By Dallin Overstreet

The world has been thrown into chaos over the course of the past several weeks with the rapid spread of the Coronavirus (COVID-19). The virus has spread from China to some of the most remote islands on Earth. Since it has begun to spread, markets have been extremely volatile and many businesses have been forced to shut down, both voluntarily and by government mandate. Governments of every nation have started to intervene in their economies, some rather extensively by shutting down businesses and placing their countries and citizens on lockdown.

In the U.S., similar events have unfolded. The stock market has fallen considerably from where it was a month ago and is more volatile than ever. Many governors have instituted statewide lockdowns, although no nationwide lockdown has been implemented by the Federal government. These lockdowns and the spread of the virus have led the U.S. economy to suffer and unemployment to rise sharply.

Congress and the President have since assumed the responsibility to save the U.S. economy. And many Americans believe that only the government can now save us. Congress has already passed two coronavirus relief bills, one being an $8.3 billion emergency package for the health-care system and the other a $100 billion bill to supplement paid sick leave and unemployment insurance. Currently in the works is a $2-trillion-plus bill aimed at aiding U.S. taxpayers and businesses, somewhat similar in purpose to the $700 billion Troubled Asset Relief Program created to fight the negative effects of the 2008 financial crisis. If the current coronavirus stimulus package passes through Congress and is signed into law by President Trump, it will be the single largest fiscal stimulus package in U.S. history.

Past Interventions

Looking back however, one might question the success of TARP and other government interventions in stabilizing the U.S. economy during and after the Great Recession. In fact, the internet is full of articles outlining how the government acted wrongly in bailing out certain banks and firms while not helping others. Others have pointed to the performance of the markets before and after the passage of TARP, the $700 billion stimulus package mentioned before. Markets fell drastically due to the recession that began in December 2007, but then rebounded from August and September of 2008. “But before long markets had to consider not that Washington might ‘come to the rescue’ of the banks but rather that it would decide to run the banks.”

The Federal government then intervened in the business of banks and the economy as a whole in a manner never seen before. This caused a panic across financial markets, the U.S., and the world. Investors thought if the government were intervening so extensively in the economy, things had to be extremely bad. “In short, markets in the five months after TARP’s adoption were much worse off than in the previous five months, and they performed worst of all precisely in the sector (banks) that TARP was supposed to ‘help.’ These empirics are irrefutable. Those who claim TARP was good policy have to believe bank stocks would have plunged 90-95%, except for TARP capping the loss at 72%. Such a claim would be absurd.”

It is most probably safe to say that the response of the Federal government during and after the Great Recession did not have the intended effect they were hoping for. Rather than stabilizing and restarting a troubled economy, the interventions by the Federal government could have exacerbated many of the issues the economy was facing.

Present Day

Fast forward to present day and we see a similar push for the Federal government to intervene and “save us all”. Many Republicans and others who before claimed to believe in free markets and minimal government intervention suddenly have become more like their big government counterparts, calling for large scale intervention and the need for the government to once again bail out businesses and citizens alike. This change in beliefs seems to follow a predictable pattern. When the economy is performing well, people believe in freer, less restricted markets. When a crisis occurs, just about everyone, including many economists, do an about face and advocate for more Keynesian economic policy.

Keynesian Economics

Keynesian economics is a school of thought developed by John Maynard Keynes in the 1930s, unsurprisingly in response to another dramatic crisis, the Great Depression. Keynesians believe the government should increase demand to boost growth, especially in times of hardship. As a result, the theory supports expansionary fiscal policy. Its main tools are government spending on infrastructure, unemployment benefits, and education. Keynesian economics was a main force behind the enactment of the New Deal, an enormous government intervention into the economy intended to end the Great Depression.

Keynes argued for deficit spending during recessions to offset the negative effects of the business cycle. We see his influence even today as Congress fights to finish their new stimulus package, believing that they have the power to change the course of the economy.

But this is the major fallacy of Keynesian economics and public policy. No person or government can truly know exactly what an entire economy needs, nor the reaction individuals and markets will have to whatever intervention they decide to enact. As Peter Boettke asks, “Do the lessons of economic science drastically change in times of recession?” Obviously, the answer is no. During good times and bad times, it is extremely difficult to understand such a complex social phenomena. Enforcing such dramatic interventions into the economy can’t possibly only have the positive intended effects of the Federal government. There are always unintended “unseen” and long run effects of government interventions.


But yet again, here we are. As Keynes once controversially said, “In the long run, we are all dead,” so why should we worry about the unintended long run negative effects of interventionist public policy? This idea is what led Milton Friedman, another famous economist who refuted many claims of Keynesian economics, to say “We are all Keynesians now.” It is fairly easy to see why this rings true so often, and why Americans are so quick to beg for help and deliverance from their all-knowing and all-powerful governments. Congress should think twice before enacting such large scale interventions in the economy in response to the coronavirus.


Dallin Overstreet is a Senior Policy Analyst at the American Freedom Institute

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