractive enough and enforceable enough to be effective. For example, if there was a famine, the threat of jail wouldn’t keep a starving person from stealing food.  Likewise, if the whole country was breaking the law to get food, you couldn’t just lock them all up.  

 

Controlling resources is nice however, resources by their very nature are finite.  Government can nationalize every drop of oil in the country during a war, but if they still don’t have enough to fight then they’re going to lose.

 

Money printing has the opposite problem.  While there’s no limit to how much you can print, too much of it destroys its effectiveness through inflation.

 

So, while all of these capabilities can seem unlimited during normal times, in times of crisis they can, and often do, reach their limits.  On top of that, they can even make a crisis worse.

 

 

Imagine if COVID-19 was Deadlier than it is.  

 

The current crisis is JUST barely within the realm of what a government can manage.  Even still, it’s not clear what the long-term effects of government action will be.  Now, imagine the disease was worse.  

 

What if COVID-19 had a death rate of 30%?  Imagining the government decided to use all of its powers, that would raise some serious questions.

 

Could you have a 100% lockdown until a vaccine was found?  Would “essential workers” leave their house? Would there be enough of them to enforce a lockdown?  Is there anyone to service infrastructure or staff supply chains?  Will there be food, running water, or internet?

 

In that situation what kind of behavioral incentives would coax people from their homes?  Jail isn’t a threat when the alternative is death.  You could offer them tons of money but it's unlikely you could print that much without destroying the currency.

 

At a certain point governments really need to make a decision about if people would be better off left alone.  However, that would never happen for one big reason.  

 

 

The People Making the Decisions are Politicians.

 

A politician must be seen to be leading and making decisions during a crisis. Politically, it simply isn’t an option to not use all the tools at your disposal when the country is hurting.  Your opponents, and the public demand it.  

 

That fact alone has been responsible for a lot of terrible decisions over the years.  However, there is another way.      

 

 

What if we Designed Government to Operate Differently in a Crisis?

 

For example, a large crisis hits, and the president declares an emergency. The ability to control behavior incentives, resources, and moneyprinting would then rest with a small group of experts well versed on the problem itself.  In the case of COVID-19it would be medical professionals, researchers, economic experts, and the president there to represent the government. While definitely not perfect, it would at least take political needs largely out of the equation.  

 

Wikipedia lists as catastrophic global risks:

These are all very different risks which demand very different solutions.  It’s not practical to think that the government’s bag of tricks will be enough to solve them.  We as a society would do well to consider what our alternatives are.  

 

Do you think we should look to the government to solve every problem?

Let us know what you think on social media.
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