Economics of a Pandemic
Wouldn’t it be great if we could create an environment that protected the economy as much as possible while also minimizing the impact of the corona virus? The failure of leadership at the top is palpable because there are many tools available to this administration, and those tools have been used very sparingly for reasons that remain mostly opaque. But there is an explanation that makes sense.
This administration knew about several key issues right out of the gate:
- We had/have a shockingly small capacity for COVID-19 testing
- We have a severe shortage of PPE (masks, gloves, gowns)
- We have a serious shortage of available ventilators OR they are not where they need to be
- We have a capacity problem in the healthcare system
This healthcare system (for better or worse) is based on profit. There is no incentive to stockpile supplies that are not needed in the short term. There is no incentive to build clinics and hospitals with thousands of extra unused beds. In short, free markets cannot handle unexpected conditions. They absolutely require predictability over months and years.
The shortages are the primary reason that we must shut down the majority of the economy. The American system is proudly capitalist and reflexively shuns anything that even smells faintly of socialism. The capitalist American system — on its own — has no built-in immunity to a pandemic. By their very nature, pandemics involve transitory illnesses that for-profit companies have no incentive to research in advance. There is no money in it until there is a sudden, catastrophic, demand — at which point they have nothing to sell. By the time they ramp up production, the crisis might be past the point where they can recover their costs.
Fortunately, our reflexes have been overcome by reason over the years and we do have mechanisms that can respond without a profit motive. Those mechanisms are almost entirely controlled by various levels of government. When we have a national emergency, those mechanisms ultimately fall to the President and his administration. And this is where we have a problem. This president seems extraordinarily reluctant to pull the levers of government. His administration’s reflex is to avoid overriding the capitalist infrastructure to do the central government’s bidding.
I understand the policy aspect of his reluctance. I also understand that he is the person who has to make the necessary adjustments in this current scenario. This is not the time for ideological purity or worries over consistency with his campaign material (he rails against socialism in a recent mailing I received). He wanted this job and he got this job by saying he could do it better than anybody. He has done nothing to prove that in this crisis. What has happened so far has been largely in spite of him or in response to enormous pressure from even his own party.
So imagine how this could have gone a little differently starting at the end of February (preferably before) if he had ignored that reflex:
- U.S. labs are instructed to work with Taiwan, South Korea and China to learn everything possible about testing protocols and possible sources we could buy them from until we can ramp up.
- The Defense Production Act is invoked immediately for production of PPE and ventilators.
- The Army Corps of Engineers and National Guard are activated to be ready with plans to swing into immediate action to build temporary capacity as hotspots emerge.
All of these problems were known issues and had been covered in pandemic simulations.
Our single biggest failure has been in testing. Taiwan and South Korea almost entirely contained this virus by massive testing. By testing everybody, they had a way to track potential hotspots and invoke localized measures to prevent the spread. If we could test for antibodies, we could, potentially, slowly reopen some businesses with additional screening at the doors. But at the very least we could protect our healthcare workers and first responders.
The fact that asymptomatic persons can infect others means that, until tests are freely available to everyone (or we have a vaccine), we will have to be locked down to some degree. We really have no choice. Even if we have effective treatments, the system would still quickly become overwhelmed because of the ease of transmission.
The lock-downs, in their various forms, are going to wreak tremendous short-term economic damage. Purely capitalist approaches will be of little help during this crisis and in the immediate aftermath. We have been conditioned for most of our lives to be highly suspicious of “socialism” in any form whatsoever. Yet, time after time we have had to resort to government intervention to prevent economic meltdowns.
Socialism is a trigger word. It is a synonym for “evil government systems run by dictators”. Yet, the forms of “socialism” we see in today’s world work hand-in-hand on a daily basis with capitalism throughout most developed countries — even those traditionally considered rivals, such as Russia and China. The United States is an outlier, and not in a good way. We refuse to acknowledge that we have already augmented our brand of capitalism with some elements of socialism. We just don’t call it that. But if we didn’t do that, the inequalities inherent in any capitalist system would have become unsustainable. We would have likely had a massive upheaval and perhaps even a revolution of our own.
The fact is that modern societies function well (in general) with a mix of capitalism and socialism. Neither system requires autocratic leadership. The brand of socialism practiced today operates comfortably alongside capitalism and democratic self-government. It is a recognition that certain things are best managed at the national level and outside the realm of profits. We do that with subsidies of all kinds, for both individuals and corporations. The incentive at that level is to serve the interests of the nation as a whole.
Which brings me back to the crisis at hand. We need a national response. And we have, thankfully, gotten some of what is needed. That includes economic relief on a historic scale. The most massive transfer of money from government to the public in our history is currently underway. This is a distinctly socialist response. Capitalism is Darwinian — if it is not profitable, it dies. This has no place in the current discussion. When the wave has passed and we get back to business as usual, we will return to our traditional capitalist economy and rebuild it. We will absolutely need it to recover what we’ve lost in this crisis. Its time will come, but that time is not now.
