Thursday, January 14, 2021

Vaccines at NR

I repackaged and rethought some of my earlier thoughts on vaccine allocation and markets vs. government for National Review here. Text here, without the lovely pop-up ads: 

Free Markets Beat Central Planning, Even for COVID-19 Tests and Vaccines January 12, 2021 

Surely, we can’t let there be a free market for COVID-19 tests and vaccines. Indeed, tests and vaccines encapsulate many of the “market failure” parables from introductory economics courses.

But the argument for free markets is not that they are perfect. The argument is that the known alternatives are much worse. And we have seen a catastrophic failure of government at all levels around the world to handle this pandemic, especially in delivering tests and vaccines.

The CDC delayed testing for about two months. While it dithered, it blocked private parties from testing. University labs, for example, were blocked from making and conducting their own tests. During those two months, someone could sell you a thermometer to detect a COVID-19 fever, but if someone tried to sell you anything more effective, the FDA would stop them. Once it finally approved paper-strip tests in November, the FDA insisted that $5 paper-strip tests require a prescription and be bundled with an app, driving the cost to $50. Rapid testing that lets people who are sick isolate, and lets businesses ensure that employees are healthy, is only just becoming widely available, held back for six months by the FDA.

Let’s imagine that the government had not prohibited free-market activities. This is not anarchy, just a lightly regulated sensible market on top of whatever the government wants to do.

Private companies would have developed tests quickly and would have worked to make them faster, better, and cheaper. Why? To make money! Lots of people, businesses, schools, and universities are willing to pay for good, fast testing. Medical companies, knowing they could make a lot of money so long as they beat the competition, would have raced to develop and sell tests. We would have had $5 or less at-home paper-strip tests by late spring. And that would have enabled much of the economy to reopen.

Why does the FDA forbid businesses from telling you what’s inside your own body? Unlike a drug, a test result cannot harm you. Sure, the test might not be perfect, but it would be a lot better than relying on thermometers. Even if you catch only half of the sick people, you can cut the virus’s reproduction rate in half and end its spread. Sure, companies and the FDA should evaluate tests and disclose their false-positive and negative rates. But why forbid companies to make and sell us tests?

Would it be perfect? No. People might ignore positive results and go out anyway. People might not take tests. But did the government do better than the market would have done? Not by a long shot. “The market is not perfect” does not mean “the government is better”!

The first two vaccines were invented in a weekend in January. Then we waited an agonizing 11 months for the drug companies to conduct clinical trials on a small number of volunteers, and for the FDA to grant emergency-use authorizations. Yes, this is the emergency fast track. Approval normally takes years.

In a free market, as soon as the drug is safe, everybody becomes part of the clinical trial. If you want an untested drug, and understand the risks, we won’t put you and the drug company in jail for trying it. We gain experience much more quickly with what works and what doesn’t. In a free market, this pandemic would have been over by midsummer. Yes, some people might have been hurt by bad vaccines. Others might have caught COVID-19 thanks to ineffective vaccines. But the hundreds of thousands who died from COVID-19 would be alive, and so would the economy. Should 200,000 die and many millions lose jobs and businesses to save 100?

Operation Warp Speed, in which the government paid to produce vaccines ahead of FDA approval, was the one huge success of government policy. But why was it needed? Investors seem to have billions of dollars to finance Elon Musk’s electric cars and rockets to Mars. Why would they not spend a few billions ramping up production on a risky but diversified portfolio of vaccines? Because they and the drug companies know that they will not be able to charge a market price when the vaccine is finalized. Inevitable price controls, facing a government monopoly buyer, means no money for risky production, and makes Warp Speed necessary.

People are complaining that the drug companies might make a few billion dollars. The pandemic is costing us trillions! The companies should be making billions more — and more still the sooner, faster, and better their vaccines go out.

And then, the catastrophic rollout. Senseless priority lists. Massive paperwork and restrictions on administering vaccines. Penalties for skipping the line so it’s better to throw out vaccines than use them.

