COVID V. Capitalism

Wednesday, April 8, 2020
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Economists rarely get to run field experiments for the whole economy. And thank goodness for that, because field experiments can be very damaging. But the coronavirus that every American has been dealing with for the last month has given us as close to a field experiment as we’re ever likely to get.

In particular, we have seen how government reacts with a heavy hand that often makes things worse, and how private individuals and businesses have moved nimbly to fight the virus and help the needy.

Consider what the federal government has done since January when we knew that COVID-19 was killing people in the Wuhan province of China. One of the first things you would want to know is who has the virus. To do that, you need testing kits. The World Health Organization (WHO), of which many Americans are suspicious because of its seemingly intimate connection with China’s Communist government, had shipped hundreds of thousands of testing kits to many countries around the world. On January 17, WHO had published a protocol created by German researchers that gave instructions that would help laboratories develop the tests. But that very same day, Dr. Nancy Messonnier, the director of the U.S. National Center for Immunization and Respiratory Diseases, announced that the Centers for Disease Control (CDC) would produce its own version.

There’s nothing wrong with a competitive version, as long as others are allowed to compete. But others were not allowed. Possibly the reason the CDC insisted on producing its own tests is that it didn’t think the coronavirus would be a big deal. In the same January 17 press conference where Dr. Messonnier announced plans for a test, she also stated:

Based on the information that CDC has today, we believe the current risk from this virus to the general public is low.  For a family sitting around the dinner table tonight this is not something that they generally need to worry about.

Of course, we now know that to be profoundly wrong.

Hindsight, to be sure, is 20/20. It’s easy for us now to criticize Dr. Messonnier and the CDC for their casual approach to the problem. But precisely because no one can know how a virus will spread, it’s important to allow others, with different views of the situation, to act as they think best. Friedrich Hayek, co-winner of the 1974 Nobel Prize in economics, spent a large part of his career arguing that one of the greatest virtues of economic freedom is that it allows people to act on their own dispersed information, which Hayek called knowledge of “particular circumstances of time and place.” That, he stated in a classic 1945 article in the American Economic Review, was why central planning would not work and relatively free markets were needed.

Someone who had specific information that the CDC did not was Dr. Helen Y. Chu, an expert in infectious diseases in Seattle. In an excellent New York Times news story on March 10, reporters Sheri Fink and Mike Baker tell the tragic tale. As a result of her months-long research in the flu, Dr. Chu and her colleagues had a collection of nasal swabs from people experiencing symptoms. She spent weeks trying to get permission from state and federal officials to test the swabs for the coronavirus. They turned her down. The CDC told her on February 16 that if she wanted to use her test as a screening tool, she would need permission from the Food and Drug Administration. But because of regulations put in place by the Centers for Medicare & Medicaid Services, the FDA could not approve. Finally on February 25, in desperation, she and her colleagues did the tests without approval. And bingo: she found a positive test for a teenager who had not recently traveled. But for the regulation, she could have known this weeks earlier. And did the FDA see the error of its ways and give her credit? No. Dr. Scott Lindquist, Washington state’s epidemiologist for communicable diseases, says, “What they [the CDC and the FDA] said on that phone call very clearly was cease and desist to Helen Chu. Stop testing.”

Tragically, the CDC’s own tests didn’t work, thus losing Americans a crucial few weeks.

Similarly, other government officials have ignored, although they probably don't even know, Hayek’s insight about decentralized information. Consider California, where I live. On March 11, by which time a large percent of Californians had put their faith in “social distancing,” I received an email from Starbuck’s stating, among other things, that “we may adapt the store experience by limiting seating to improve social distancing.” Other restaurants I frequented announced the disinfecting they would do regularly. That was not perfect, of course, because the restaurants that contacted me didn’t commit to social distancing. But governments never gave the new systems a chance. San Francisco’s mayor, London Breed, announced on March 16 that she would close all businesses that she regarded as “non-essential.” Various county governments in urban areas of northern and southern California followed her lead and on March 19, Governor Gavin Newsom announced a similar lockdown for all of California.

Whatever might have made sense for urban California, was it reasonable for the governor not to let rural county governments make their own decisions? Does it matter that by March 25, 18 rural counties had fewer than 10 cases each? Hayek would likely have said yes. I certainly would.

The federal government has messed up in other ways also. Until last week, hospitals were not allowed to get masks from China that are a close substitute for the N95 masks that are in short supply. On April 3 the FDA finally relented. Again, though, valuable time was lost and health care workers dealing with COVID-19 patients were put at an unnecessary risk.

Consider, by contrast, the private sector. In an April 5 feature article in the New York Times titled “How New Jersey’s First Coronavirus Patient Survived,” reporter Susan Dominus tells the amazing story of James Cai, the first New Jersey coronavirus patient who was, fortunately, a nurse practitioner. Cai’s boss, Dr. George Hall, got in touch with doctors in China who had dealt with the disease and had produced guidelines on how to treat it. Hall spent 12 hours translating the guidelines to English, and Cai’s doctors were able to follow them. Important in the treatment, incidentally, was Gilead Sciences’ experimental drug Remdesivir. Cai recovered, thanks to his boss, some Chinese doctors, U.S. drugs, and the Internet.

