San Antonio Express-News (Sunday)
This crucial shot in the arm not from free markets
I’m a markets guy who believes in applying economic principles to situations requiring innovation and the allocation of scarce resources.
Which probably explains why I think it’s so important to also point out the hard limits to markets.
There are big downsides and limits to thinking like an economist.
The COVID-19 vaccine development and rollout is case study for examining what free markets are specifically not useful for.
“Health care should be run more like a private business” is one of the more misguided statements that well-meaning people like to make — up there with the equally misguided “Schools should be run more like a private business.”
The miracle of this vaccine development and initial rollout in one year’s time cannot be understated. This is an unprecedented scientific achievement. It should be understood not as a victory of market-based economics but rather the opposite: the extraordinary application of central government planning. Sometimes, in the good old U.S. of A., we forget this point.
Last spring, the Trump administration made the correct call to directly fund six pharmaceutical companies to research, test and manufacture vaccines. This initial $10 billion federal government investment — called “Operation Warp Speed” — allocated in March was upped to $18 billion by October.
A seventh company, Pfizer, did not receive funds for research, but it did receive a guaranteed order for 100 million doses.
By guaranteeing demand for hundreds of millions of doses, the federal government induced drugmakers to essentially ignore market signals such as potential risk, profit and loss. The Operation Warp Speed program understood that some vaccine products might not work and that hundreds of millions of manufactured doses could be wasted. And that was OK.
Markets are great for some things. But they would never have achieved this vaccine miracle in one year.
Vaccine development driven by the private sector historically happens in five to 15 years. We obviously did not have that much time. Pharma companies with an unproven product and uncertain demand would never have ramped up to manufacture enough doses by early 2021. The federal government — everybody’s favorite punching bag — made the correct choice to pay for it anyway, in the interest of speed.
Now, when it comes to getting shots in arms, again we see the limits of economic thinking.
For the next few months of the
vaccine rollout, we face a classic economics problem: too much demand and not enough supply. To vaccinate 80 percent of the U.S. population, we need more than 250 million doses (actually, double that, as the Pfizer and Moderna vaccines each require two shots). For now, however, we’re living the reality of severe shortages, crashing websites and online sign-ups for slots that get filled within minutes of opening. High anxiety.
The vaccine is free. But there’s not enough of it. Many of us expect to wait three to six months to get it. In the midst of severe scarcity, it feels like society is on a knife’s edge. We’re looking for signs that some people are cutting the line. Who is using their money or privilege or network to get what other people need?
The “markets” solution to a situation like this, in a different context, would be to allow prices to determine who gets the scarce thing. That is clearly a moral monstrosity. In the coming weeks, the media will cover which celebrity, rich person or government official cut the line to get the free, but scarce, vaccine. We all understand that a market-based solution to vaccine rollout — “Who can pay the most right now?” or “Who has power and influence?” — is morally abhorrent.
Looking forward a bit to a few months from now — hopefully in three months but possibly six months from now — we will have the opposite economic problem related to the vaccine. Too much supply and not enough demand. I’m referring to polls back in December in which only 42 percent of Texans indicated they would sign up to get a vaccine. Soon we will have plenty of vaccine supply. But if a large plurality of Texans and Americans decline to get it, we may be unable to achieve the 80 percent herd immunity that public health experts say is necessary to stop the pandemic.
How would an economist solve that problem? I asked economist Robert Litan of the Brookings
Institution, who has argued for substantial payments to get us more quickly to herd immunity. He says we should pay people a lot to get the vaccine.
“I think if you tell people $1,000, and then especially for a family of four — that’s $4,000 — you’re talking real money. And I think at $1,000 you could get (anti-vaccine) people to switch,” Litan said.
He also proposed that all citizens would be given, say, $200 upfront, with a promise of the other $800 when the United States achieved 80 percent vaccination.
As Litan explained: “So what that does is it gives tremendous incentives to tell your friends, whether in real life or on social media, to go out and get the shot, because then we can all get the money.”
For my part, I loved his idea. It would get us to herd immunity fast. It uses “market incentives” as a carrot to induce desired behavior. The $300 billion or so it would cost would be a lot cheaper than the massive and complicated federal bailouts we’ve already resorted to.
Medical ethicists, however, hate this idea. Although small payments would be appropriate for the sake of convenience — such as transportation or a snack — the large payments suggested by Litan would be considered coercive. It is apparently not OK to ask people to choose between not putting something in their body and taking a payment of $1,000. So there are ethical limits to applying an economic or markets perspective to the conundrum of vaccine rollout.
In sum, when it comes to our health, economic efficiency is not the right watchword.
Fairness and health outcomes are better guides. Enjoy your socialism, everybody.