Feb. 22—The prospect for a quick economic recovery from the COVID-19 pandemic largely depends on the extent to which state leaders continue to embrace economic freedom.
That's the conclusion of Edward J. Lopez, a professor of economics and director of the Center for the Study of Free Enterprise located on the WCU campus, and Emma Blair Fedison, a CSFE policy researcher.
The duo authored a study titled "North Carolina's Prospects for COVID-19 Economy Recovery: Top-down and Bottom—up Assessments."
In an interview, Lopez delved into the concept of economic freedom, stressing the approach is more of a long-term focus.
"Economic activity bubbles up from the bottom," he said, explaining certain conditions need to exist to make that happen. "It requires people taking risk with careers, starting businesses, moving to a new job and investing in themselves through education and certificates. It is based on the types of decisions that will situate them and their families for the success they all want. No policy maker can pluck up a young person and direct their path."
The focus of the COVID recovery paper, both explained, was to analyze the best climate to foster economic freedom.
"Everybody knows it is gradual," Lopez said. "Along the way, people face hurdles, reach milestones and get further down the road. Our approach is to determine what types of hurdles are in the way and how public policy can remove those hurdles."
For instance, individuals who might want to start a business may need that to happen sooner than later. State requirements such as licenses for barbers, cosmetologists or other occupational licenses for which entrepreneurs must pay a fee and be under state rules need to be examined, he suggested.
"When you look at occupational regulations, a lot of those in lower paying jobs are more onerously regulated than higher paid professions," Fedison said.
Other impediments to unimpeded economic freedom are the certificate of need process required where healthcare providers must first secure a certificate of need from the state of North Carolina and regulations within the insurance market, Lopez said. Removing the restrictions would not only offer more occupational choices, but provide better value for consumers and households by introducing more competition.
In addition, there are burdensome regulations on everything from household goods to alcohol and other retail goods, Fedison said.
"If something is restricted for a good reason, so be it," Lopez said, referring to public health or individual safety, "But we also have to realize when we do that, economists tell us we are reducing the prospects for future growth and prosperity. ... It's the law of unintended consequences. Evidence shows that when parts of the supply chain are trying to protect their orbit, things don't work well together. You are messing up the system of innovation. We need to look for ways to open competition without putting up walls against competition."
While the "bubble up" prosperity model requires time, when it comes to immediate relief from the COVID recession, Fedison and Lopez said that's where the trillions of dollars being spent at the federal level come into play.
They call this the "top-down" avenue, where states have been given funds to cover immediate relief efforts intended to stabilize things and absorb the shock waves. The study noted North Carolina went into the COVID recession with a $6 billion cash buffer, including a $1.2 billion rainy day fund, and $2.9 billion in its unemployment insurance fund.
"These funds were built up over time through fiscal restraint, a growing economy and a gradual strategy to phase in corporate and income tax rate reductions," the report states.
By contrast, entering the Great Recession in 2008, the rainy day fund was $800 million and the state had to borrow $2.8 billion in federal funds to meet unemployment claims, according to the report.
Much of the state and federal funds are still waiting to be spent. Deciding how to best use those funds is a hard job, Lopez said, noting there was nothing in the recent study that looked at which way was best.
"The one lesson is that a good rainy day fund is better than a bad rainy day fund," he said.
The report concludes N.C. lawmakers have done an admirable job on having a strong capacity for toe-down relief and creating a healthy climate for bottom-up recovery and ought to continue present policies.
"These hard-fought efforts have allowed North Carolina to establish effective strongholds, not only to absorb the shock of COVID-19, but also to clear paths for ordinary people to move forward with rising prosperity and flourishing for all," the report states.