As the Great Suppression enters its second year and as people go to greater and greater lengths to get vaccinated, I remember one of the conclusions we reach when we analyze how price controls hurt the people we ostensibly want to help: you can suppress the market price, but you cannot suppress the cost. Instead of changing the cost people incur, you just change how they incur it.
A broad social consensus rejects “the free market answer: sell to the highest bidder.” I think this emerges from a well-intentioned but misguided idea that a vaccine against a world-shaking pandemic should be available to all at no cost. Again, though, government officials cannot suppress the cost even though they can suppress the market price.
As the vaccine rolls out to more people I know, I’m hearing more stories about the absurd lengths to which people will go to be vaccinated. We could avoid these costs if we freed up market prices and let people pay what they are willing for the vaccine. A few people I know are planning to drive two hours round-trip to get vaccinated. Limited supplies have given rise to “vaccine tourism:” people traveling from their home states where vaccines are not available to other states where vaccines are available.
They are not paying for the vaccine directly by paying a market price. They are, however, paying for the vaccine indirectly by incurring potentially substantial costs. The cruel irony? It’s pure waste: someone scouring the internet for vaccines and then making a long drive or taking a flight to get a shot incurs a cost without creating a benefit for someone else. Unpriced vaccine distribution locks people into the world’s worst and most wasteful staring contest.
Contrast this to a hypothetical world where market prices allocate vaccines that cost (say) $500 a shot. In that world, you can get a vaccine by creating $500 worth of value for someone else and then using the income you earn to pay for the shot. If you aren’t willing to pay $500, you turn to substitutes like staying home, masking up, and avoiding crowds until the price falls.
If you can’t pay with $500 in money or goods, you can still “pay” with $500 worth of time. The problem is that you don’t produce anything for anyone else during the time you spend searching for hard-to-come-by shots and planning long trips to get those shots. You incur a substantial cost, and no one benefits.
You are right to worry about the poor; however, it’s not clear that central planning will do better than market prices. We can address fairness and equity concerns by distributing transferable vouchers to people of modest means and allowing them to decide if they would prefer to be vaccinated now or to enjoy the income they’d earn by selling the voucher.
There is also a broad social consensus that it is unseemly, even immoral, for firms to earn “exorbitant” or “excessive” profits producing a vaccine. While there might be a lot of legitimate, serious, and nuanced questions to be asked about intellectual property law and the economics of ideas, the fact that drug companies are earning high profits as such is not and should not be objectionable. Potential profitability is an important signal that draws resources into high-cost, high-risk fields like drug development. Without it, we would probably still be waiting for a vaccine instead of moralizing about drug companies’ bottom lines. The drug market works imperfectly, mainly because of how it is regulated. Handing it over to a national supply commander would make things worse.
The policy response to the Covid pandemic has been a master class in government failure: even under literal textbook conditions where intervention might be appropriate, governments around the world have messed up their responses time and time again. It isn’t because they are bad people, necessarily, nor is it because they are incompetent. It is because “The Problem” is a set of innumerable smaller problems for which, as Friedrich Hayek pointed out, the relevant knowledge of “the particular circumstances of time and place” cannot confront political decision-makers as data. It emerges from action, exchange, and the prices they produce.
This article was first published by the AIER, and can be found here.
Chart of the Day
People must look at all their financial assets right now and say “I want to sell them or preserve them,” as they’re going to go down in value in the coming years, says Harry Dent the Founder of HS Dent Investment Management.