In a free market, vaccines would be sold to the highest bidder. The government could buy too, but you wouldn’t be forbidden from buying them yourself, and companies and schools would not be forbidden from buying them for their employees. Businesses would likely pay top dollar to vaccinate crucial employees who are off the job due to the pandemic. And only businesses know just which employees are crucial to the economy, and which can wait.

We must protect health-care workers, you say. Indeed we must. And hospitals would pay a lot to be first in line. The government, with a strong interest in keeping hospitals going, would pay a lot to give it to health-care workers.

We must protect the elderly, you say. Indeed we should. But this is a purely private benefit. Why should the elderly, who are not all poor, and many quite wealthy, not pay anything to get a shot that only benefits them?

To an individual, the vaccine is a way to avoid getting the disease. Staying home is another way to avoid getting the disease. The vaccine just allows you to go out. So shouldn’t it go to people who have the most urgent reasons to go out — and therefore are willing to pay more to get it?

What about people who can’t afford it? Wouldn’t that be a financial burden? Now we get down to it. This isn’t about efficiently stopping the disease. It’s about money. The first rule of economics is don’t muck with prices in order to transfer small amounts of money. But that’s what we’re doing. The government gives it to old people first, without charging them, to save the old people some money. Why not just give them money, and let them decide if they want the vaccine now or later?

Why won’t the government allow you and me to buy on top of its rationing scheme? Because we might drive the price up. It’s all about saving the government money. But it’s a trivial amount of money. The government is spending trillions of dollars — a trillion in the most recent “stimulus” bill alone. Each trillion dollars is $10,000 for every family in the U.S. The cost of vaccines is chump change on this scale.

What about the “externality?” Indeed, the government should be giving the vaccine to people most likely to spread it, in a way designed to stop the disease. Markets might not do this. Though they might. Businesses and institutions have every interest to make sure they are a place that does not spread the disease, and to buy and require vaccination. But markets do not perfectly account for such externalities — the fact that by giving you a vaccine I help all the people you might spread it to.

Yet the government isn’t even trying. The U..K gave its first dose to a lovely 91-year-old woman. Germany to a 101-year-old. However well-intentioned, this has nothing to do with stopping the disease. The government’s rationing plans, to date, do not begin to define a plan for stopping the disease. It’s just about protecting individuals — i.e., saving them the cost of buying a vaccine.

Allowing the vaccine to go to the highest bidders — and allowing people to get it at CVS or administer it themselves — would have rolled vaccines out much faster, and to people more likely to spread the disease without the vaccine, and encouraged those who can shelter and wait to do so.

We are in a race between evolution and bureaucracy. Evolution just pulled ahead. The new strain is here, growing exponentially. It’s time for a new entrant to the race: freedom.

Update:

Corinne and Robert Sauer write "Is it possible to have cheaper drugs and preserve the incentive to innovate? The benefits of privatizing the drug approval process" in the Journal of Technology Transfer

lower prices for pharmaceuticals can be achieved by fostering a new type of competition in the pharmaceutical industry. Lower drug development costs, and hence prices, can be brought about by abolishing national drug administrations and replacing them with private certification boards that compete on the basis of safety, efficiency and cost of their drug approval process. A major benefit of this type of privatization is that it would not necessitate limits on data exclusivity in order to achieve lower prices. Drug approval privatization could achieve the same positive results as generic competition, in terms of lower costs and prices, without the negative effects of intellectual property rights violation and the consequent discouragement of innovative activities.

 

27 comments:

  1. >>>Each trillion dollars is $10,000 for every person in the U.S.

    Did you mean "each family"? Otherwise the arithmetic doesn't work. Not that it affects your message in any way.

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    1. Ugh what a dumb mistake. Thanks for pointing it out.

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    1. I had this thought as well. Vaccinating those most likely to die may well be the best way to reduce the number of deaths and thus create a political climate that results in lifted restrictions. In my mind this is a kind of second best argument where, first best would be just lifting restrictions (because their benefits are less than their costs when compared to a world where people decide what precautions to take without mandated). Second best assumes the political climate won't allow this to happen, so what do we do given this. Of course, if a free market in vaccinations would also reduces deaths more, even this justification would not hold.

