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John Hood: Leaders must offer more clarity

By John Hood

RALEIGH — Free societies are rife with planning. Indeed, there is no such thing as an unplanned society.

No, I have not become a victim of the Invasion of the Body Snatchers (although that is, of course, what a snatched body would say). I continue to believe that freedom is essential to human happiness and a precious gift that we should guard with ferocious jealousy.

My point is simply that freedom is not the opposite of planning. All productive human activities feature extensive planning, whether it be to launch an enterprise, pursue a career, acquire an education, or form a family. The true policy question has always been how to coordinate the varying and constantly changing plans of teeming multitudes in such a way that the greatest number of individuals can reach the goals they have set for themselves.

Is the right answer for government to create a central plan and coerce others to follow it? Or should government maximize the freedom of individuals to make and follow their other plans, with market signals in the form of prices serving as the means of coordination?

You know where I stand. I’m a market guy.

That doesn’t make me an anarchist. I recognize that there are limited cases in which markets are insufficient as a means of coordination. Governments must step in to ensure the provision of certain public goods.

Even in those cases, however, government should choose the least-restrictive means to advance its objective. If possible, it should subsidize a service delivered by competing providers rather than monopolize the service itself. The government should nudge rather than shove. And when forceful action is necessary — as is clearly the case during public-health emergencies such as COVID-19 — the government should act as transparently as possible, with clarity about its goals, models, methods, and timetables.

Why is clarity so important? Free citizens are not cattle. We are capable of understanding and accepting the need for painful measures, as long as we are afforded some basis for predicting their effects and their end. Without clarity from our leaders, we cannot make rational decisions.

As economist Frank Knight would put it, a lack of clarity leaves us with unfathomable uncertainties that can only paralyze us. Clarity turns uncertainties into risks that we can calculate and employ. Clarity allows us to plan.

I know this all sounds theoretical, but stop-and-go government is a very real and quantifiable problem. I have written before about the role that policy uncertainty plays in sparking economic recessions and hampered economic recoveries. When managers, investors, entrepreneurs, and employees lack information about what government is going to do, and when it is going to do it, they make fewer plans and take fewer risks. The result must inevitably be fewer jobs, lower incomes, and less opportunity for people to take care of themselves and their families.

In a new paper released by the National Bureau of Economic Research, four economists have used measures of economic uncertainty to model the extent and duration of the Great Suppression — the economic downturn we are now experiencing because of COVID-19 and the lockdowns governments have instituted in response.

The authors forecast a massive 11% decline in real economic output by the fourth quarter of 2020, and conclude that if anything their model is understating the damage. Moreover, they estimate that more than half of the decline is the result of uncertainty, of firms and households lacking the information necessary to make long-term plans.

Because we are dealing with a novel coronavirus about which a great deal is unknown and will remain unknown for months if not years, some of the uncertainty effect is “baked into the cake,” as it were. But it would definitely help matters if government leaders spoke with greater clarity about when and how they plan to ease restrictions on our freedoms.

Don’t hold your cards close to your chest. Display them. We have a right to see them — and we are all on the same team. Right?

John Hood  is chairman of the John Locke Foundation.

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