Friday, February 5, 2021

A modest proposal for vaccine rationing

A mid-20s child of a good friend just got the vaccine. Why? He runs a micro-brewery, which his state deemed "essential," because it's "manufacturing." 

As the WSJ reports

After nursing-home residents and health-care workers, the CDC says priority should go to those over age 75 and an expansive list of “frontline essential workers.”,

...“essential workers” ... include those who “work in transportation and logistics, food service, housing construction and finance, information technology, communications, energy, law, media, public safety, and public health. 

media! Economics blogging should count, no? 

What happens when a good is rationed? It is given out politically. 

While many states have already given priority to police and firefighters, teachers’ unions are trying to cut to the front of the line and are blackmailing politicians by refusing to reopen schools. But teachers and child-care workers face less risk than other front-line workers since children are less likely to transmit the coronavirus. 

Other unions are also lobbying for priority. The SEIU lambasted California Gov. Gavin Newsom’s well-advised decision last week to remove “essential” workers such as janitors from the state’s priority guidelines and base eligibility almost solely on age. “It’s like he’s putting us out to die,” griped SEIU United Services Workers West political director Sandra Díaz. 

Industry groups including hotels, airlines and ride-share companies are also lobbying states to have their workers vaccinated first. Gov. Andrew Cuomo this week announced that restaurant, taxi and ride-share drivers would be next in line for vaccines. But why restaurant workers before retail workers or 60-year-olds?

The WSJ suggests rationing based on age. 

The modest proposal: Why not let "industry groups" decide when they want the vaccine based on...hold your breath.. paying a market price to get it?  I wouldn't dare whisper that maybe individual people could be allowed to decide when to get the vaccine -- that is what we're talking about, when, not if --  by deciding when they want to pay for it, as our political climate cannot say out loud that anything should be rationed by willingness to pay. But surely, we can agree that profit-making businesses should be allowed to pay to get their workers vaccinated sooner -- if it's really important to them to do so -- rather than just by who has more political connections to be labeled "essential." 

Fun: Rory Cooper tweets

Fairfax schools says they're going to open up 2 days a week in March for some kids. Wanna know how? They're hiring thousands of unskilled classroom monitors to watch kids watch computer screens because their fully vaccinated teachers won't return to the building. This is nuts.

 

32 comments:

  1. "Why not let industry groups decide when they want the vaccine based on...hold your breath.. paying a market price to get it?"

    What does paying a market price even mean when the U. S. central bank is willing to bail out any financial trade that goes sideways?

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  2. Replies
    1. And have the Federal Reserve buy them all up at exhorbitant prices. What - no?
      If they (the FOMC) can buy government bonds and corporate bonds and in the case of Japan some corporate equities - why can't and shouldn't the central bank pay a few billion dollars per dose of vaccine and then turn them over to the federal government to distribute to whoever the government thinks is worth saving?

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    2. Why on Earth would the Federal Reserve do any of this? I think you might have a weird fetish involving the behavior of the central bank.

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    3. Because they are beholden to Congress and which ever party controls it? Why else?

      Look if we are going to accept that whoever can pay the most should get the vaccines first (what John Cochrane recommends above), then obviously the Federal Reserve can pay more than any other single individual - rationally or irrationally.

      "I think you might have a weird fetish involving the behavior of the central bank."

      It's not a weird fetish, it is logic drawn toward it's obvious conclusion.

      If the central bank / government can bail out a bunch of Wall Street banks (a dubious achievement under Republican control of Congress) then surely they can outbid any private individual for vaccines and determine who gets one and who doesn't (perhaps a worthwhile achievement under Democratic control of Congress).

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    4. Stephane,

      See "A Modest Proposal" by Johnathan Swift.

      I caught the reference from J. Cochrane.