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    2. For Leftist/nihilists, increased Covid deaths are an acceptable price for increased political control of mans mind.

      And what is the situation now in Taiwan, the nation with 1/2000 (THOUSANDTH) per capita deaths than the US? Taiwan has been virtally ignored or evaded by Left and Right.

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  3. There may be a different sort of externality in play here - a society with 20% of the most vulnerable people vaccinated is dealing with the disease with a flu-like death rate and so can relax many of the precautionary measures against the spread of this disease. The benefit of these relaxations does not occur to the vaccinated, so the government intervention to speed up the vaccination of the most vulnerable, even at the expense of rest of the population, may be justified.

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  4. Wonder if you left a key variable out of your analysis which is managing hospital utilization. The old require hospitalization at a far higher rate than the young.

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    1. The supply of healthcare services is relatively hard to expand rapidly, if only because trained workers, experts and suitably equipped facilities cannot be conjured overnight, so there is a concern of managing congestion. Someone might also wonder how meaningful is the externality Cochrane mentions here: does a vaccine which is effective at protecting you also meaningfully reduce the odds of infecting other people?

      However, I think his broader point is hard to object: if the government changed absolutely nothing to its current strategy with the one small exception of letting individuals and businesses try more things on their own, it is very, very hard to argue things would have been worse.

      Even if government had to subsidize vaccines for poor and old people at 1000$ per dose, it would have been worth it.

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  5. Hear, hear! Thank you for the work you are doing getting this message out. The irrationality at all levels of government is just astounding and the public just sits by complaining about masks. It's a sad state. Why is the government allowed to work in this way? I propose that it stems from egalitarian nihilism that is permeating the culture. People are so worried about "fairness" and "equality" (of outcome, not before the law) that they are supporting these insane policies even when the policies are clearly detrimental to everyone. You are spot on with regard to how the pandemic would have played out in a free market. Pharmaceutical companies would be able to auction off the doses and all that capital would get injected into creating more vaccines so that round after round would be rolled out. Sadly, we are looking at many more months and 1/2 doses before a healthy number of Americans are vaccinated. Again, the cause lies in the culture's ethics.

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  6. I meant to comment on a slightly different topic on vaccines, how to use them best to get us out of this mess, and your very interesting suggestion to use it heavily in densest hot spots to interrupt worst community transmission, e.g. Santa Clara County that would be Alviso, East San Jose, Gilroy which drove both summer and winter surges here. Alternate suggestion by Jay Battcharya last weekend at Re-Open CA outdoor event in Sacramento: prioritize and vaccinate everyone 60+ by March, then overall population infected mortality rate drops off the charts (0.1% or even much less), ie., lower than decent influenza season, well under say fall 2019 influenza B victoria, and you can open everything up and keep some sensible but limited protocols on personal space, this way you don't have to wait for herd immunity, as you've lowered overall risks to no longer public emergency level..age is by far strongest correlative factor to severity and mortality risks, several times higher than comorbitity or ethnicity factors. Of course county staff and supes made no comments to this suggestion last tuesday (I submitted in public comments) instead county staff talking about how many months it will take us to get to "80% vaccinated - i.e. "safe range" " vaccine induced herd immunity ---if you could even get to 80% vaccinated, will take 2-3 times longer at a minimum

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  7. While I essentially agree with the free market approach and the reforms it would bring to vaccine production, one aspect of free market dynamics, which never seems to be addressed, is the "bad actor". What of the person/organization that quickly produces a useless product and bilks people of their funds until discovered. Somehow the notion that "bad actors" will get their due doesn't ring true...or true enough, soon enough, to prevent harm. And without some form of representative authority who is going to finance their trial and conviction? You mention "light regulation"...I'd like to know more about that.

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    1. > What of the person/organization that quickly produces a useless product and bilks people of their funds until discovered

      There is no Original Sin. Mans independent mind is his basic method of survival. We have laws to protect against fraud but what will protect us against the hatred of mans independent mind. This will remain after Covid is a bad memory.

