A battle fought on a million fronts
By Scott Sumner
Like most people, I find it difficult to wrap my mind around complex issues. It’s easiest to boil it down to one or two key factors, and focus on those perspectives. But that doesn’t always work.
Consider global warming. If we are going to address that issue in the most cost effective way it will probably involve:
1. The development of many types of carbon free energy (wind, solar, hydro, nuclear, geothermal, etc.)
2. Conversion of coal plants to natural gas, as an interim method to reduce carbon emissions.
3. Energy conservation occurring in a wide variety of ways, too numerous to mention.
4. Planting lots of trees.
5. Genetically engineered cows that emit less methane.
6. Less burning of forests in Indonesia, Brazil, etc.
7. Geoengineering to block a modest amount of sunlight, as an interim solution.
And I’m sure there are many more. So if you read an article that suggests “It’s hopeless because even if we did X . . . “, ask yourself if they are considering all of the ingenious ways that society could address this issue.
Many of the solutions discussed above could be sped up with a suitable carbon tax/subsidy system that encouraged innovative solutions. When it was first proposed that we reduce sulfur emissions from coal-fired power plants, the estimated costs were quite high. That’s the “engineering approach” to cost estimation. But once a system of tradable pollution permits was put into place, the genius of market forces quickly discovered far most cost effective solutions, and the final cost ended up being dramatically lower than estimated.
Karl Smith has an excellent Bloomberg piece with the following subtitle:
Even economists tend to underestimate just how dynamic and adaptable U.S. businesses and consumers are.
Smith was not discussing global warming; he was discussing the coronavirus epidemic. Just so that I don’t sound too Pollyannish, let me concede right up front that there is no obvious equivalent to the carbon tax in the battle against Covid-19. But some of the broader implications of the global warming battle apply here as well. This is a battle that should simultaneously be fought on many different fronts.
If with think of the problem in any single dimension, it’s easy to become very pessimistic. It seems like the only two choices are 30% unemployment lasting for a year or two, or else an epidemic that gets out of hand and overruns our hospital system. Maybe those are the only two choices, but that’s not obvious to me.
I can imagine this battle being fought on at least 4 fronts:
1. A massive push for treatments such as a vaccine, or a drug to reduce the severity of the illness. Deregulation would help here, as it’s at least possible that the benefit to society of gains on either front might exceed the estimated cost of mistakes.
2. A WWII-style push to improve the capacity of our medical system to deal with the issue. Don’t ever think in terms of “capacity” as being something that is fixed. Two months ago, Taiwan had the capacity to produce only 2.44 million surgical masks per day. Now they produce nearly 13 million a day, and have no shortage of masks. Deregulation of production and removal of price gouging laws (and norms) can vastly speed up the supply response. Just as the ban on compensating kidneys donors kills tens of thousands of Americans each year (more than the coronavirus is likely to kill), price gouging laws and burdensome regulations are also likely to kill many Americans in this epidemic.
3. Testing, testing, testing. There is evidence from South Korea, and also the town of Vo, Italy, that widespread testing can dramatically reduce the spread of the illness. It does this by determining who is infected, so that those individuals can stay home and avoid infecting others. If you think I’m claiming that testing will “solve the problem”, you aren’t paying attention, I’m arguing this battle must be fought on many fronts.
4. New labor management practices for industries such as construction, manufacturing, office work and restaurants. We should probably just accept that a few industries would stay out of business until a vaccine is developed. Obviously this includes cruise ships, but perhaps also entertainment events with large crowds. But there may be industries where new practices reduce the rate of infection to an acceptable level.
The coronavirus is often said to have a reproduction rate (“R0”) of 2 to 3, which causes it to grow at an exponential rate. But that rate is not a characteristic of the virus itself; it also reflects our social practices. I presume the R0 was higher during Mardi Gras in New Orleans than in rural counties in North Dakota. It would nice to have a R0 of zero, but our goal should be getting the rate down below one, where the caseload grows at a manageable rate.
I don’t know exactly how this should be done, indeed that’s the whole point of this exercise; no one person knows. Readers are presumably aware of Hayek’s explanation of how markets allow society to benefit from widely dispersed knowledge. Yes, the “externality” aspect of epidemics makes this case tougher, but it doesn’t make the Hayekian perspective any less useful.
So without claiming the following would definitely work, let me just throw out an example of the sort of thing I have in mind. Perhaps some construction sites could have workers wear facemasks and gloves. I’ve actually done so myself when working on a particularly dusty construction project, such as tearing down old plaster. Indeed many construction workers are already used to working under those conditions. The same for certain manufacturing plants. Perhaps restaurants could re-open with a rule that all groups of customers sit at least 10 feet apart, and someone working in the restaurant had to wipe down door handles and faucet handles with disinfectant every 20 minutes. Waiters could wear masks and/or gloves.
I do understand that the ideas I’m throwing out don’t “work” in a 100% effective sense. The goal must be to fight this battle on many fronts. We need to accept a certain number of cases of coronavirus, because there are tradeoffs between health and economics (something we implicitly acknowledge when we set speed limits at 65 mph, not 35 mph.) And yet I’m not in the “rip the band aid off” group that suggests allowing the virus to infect half the population to build up herd immunity. In my view, the medical costs of that approach are too high. I believe we need substantial social distancing for some period of time.
What I’m suggesting is that we should not accept 30% unemployment for a year or two. Rather if we have 30% unemployment in April, we should aim for something considerably lower in May, and still lower in June, etc., etc., as we gradually learn how to cope with the problem.
Never underestimate the ingenuity of market forces in coming up with solutions.
And read Karl Smith’s excellent piece
PS. And don’t forget monetary stimulus, so that we have adequate nominal spending once businesses are able to offer goods and services.
Here’s Vo, Italy.
Update: After writing this post, I noticed that Alex Tabarrok made some similar points.