It's possible to put a little too much weight on the importance of politics, as the BBC does when it tells us that stock markets soared as Joe Biden won the election. NBC is rather closer to the truth when it notes that Pfizer's vaccine news has something to do with the stock market surge. The Dow Jones Industrial Average surged 5.9% at opening, hitting record highs, and may even go past 30,000 for the first time.
A Biden administration is going to make a change to how America works. But compared to the difference an effective vaccine makes, Biden is going to be trivial. This is because, aside from leaps to full-on communism of the Pol Pot sort, politics and political management of the economy only make differences on the margin. Sure, there are better (and worse!) economic policies, but they're largely shades and minor differences. Nothing that any elected politician has done in the past 50 years had anything close to the big economic swings of the coronavirus, once as it arrived and second as it waned. We'd in fact be very hard put to find a policy or politician that has made a difference of 3% of GDP in an entire year.
Don't be too hard on the reporters who claim it's about Biden, though. We humans are storytelling animals, so much so that Terry Pratchett used to say we should not be homo sapiens but pan narrans. We also understand things as stories. It's as if our minds only have story-shaped holes in them. This creates a certain frustration for economic and financial reports, for the truth of any stock market tale is that demand for stocks went up, so prices did (or the reverse). That doesn't fill that human requirement for narrative, so it always is dressed up. Stocks rose because a 74-year-old man was replaced by a 77- year-old one or because the weather is good or it's a holiday weekend or — a tag line is always attached just because that's what we all react to.
Sometimes, the tag is even correct, as with this vaccine. Nearly the entirety of the world's pharmaceutical industry has been aiming at just such a vaccine, excluding only that part of it is looking for a cheap treatment. There are some 200 vaccine tests underway. If the thing is even possible, we're going to find it, and there's nothing about COVID-19 to make us think it's not possible in the end. The why of all this effort is that it's the one single most valuable thing we can be doing right now.
If the second-quarter performance of the economy had continued (not got worse again, just stayed as it was), then that would be a loss of some $6 trillion to U.S. households in just one year. Without a vaccine, that may have been repeated year after year. For the world, we might be looking at a $30 trillion loss each and every 12 months. It is clearly valuable to be able to avoid this. So, when we have news that one of those vaccines being investigated is 90% effective, then that's news of something valuable — stock markets jump.
It's also worth noting that it's not Pfizer stock that has leapt so much as all of them. Because we all, in fairly short order, being able to get back to normal is worth that huge amount more than whatever will be gained by producing the vaccine. This isn't just about nonprofit vaccines, either. This is true of everything. This general market leap is proof of the whole free market capitalism thing itself. That the thing is produced is of much greater value than the amount captured by the producer.
This really is all very much more important than who gets to live in a nice, white mansion in Washington for the next four years, which is why the markets have reacted so much. Who knows? Perhaps the political class as a whole might take note — what's done out there in industry is vastly more important than the machinations inside the Beltway. But perhaps not. People who were capable of understanding that would be out there in industry, doing something useful, wouldn't they?
Tim Worstall (@worstall) is a contributor to the Washington Examiner's Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
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