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  8. Hi John,

    I have been following your vaccine/free market posts, and it has been very interesting. I had a few questions though. One of the main points that runs through your posts is that by vaccinating you are “help[ing] all the people you might spread it to”. But I feel like this is ignoring much of the information that is being putting out by governments and the producers of the vaccine, i.e. there is no proof that vaccination stops the spread of this virus. Whilst this assumption may work for other vaccinations, it does not apply here.

    I feel as well, in your previous post, that those that have the “high-value” employment you speak about are in fact the ones that are most able to conduct their work at home - financiers, consultants, most types of management and even politicians. There is also the problem by how we even measure “high-value”. By letting the vaccine be sold to the highest bidder, we are excluding the very people we need to protect and those that make sure that society can still function in such a crisis, the so-called ‘low value’ workers like garbage disposal and cleaners.

    I am also a bit skeptical of your point “the elderly, who are not all, and many quite wealthy”. I know in the US there is a huge problem with economically insecure 60+ individuals, who are living at or below the poverty line. 9.2% Americans 65+ have income below the poverty threshold! A number of these individuals are also faced with significant health care bills and debt. Older women are especially vulnerable due to lower savings, with older women receiving around $4,500 less annually in social security than older men due to lower lifetime earnings. How can we expect this very vulnerable group to afford a vaccine that the whole world is demanding right now?

    I’m keen to hear your thoughts on this, but as an undergraduate Economics student, it is disappointing to read that such an esteemed Economist is ignoring the empirical evidence that is out there, and making generalising comments that may harm the very disadvantaged and vulnerable groups we are trying to protect.


    I’ve attached my sources here:

    https://www.independent.co.uk/news/world/americas/coronavirus-vaccines-moderna-transmission-rates-b1761236.html

    https://www.gov.uk/government/publications/covid-19-vaccination-what-to-expect-after-vaccination/what-to-expect-after-your-covid-19-vaccination#:~:text=The%20vaccine%20cannot%20give%20you,to%20reduce%20this%20risk

    https://www.ncoa.org/news/resources-for-reporters/get-the-facts/economic-security-facts/#:~:text=Over%2025%20million%20Americans%20aged,diminished%20savings%2C%20and%20job%20loss

    https://fas.org/sgp/crs/misc/R45791.pdf

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  10. nobody stopped private companies or universities from testing. how did Abbot Labs quick test get developed, please? they need FDA approval to sell the test - like anybody else. The US (Trumpy) chose its own way in developping the test rather than rely on the intenational approach ( take the strain from the WHO to design the test - a MAGA reflex). To my knowledge the CDC passes out guidelines, but does NOT prohibit actions. Tests are developed by the private sector almost everywhere. - Nobody stopped the 'free private market') I see no evidence of that in what you state. Why don't you try to buy a vaccine - on ebay? Or the darknet? Who is stopping you ( Coase's side payments - a theoretical point by Coase but now religion that free markets work for others)? I am sure you can get non-approved vaccines and try them out. If not in the US, then in Mexico. The government's are buying up the promising vaccines in return for huge subsidies, and stupidly afterwards want return on their money. Most countries want to use some scientific evidence to optimally distribute the vaccines bought by the government.what is restricting the market here? They restrict their own sales, in fact they are giving the vaccine away for free with some rationing stipulations. You can still go out and get some kind of vaccine. Why rely on the inefficient service from the government competing with other willing suppliers of a vaccine?? Russian or Chinese Vaccine. It simply will come without any guarantee to its effectiveness, and especially the black market - like most products from the private market.

