DANIEL VAUGHAN: The knowledge gap in government COVID relief plans

Politicians and governments have a knowledge problem, but they’ll never admit to it.

This issue isn’t unique to Democrats or Republicans. Both ends of the partisan divide believe that they understand the exact right way to fix the country’s problems. Knowing how to identify a problem does not, however, mean that one knows how to fix it.

The great Austrian economist Friedrich Hayek got at this when he wrote, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

It’s a knowledge problem. It’s impossible, at any point in time, to have perfect knowledge to design a program that perfectly aids every person in the country. But that’s never prevented any government from trying.

Hayek continued in that same quote:

To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.

What he’s getting at with decentralization is that individuals are better positioned to understand precisely what they need and what their communities will need than any federal government gazing down from above. It’s possible to design generalized programs, policies, and laws that provide, but impossible to create programs for all individuals. Politicians imagine they can leap this hurdle, but in the end, they lack the knowledge to do this.

Democrats and Republicans are both failing to acknowledge this knowledge problem as they try to craft a COVID-19 relief bill to start President Joe Biden’s administration. Democrats are doing this by pushing a hike in the minimum wage, and Republicans are trying to “target” coronavirus relief.

Let’s start with Biden and Democrats’ evolving plan to raise the minimum wage to $15 across the board. On the Sunday political talk shows, Biden and his surrogates backed off that plan due to Senate rules. (They want to pass it through reconciliation rather than as a piece of stand-alone legislation.) But it shouldn’t take a skeptical look from Republicans to cause Biden and Democrats to take pause.

We’re in the middle of a pandemic. Businesses are closing down permanently because of lockdowns and consumers simply staying away due to fears of the virus, all of which has left the economy limping along. Adding to the costs of running a business in the form of higher wages for employees as business owners are already struggling to stay afloat will increase the number of people who are permanently unemployed.

The economist and philosopher Thomas Sowell put it this way:There are no solutions, there are only tradeoffs…and you try to get the best tradeoff you can get, that’s all you can hope for.” Increasing the minimum wage would unquestionably help some people while also undoubtedly harming others. And increasing the burden on American businesses during a pandemic is utterly ludicrous.

The simple retort to that is, “The pandemic is coming to an end, and the full increase wouldn’t come until after everyone is recovered.” Really, though? Are we sure? That’s a pretty big assumption.

The odds of humans eradicating COVID-19 as a disease is slim, and most governments and businesses are settling into the reality that the virus is here to stay. What does a post-COVID world look like? We don’t know yet because we haven’t built it yet. Throwing a massive burden on top of that unknown is irresponsible legislating and governing.

Republicans aren’t much better, though.

One of the hotly debated items in the latest coronavirus relief package is another round of direct checks. Americans received $1,200 in the spring, and $600 over the winter. The debate now is whether to send out $2,000 checks, or send $1,400 checks and claim that with the $600 checks, that equals $2,000.

Republicans and some Democrats also want to lower the thresholds and cut off who receives these checks. The beginning threshold for prior relief checks was $75,000 for an individual, and $150,000 for a married couple, based on the previous year’s tax filings. The latest round of negotiations has included discussions about lowering that to $50,000 for individuals and $100,000 for couples.

The knowledge issue pops up with these attempts to target relief: we don’t know who needs assistance anymore. Income levels from 2019 or even 2020 will not tell you who needs aid right now. Using those cut-offs assumes that people still have those incomes. We know that’s not true.

COVID-19 has radically changed consumer behavior and incentivized states to engage in lockdowns to control the disease’s spread. Entire industries have gotten shut down as a result. Even if you were wealthy pre-COVID, you might have little to no income now because your whole business or industry has been shuttered. Tax filings when things are good don’t tell the story of now.

In other words, targeting relief aid is impossible. Some people who meet the qualifications for both relief proposals don’t need the checks because they’re unaffected by the pandemic, and others who are well outside the thresholds desperately need the aid but won’t see any in either case. Pandemic aid doesn’t follow ordinary tax relief or stimulus parameters.

That’s why it’s better to do a full spread to all Americans in an attempt to help as many needy people as possible, instead of believing there’s enough information to “target” relief. It’s impossible to target aid when the parameters used to target people are inherently wrong due to pandemic conditions.

The knowledge problem won’t go away any time soon. And we need our governing class to be more humble about what they don’t know, instead of throwing government programs at everything and hoping for the best. Trust the people to do the right things instead of deciding for them what to do.