Big government is not the solution; it's the problem (masks & Covid-19)

By Scott Sumner.

"I went into this pandemic with a low opinion of government. But even I never could have imagined the extent to which the crisis would discredit arguments for big government. The ineptitude of the US government seems almost beyond belief.

On January 23rd, I was trying to buy surgical masks in New Zealand and found all the pharmacies were sold out.  At roughly the same time, here’s what was going on in America:

It was Jan. 22, a day after the first case of covid-19 was detected in the United States, and orders were pouring into Michael Bowen’s company outside Fort Worth, some from as far away as Hong Kong.

Bowen’s medical supply company, Prestige Ameritech, could ramp up production to make an additional 1.7 million N95 masks a week. He viewed the shrinking domestic production of medical masks as a national security issue, though, and he wanted to give the federal government first dibs.

“We still have four like-new N95 manufacturing lines,” Bowen wrote that day in an email to top administrators in the Department of Health and Human Services. “Reactivating these machines would be very difficult and very expensive but could be achieved in a dire situation.”

But communications over several days with senior agency officials — including Robert Kadlec, the assistant secretary for preparedness and emergency response — left Bowen with the clear impression that there was little immediate interest in his offer.

One might argue that government guarantees are not a libertarian solution to shortages.  And that’s true, but the free market is a libertarian solution to shortages.  And governments won’t even allow the free market to operate, with all sorts of regulations and/or intimidation against companies engaged in “price gouging”.  Of course price gouging is nothing more that setting the price at equilibrium, in order to encourage production and allocate resources to where they are most valuable.

 

Governments have no interest in preparing for an oncoming pandemic, but are very interested in stopping an effective private sector response.  The worst of both worlds.

 

Things have gotten so bad that even formerly sensible publications like The Economist have become increasingly statist in their policy views.  In one recent article, the Economist criticized the prevailing view among economists that price gouging is helpful:

To be clear, it is not that they [economists] want the public to miss out on life-saving products. Quite the contrary. They believe that soaring prices stimulate greater output, and that policies to cap costs might limit supplies and so do more harm than good. In 2012 the University of Chicago surveyed 32 eminent economists about legislation that banned price gouging during a weather-related emergency. Only three supported the ban; more than half criticised it. Similar views have been aired in recent weeks. An economist with the Cato Institute, a conservative think-tank, lamented the “madness” of anti-gouging rules, saying that profits are what entice firms to meet rising demand for safety equipment.

Yet a closer look at one key piece of equipment—masks—during the coronavirus crisis shows that this standard view needs revamping. Economists are normally loth to tamper with prices, the most basic element of any market. But little about this pandemic has been normal. Price signalling alone would have been inadequate to the challenge of ensuring vast increases in supply.

The Economist is making a common mistake, evaluating the price gouging issue as if it is mostly about distribution, not production.  In fact, supplies of manufactured goods are highly elastic.  In a free market there would be no shortage of masks, and the price would be affordable to hospitals that badly needed the masks.  Instead, Prestige Ameritech is still not even producing at capacity:

“We are the last major domestic mask company,” he wrote on Jan. 23. “My phones are ringing now, so I don’t ‘need’ government business. I’m just letting you know that I can help you preserve our infrastructure if things ever get really bad. I’m a patriot first, businessman second.”

In the end, the government did not take Bowen up on his offer. Even today, production lines that could be making more than 7 million masks a month sit dormant.

Even today!?!"