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  11. nobody stopped private companies or universities from testing. how did Abbot Labs quick test get developed, please? they need FDA approval to sell the test - like anybody else. The US (Trumpy) chose its own way in developping the test rather than rely on the intenational approach ( take the strain from the WHO to design the test - a MAGA reflex). To my knowledge the CDC passes out guidelines, but does NOT prohibit actions. Tests are developed by the private sector almost everywhere. - Nobody stopped the 'free private market') I see no evidence of that in what you state. Why don't you try to buy a vaccine - on ebay? Or the darknet? Who is stopping you ( Coase's side payments - a theoretical point by Coase but now religion that free markets work for others)? I am sure you can get non-approved vaccines and try them out. If not in the US, then in Mexico. The government's are buying up the promising vaccines in return for huge subsidies, and stupidly afterwards want return on their money. Most countries want to use some scientific evidence to optimally distribute the vaccines bought by the government.what is restricting the market here? They restrict their own sales, in fact they are giving the vaccine away for free with some rationing stipulations. You can still go out and get some kind of vaccine. Why rely on the inefficient service from the government competing with other willing suppliers of a vaccine?? Russian or Chinese Vaccine. It simply will come without any guarantee to its effectiveness, and especially the black market - like most products from the private market.

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    1. My understanding is that universities, which have labs that could create administer and process their own tests were forbidden to do so by CDC. It's been a while though and I don't have the source handy.

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    2. Here is a news report that broadly supports Cochrane's assertion of adverse positions maintained in early 2020 by fed government agencies in the face of Covid. I would trust this source:

      https://www.technologyreview.com/2020/03/05/905484/why-the-cdc-botched-its-coronavirus-testing/

      But does this tragic story really bolster Cochrane's message: that our government is the problem?

      What is the real cause of the CDC's (apparently recent) loss of competence and stature as a premier public health agency? Cochrane doesn't address this question.

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    3. "The US (Trumpy) chose its own way in developping the test rather than rely on the intenational approach ( take the strain from the WHO to design the test - a MAGA reflex)."

      The CDC did develop its own test, but to attribute that to Trump/MAGA is to misunderstand the situation. Trump unsurprisingly wasn't involved in those details beyond what the CDC and HHS Secretary Azar informed him they were doing.

      The CDC developing its own test had far more to do with the preferences of career employees there and institutional prestige. It's "not invented here" syndrome by people who hold themselves and their institution in high-regard, normally develop tests for new pathogens, and regard the CDC as the place that will develop a "gold standard" test.

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    4. From an MIT Technology Review article on the failed CDC Covid test: “Case in point: FDA rules initially prevented state and commercial labs from developing their own coronavirus diagnostic tests” available at https://www.technologyreview.com/2020/03/05/905484/why-the-cdc-botched-its-coronavirus-testing/

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    5. Thanks Greg and JZ I remembered reading that article but not where. Rudi: some documentation that I didn't totally make that one up.

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  12. Sometime I think that the worst thing about government is it.

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  13. NR's often valuable content (such as yours) is undermined by its site's ugly tabloidy style. It is a shame and it degrades its substance, writers, and mission.

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  14. > But the argument for free markets is not that they are perfect.

    Perfect re commie equality?

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  15. "Businesses and institutions have every interest to make sure they are a place that does not spread the disease, and to buy and require vaccination."

    I agree with the post except for the above point. If we lived in a world without any lockdowns I'm quite certain businesses have zero incentive to make sure they do not spread the disease. As it is, it is extremely difficult for anyone to pinpoint exactly where they acquired an illness when symptoms may not begin for up to TWO WEEKS. This is not like food poisoning, where you figure out before your next meal which establishment is at fault. If you were correct, we would have ALREADY seen bars requiring customers to have a flu shot YEARS ago. In fact, I'm not aware of any institution or employer except for medical workers where flu shots are required. So the FACT almost no one requires a flu shot proves that it would be very difficult for anyone to trace their illness and hold the business responsible, thus the business has no incentive.

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  16. Thank you, Dr. Cochrane! Could not agree more. The current vaccination strategy has a bug, which is just the government rule's weakness. Those very older adults are not the root of the spread of the disease. This is why now we could not see the decline of the spread. The government is not omnipotent and has its moral obligation, but the free market does not. Why not leave some space for the free market? The government can cover vulnerable groups and give others the freedom to sell and buy. China suffered from the planned economy for a long time. I could not understand why the US would like to go the same way in public health?

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  17. Great article. This needed to be said and you’ve said it clearly and beautifully.

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