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  3. Remember when we tried to privatise Russia? Nice idea at the time. The market didn't produce the vaccine, govt subsidies did, there are too few suppliers, and for the time being, supply is fixed because of limited plant capacity. Vaccines have benefits beyond the individual recieving it, and because disease risk varies among different subgroups for non-market related reasons and those subgroups don't know their own real risk, careful consideration of who actually is vaccinated first is actually important. Otherwise, not a bad idea.

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    1. Nearly all the talk regarding distribution focuses on individual benefits, so if your point is that the government should force individuals to internalize costs and benefits borne by others, it doesn't seem to be what they're doing at all. Besides, the consequences of external costs and benefits depends on their magnitudes: you may be trying to swathe flies with a sledge hammer.

      The next point you raise is equally contentious. For starters, I don't know why you felt the need to invoke "non-market related reasons." It doesn't matter why risk varies. What matters is that you need actionable knowledge not only regarding how it varies, but also what are the relative costs and benefits of reducing some of it. Economists and epidemiologists who have been cooperating on modeling the evolution of the disease may have more information than the vast majority of individuals about the risks involved, but they sure as hell have a whole lot less information about the costs and benefits of vaccination. Half the story here requires on the ground, hands-on information neither experts, nor government officials possess.

      Back in the real world, you're actually comparing among themselves a large set of unsatisfactory solutions. It's not obvious at all that actual politicians operating in the existing political climate and within the institutions we do have will make anything like an improvement over decentralized distribution.

      Besides, one option is to allow private purchases of vaccines, let the market set the price and have the government purchase doses at that price if they want to centralize part of the distribution process. The government and citizens paying hundreds of dollars per dose would still be spare change against the background of the emergency spending and the massive waste caused by lockdowns, both partial and complete.

      What Cochrane is describing above regarding politicians isn't anything remotely related to a benevolent social planner besting poorly informed agents in a private market ripe with failures. It's people predictably engaging in rent seeking and politicians talking about using rationing as a means of transferring wealth... If they really want to transfer wealth, they don't have to mess up with pricing systems to do it.

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    2. The issue is that government allocation of vaccines is a factional competition in which the politically strongest factions, by definition, get the highest priority. Why would we believe that "careful consideration of who actually is vaccinated first" correlates in any way with factional political strength?

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    3. If the country faced a smallpox epidemic or a polio epidemic, would either of you advocate for a "free market" in the vaccine?

      In the presence of household income disparities would either of you consider income subsidies to low-income households so that those households could obtain the vaccine/vaccination services and become immunized, or would you not provide subsidies to the poorest amongst the general population in order to adhere to "free market" principles?

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    4. Stephane,

      "Besides, one option is to allow private purchases of vaccines, let the market set the price and have the government purchase doses at that price if they want to centralize part of the distribution process."

      Market price setting is a hunt and search process. Manufacturer sets a price for a good, people chose to either purchase or don't good at that price, manufacturer then re-evaluates and can either raise price to reflect high demand or lower price to reflect low demand. Markets are designed so that people can agree to disagree on price.

      Government entry into markets changes all that. Manufacturers know that the government's pocket books are deeper than the average citizen so they can basically charge whatever price they like, and because of a pandemic, governments are willing to pay that price.

      Old Eagle Eye,

      In the absence of market pricing, how should vaccines be priced when sold?
      Nixon style price controls?

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    5. Stephane,

      "Besides, one option is to allow private purchases of vaccines, let the market set the price and have the government purchase doses at that price if they want to centralize part of the distribution process."

      Market price setting is a hunt and search process. Manufacturer sets a price for a good, people chose to either purchase or don't good at that price, manufacturer then re-evaluates and can either raise price to reflect high demand or lower price to reflect low demand. Markets are designed so that people can agree to disagree on price.

      Government entry into markets changes all that. Manufacturers know that the government's pocket books are deeper than the average citizen so they can basically charge whatever price they like, and because of a pandemic, governments are willing to pay that price.

      Old Eagle Eye,

      In the absence of market pricing, how should vaccines be priced when sold?
      Nixon style price controls?

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    6. FRestly: "In the absence of market pricing, how should vaccines be priced when sold?... ."

