The Big Lesson of 2020

The year 2020 gave us a huge amount of evidence about the relative merits of government intervention and free markets. The bottom line is that government failed massively and free markets triumphed spectacularly (with one major exception) within the constraints that government placed on them. The one apparent exception to government failure is Operation Warp Speed but, as we shall see, that apparent exception may not be an exception at all.

This is the opening paragraph of David R. Henderson, “Markets Work, Government Doesn’t,” Defining Ideas, January 7, 2021.

An excerpt:

Yet a look at the evidence as of January 4 gives little basis for the view that lockdowns reduced deaths. It’s true that the COVID-19 death rate for locked-down California, at 675 per million residents, is well below the 988 and 1,029 for, respectively, Texas and Florida, which are relatively open. But the death rates for locked-down Michigan, New York, and New Jersey, at 1,341, 1,980, and 2,180 respectively, are well above the rates for Texas and Florida. To be sure, a more careful analysis that sifts through the data and accounts for factors other than lockdown—maybe climate matters—is needed. But on their face, the data give cold comfort.

Moreover, what if a more careful analysis did show that lockdowns prevented COVID-19 deaths? That’s not a slam-dunk case for lockdowns because the costs of lockdowns are huge. They are shattering the careers and livelihoods of hundreds of thousands of restaurant workers, haircutters, gymnasium workers, and others. One might argue that the sacrifice is worth it, but isn’t it easier for vulnerable people, most of whom are old and have co-morbidities, to stay home? They would have to stay home anyway, so why insist that others who are younger and have fewer co-morbidities also stay home? Interestingly, California’s Secretary of Health and Human Services, Mark Ghaly, let the mask (pun intended) slip on December 9 when he admitted that the newly imposed ban on outdoor dining was “not a comment on the relative safety of outdoor dining.” You read that right. What, then, was his and Newsom’s purpose in putting tens of thousands of restaurant livelihoods at risk? Ghaly ’fessed up that the measure had to do “with the goal of keeping people at home.” But wouldn’t he and the other officials need to know what people prevented from dining out would do? What if a number of them instead went to other people’s houses and dined in? We were told again and again that policy decisions must be based on science, only to learn that many such decisions were made by politicians and bureaucrats who had no scientific basis for their decisions.

Another excerpt:

Consider, by contrast, the private sector. One reason that millions of people have been able to stay at home is that companies like Zoom have made our work from home possible. Note also that one reason we have Zoom is that years ago the US government allowed the founder of Zoom, Eric Yuan, to immigrate from China. If you want to count that as a success of government, you should note that the US government denied his visa applications eight times. The ninth time was the charm. And one reason we have been able to buy items when stores are closed is that Amazon has heroically stepped up to sell us items over the web and, although deliveries are slower than they were, presumably because of volume, they are still relatively quick. In case you’re worried that Yuan and Amazon pioneer Jeff Bezos are getting rich off us, they are. But our wealth from them is forty-five times their wealth from us. In 2004, Yale University economist and Nobel Prize winner William D. Nordhaus found that innovators keep for themselves approximately 2.2 percent of the value they create and that the rest goes to consumers.

Read the whole thing.

The list of government failures and market successes in the article is not nearly complete. Both areas are target-rich.

 

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Oops: The Problem with the Athey, Kremer, Snyder, and Tabarrok Proposal

They implicitly threw away markets in favor of central planning.

An advance market commitment for Covid-19 should combine “push” and “pull” incentives. The “pull” incentive is the commitment to buy 300 million courses of vaccine at a per-person price of $100, for vaccines produced within a specified time frame. If multiple vaccines are developed, the A.M.C. fund will have authority to choose products to purchase based on efficacy, the availability of sufficient vaccine for timely vaccination or suitability for different population groups. So firms compete to serve the first 300 million people with the most attractive vaccines, and the “pull” component provides strong incentives for both speed and quality.

This is from Susan Athey, Michael Kremer, Christopher Snyder and Alex Tabarrok, “In the Race for a Coronavirus Vaccine, We Must Go Big: Really, Really Big,” New York Times, May 4, 2020.

Here’s the problem: Once the companies produce the vaccine and sell it to the government, what assures that the vaccine will be distributed well and quickly? I wrote about this earlier this month in David R. Henderson, “Vaccines’ Last Hurdle: Central Planners,” Defining Ideas, December 4, 2020.

Essentially what we have is government as monopsonist: monopoly buyer buying something valuable and then distributing this valuable item at a zero price. From what I can gather from reading about Pfizer, it has done its job admirably. But central planning, rather than markets and pricing, is being used to distribute the vaccine.

This isn’t the fault of Athey et al. And it’s conceivable that they had zero impact on Operation Warp Speed so the mess-up might not be their fault. But they hoped to affect the outcome. So, given the huge stakes, it would have been nice, in a longer than usual NY Times op/ed, for the authors, all talented economists, to spend at least a paragraph making clear that the drug companies should be free to sell the drug. They might have wanted to advocate a price cap of, say, $100, but a price of $100 gives better incentives than a price of $0.

 

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Vaccines’ Last Hurdle: Central Planners

Urgently needed drugs developed under Operation Warp Speed are at the mercy of officials working at “bureaucrat speed.”

I rarely like the titles that editors choose for my op/eds and articles. But this title that my Hoover editor chose is way better than mine.

Here are the first three paragraphs of “Vaccines’ Last Hurdle: Central Planners,” Defining Ideas, December 4, 2020:

First, the good news. We now appear to have at least two viable vaccines with high efficacy in preventing the awful disease known as COVID-19. On November 9, Pfizer/BioNTech announced that the efficacy of its vaccine exceeds 90 percent. On November 16, Moderna announced that its vaccine’s efficacy exceeds 94.5 percent. Take that, Pfizer! Seriously, though, both announcements are great news. Let’s put those percentages in perspective. I get a flu vaccine every year without fail. Is that because the vaccine is 90 percent effective? No. At best, it’s 60 percent effective, and its effectiveness is often well below 50 percent.

There’s even more good news. Even when the vaccines don’t prevent COVID-19, they make it substantially less severe. For example, in a study of thirty thousand volunteers for the Moderna test, of the eleven cases in people who got the vaccine, no case was severe, versus thirty severe cases for people who received the placebo. It’s risky to generalize from a sample size of thirty thousand, but still, the numbers are extremely encouraging. There’s also good news for us elderly. I was talking with a healthy seventy-seven-year-old woman at pickleball last week who was delighted that she, as an elderly person, would be one of the first to get it. I just turned seventy and my wife is seventy-one, and so presumably we will be on the priority list.

But the bad news for people who live in California is that California’s state government will slow things down. This might happen in New York and in some other states also. Let’s start by focusing on California, the state I know best. California’s government will slow things down in two ways: one is intentional and the other is unintentional.

Read the whole thing.

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