Richard Hanania recently suggested to Tyler Cowen that we might have been better off with a libertarian response to Covid. Tyler responded:
Tyler: I have more sympathies for the libertarian solution than most people would. But I think in this case, it’s not time consistent. So one issue is simply how do you deal with legal liability? Now the FDA process, for all of its flaws, does give manufacturers the ability to bring the thing to market in a way consistent with corporate law and their other fiduciary responsibilities. So no FDA means everything is fair game in the court system. That is much worse even than the FDA. It’s a bigger constraint. But also, government won’t let them keep the prices high.
Governments confiscate resources ex post. We know that, so you need to reward them upfront, even if in principle you think the higher price would be a better incentive. I would also point out that when there’s an externality through contagion, you don’t want the price of a vaccine to be very high.
I have two thoughts on this response:
1. From one perspective, Tyler is actually showing the advantage of the libertarian approach to Covid. It would be better if governments were not able to put price controls on vaccines. It would be better if vaccine sellers could insist that customers sign contracts promising not to sue if there were bad side effects, and if those waivers were legally enforceable.
2. Given that we do not live under that sort of libertarian regime, there may be a case for subsidizing vaccine development, or providing an FDA stamp of approval to reduce the risk of lawsuits.
Similar examples occur in many contexts. In an unregulated free market banking system with NGDP targeting, it probably makes no sense to have minimum capital requirements for banks. But in a regime where FDIC creates moral hazard and Fed policy creates cycles in NGDP growth, there may be an argument for regulations that make the banking system a bit safer. (Whether those regulations work in practice is another question, but it’s at least possible that some regulations are beneficial in terms of offsetting the negative effects of other regulations.)
PS. The interview also includes an interesting discussion of why Tyler believes that (at the margin) the developing world needs to become more woke.
READER COMMENTS
steve
Oct 31 2022 at 8:46pm
“It would be better if vaccine sellers could insist that customers sign contracts promising not to sue if there were bad side effects, and if those waivers were legally enforceable.”
We would have to do that with everyone who needed a vaccine? Who would have the time to do that? I am pretty sure that it would still end up challenged in court if something really bad happened. The lawyer would make the case that the explanation was rushed, they pt did not have the capacity to understand or that the particular complication was not mentioned. IOW, you trust courts, I think, a lot more than I do and having dinner with a Merck exec fairly often, his wife works for me, I am betting more than the drug companies do also. I would also expect many fewer pts to get vaccinated, other than libertarians.
Under the current system people cant really sue but there is a fund set up to cover people if there is an untoward reaction.
Steve
Scott Sumner
Nov 1 2022 at 1:45am
“I am pretty sure that it would still end up challenged in court if something really bad happened.”
Yes, in our current system. I’m speaking of an alternative hypothetical system where these contracts were enforced.
steve
Nov 1 2022 at 3:35pm
IANAL but I think it would require some big changes. I have a lot of confidence in lawyers to find a way around things. Still, you ignore the time factor. I volunteered a lot and gave thousands of vaccinations. I dont see where we find the time to get everyone to sign a waiver that complicated. When I read economists who dont specialize in health care, sometimes even when I do, I usually end up feeling that none of them have the slightest idea how things actually work in our medical system.
Steve
Scott Sumner
Nov 2 2022 at 1:42pm
I’m not proposing a complex contract, and I know exactly how things work in the vaccination field.
Phil H
Nov 2 2022 at 3:51am
This comment, for some reason, has suddenly helped me see what my objection would be to that kind of contract.
I think that contracting parties must understand the deal that they are making. And a contract promising a certain thing (not to sue) whatever requires that a person has a very clear understanding of what might or might not happen in the future. But very few people have that level of knowledge about the future. And that lack of knowledge becomes particularly pointed when we’re talking about medical decisions, and medical professionals versus ordinary people.
Now, of course I know that the ideal contract, in which both parties have perfectly sufficient knowlege of the future, is just an ideal, and in the real world there is always some falling away from that perfection. But if the kind of absolute respect for contracts that you’re talking about were allowed, that seems to me to be saying: let’s put the risk on the consumer/patient side. I’d much prefer to see the risk on the corporation side.
Mactoul
Nov 1 2022 at 7:25am
Does libertarian response to covid include locking down whole societies?
Scott Sumner
Nov 1 2022 at 1:32pm
Is that a rhetorical question?
Mactoul
Nov 2 2022 at 1:45am
Surely it is surprising that the biggest liberty-violating act in liberal countries was not considered discussing when the topic itself is “libertarian response to the pandemic”.
Scott Sumner
Nov 2 2022 at 1:44pm
You need to get used to the fact that blog posts often comment on very specific topics. The single biggest mistake made by commenters is to go off topic, focusing on issues that are not a concern of the original post.
Spencer
Nov 1 2022 at 12:37pm
The commercial and the Reserve banks have created, monetized, and sterilized (to some extent), an historical volume of new money. The FED must freeze the growth of the means-of-payment money supply for several years to stop inflation, to bring it done to a 2% level.
The upshot is a revolving string of negative impacts on different asset prices.
Money demand is the inverse or the reciprocal of velocity.
M2/Gross Domestic Product | FRED | St. Louis Fed (stlouisfed.org)
The demand for money, or Cambridge economist, Alfred Marshall’s cash/balances approach, is slowing decreasing. It will extend the outlook for higher inflation.
M2 is mud pie. The volume of money (stock) is irrelevant unless it is turning over (flow).
Short-term money flows, proxy for real output, are up, conterminous with R-gDp. Long-term money flows, proxy for inflation, are decelerating now.
Knut P. Heen
Nov 1 2022 at 2:14pm
Wouldn’t Covid spread so fast that everyone was either dead or somewhat immune before the vaccine came out?
I guess some people would lock-down voluntarily until the vaccine came out, but the majority?
Scott Sumner
Nov 2 2022 at 1:49pm
In my view, the overwhelming majority of behavior changes were voluntary, not due to “lockdowns”.
In 2020, I went on vacation to Arizona and stayed in a big hotel that was almost entirely empty, despite being open. Airlines were serving the public, but almost no one was flying. Don’t underestimate voluntary social distancing.
steve
Nov 3 2022 at 7:39pm
Totally agree. On top of that remember that in most places most of the time there was essentially no punishment for breaking the lockdown rules or masking guidelines.
Steve
Spencer
Nov 2 2022 at 9:38am
QT destroys outside money, not inside money. That’s why you target N-gDp.
Alex M
Nov 7 2022 at 7:26am
The premise that the FDA process provided invaluable legal protections to producers does not seem obvious to me. What I believe to have learnt from Philipson and Sun (2008) is that FDA approval does not effectively protect producers from most liability lawsuits. That lack of legal protection was also the rationale for providing producers with legal immunity via the Covid-19 PREP Act Declaration.
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