American businesses and many American workers have shown amazing generosity. Robert Kraft, owner of the New England Patriots football team, sent the Patriots’ team airplane to China to pick up 1.2 million of the Chinese masks to donate in the United States. This was no mean feat, as the flight crew had to quickly get visas and the plane was allowed to be on Chinese soil for only 3 hours. (China’s government is pretty messed up also.) Total time on the ground: 2 hours and 57 minutes.

There are other heroic stories that are too numerous to tell. As an REI customer, I received an email on April 6 announcing that all of that closed-down retail chain’s employees would be given pay and benefits through April 14. After that, said REI’s president, Eric Artz, the majority of workers would be on unpaid furlough but REI would keep them on their health insurance and pay even the employees’ portion. Mark Cuban, owner of the Dallas Mavericks, announced that he would pay workers for the 6 home games that were cancelled during the 30-day hiatus. Even more generously, given that this was his first year of making a high salary, New Orleans Pelicans player Zion Williamson announced that he would cover the salaries of the all the New Orleans stadium’s workers for those 30 days.

More important, we’re seeing many businesses deftly adjust by producing medical equipment and other items that are in short supply.

The biggest need is for testing. Whatever you hear daily from Deborah Birx and Anthony Fauci, the two doctors on President Trump’s coronavirus task force, the hard truth is that they’re flying blind. We don’t know a crucial number: what percentage of people who get COVID-19 die? We roughly know the numerator—the number of deaths. But we have no clue about the denominator: the number of people with the disease. The only way to find that out is with massive testing: not a few hundred thousand people but many millions of people. The good news, according to investment site The Motley Fool, is that, as of April 7, 13 pharmaceutical companies were developing tests for the virus. And on March 17, one company, Roche Diagnostics, announced plans to ship 400,000 swab-testing kits per week. In fairness, I should point out that the FDA moved with record speed to approve the tests.

Ventilators are important for people with the COVID-19 disease who end up in hospitals and have severe problems breathing. On March 24, Ford, 3M, and GE Healthcare announced that they had teamed up to produce ventilators and plastic face shields. And it’s not just big companies moving rapidly. Individuals and small businesses are stepping up all over the country. In Washington, Indiana, Bill Purdue has worked in a friend’s auto trim and upholstery shop that has been repurposed to produce face masks. A crafts chain called Joann Stores is making its over 800 stores available for as many as 10 people at each store to sew masks and hospital gowns. Last Sunday night, CBS’s news show 60 Minutes had a wonderful segment in which a businessman in the New York area, Michael Bednark, told how his firm, which produced displays for retailers, turned on a dime and started producing 27,000 face shields per day for medical workers. He actually ended up hiring an additional 100 people. This is freedom in action.

And let’s not forget that while all this is happening, we all need to eat. Amazon.com has been amazing. While its speed of delivery has fallen somewhat, it has hired more people to take orders from those of us who don’t want to go into supermarkets or can no longer buy non-food items because retail stores around the country are closed. One of my favorite Chinese restaurants takes orders over the Internet and delivers food at a specified time outside our door, thus saving the delivery man and us from breathing on each other.

The $2.2 trillion so-called stimulus bill produced hastily by Congress and the Treasury secretary, by contrast, is a real mess. But discussing that will take a whole article, which I’ll do in my next column.

I should give credit to various levels of government where credit is due. On health care, here’s how health economist John C. Goodman recently described some reforms instituted temporarily by President Trump:

These [reforms] include the ability to be diagnosed and treated without ever leaving your own home; the ability to talk to doctors 24/7 by means of phone, email and Skype; and the ability of the chronically ill to have access to free diagnoses and treatments without losing their access to Health Savings Accounts.

Goodman and other health economists had been pushing for some of those reforms for decades.

Also on health care, Massachusetts governor Charlie Baker announced last month that he was immediately loosening licensing regulations for health care providers. One reform that stands out was his allowing “providers in good standing licensed in other states” to obtain emergency licenses to practice “in person or through telemedicine.”

And not just in health care but also in other areas, the federal government and some state governments have loosened regulations. The U.S. Department of Transportation has temporarily exempted truck drivers who deliver emergency supplies from fairly strict rules on time spent driving. The change is long overdue. And New York’s governor Andrew Cuomo, not normally known as a deregulator, has relaxed regulations on child care. The changes end the limit on the number of children in a day care facility, allow children of any age to attend them, and eliminate mandatory staffing requirements. The bad news is that all of these deregulations are temporary. The good news is that many people will notice that during the short-lived period of deregulation the sky didn’t fall in.

Notice that all of these instances of government adjusting have one thing in common: They are an increase in economic freedom, not a reduction.

After ordering supplies on line and getting them quickly, my wife, who shares only some of my libertarian views, put it well: “With all the mistakes by our government, one thing that’s working really well is capitalism.”