      O.E.E.: "P = MC." -- maximizes consumer surplus, minimizes economic rents.

      Current purchasing arrangements comprise one buyer, the national government, and a few producers. The national government supplies vaccines in bulk to sub-national governments who in turn supply smaller bulk allotments to distribution points within their domains; the distribution points supply vaccination providers with small allotments for inoculation of the population. The vaccine is provided at zero cost; the vaccination provider is at liberty to charge for its services in performing the vaccination. So what we at the present time is very close to P = MC in an economic monopsony. The vaccine producers realize their marginal economic cost and the distributors within their respective sub-national government domains have the ability to recover their respective marginal economic costs should they choose to do so. Social welfare is maximized in two ways: (a) producers have a guaranteed outlet for their product in high volumes through purchase/supply contracts that are essentially risk-free as to volume and payment; (b) the recipients of the vaccination obtain the vaccine at no charge and pay, if they are required to pay at all, a service fee levied by the vaccinator, thereby maximizing the distribution of the vaccines to the population at large, which is the whole point in the face of a raging pandemic that has curtailed to a significant extent economic activity and lowered national and sub-national government revenues. Price controls, 'a la Nixon' or 'a la Carter', are not required nor are they necessary. They would be counter-productive, as you might well imagine that no vaccine producer would make a product at a price that failed to cover his marginal economic cost when he could deploy his capital to more remunerative opportunities.

      A follow-on to note is that the current arrangements are temporary work-around arrangements designed to minimize the elapsed time to achieve vaccination of 70 to 80 percent of the population. When that milestone is achieved it is conceivable that the usual "free market" price-volume-profit and economic rent-seeking paradigms may take over if the virus mutations do not eradicate the efficacy of the vaccines used to inoculate the population and precipitate a new pandemic. If new mutations render the current vaccines ineffective, then a new round of vaccine development and reversion to or maintenance of the current monopsony procurement and distribution arrangements will be required along with more restrictive border and internal movement controls.

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    7. Old Eagle Eye,

      "The vaccine is provided at zero cost..."

      Provided at zero cost to the government by the manufacturers? Huhh?

      "(a) producers have a guaranteed outlet for their product in high volumes through purchase/supply contracts that are essentially risk-free as to volume and payment"

      How was the per dose price for the purchase / supply contracts determined? It presumably wasn't a market determined price and it doesn't sound like it was a price control instituted by the government.

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    8. For a while I thought you might be George Shultz, Hoover Institution. I was sorry to hear about his passing.

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    9. FRestly,
      The vaccine is provided by the government to the recipient of the vaccine free of charge for the vaccine only. Vaccination services may be charged to the recipient. I hope this clears up any confusion that my wording of the paragraph might have left you with.

      FRestly: "How was the per dose price for the purchase/supply contracts determined? It wasn't a market determined price and it doesn't sould like it was a price control instituted by the government."

      O.E.E.: Judging from public information, the supply price was set through negotiation between the vaccine producer and the federal government procurement agent/office. This is the same supply/purchase method that determines the price of hospital services to healthcare insurance companies, and the same supply/purchase method that determines the contract price between an automobile assembler and an automotive parts supplier acting at arms-length. Each party to the contract ("bargain") determines for itself what price it is willing to buy and sell at. Ergo, in the absence of coercion, it is a 'market price' as between a willing buyer and willing seller acting at arms-length from one another. That is the definition of a 'market price'. It is also a 'free market' price if there is no coercion (e.g., the Defense Production Act is not invoked). The DPA was invoked by the federal government; therefore, it is not a 'free market', per se, but the price was negotiated between the purchaser and the seller, and in some cases the purchaser provided money in advance to the seller to defray the seller's capital cost and development expenditures. The purchaser was able to make those concessions because it was the only purchaser (monopsonist) for the seller's output up to a specified unit volume of supply. It is also the basis of multi-year procurement contracts between the U.S. government and the defense industry participants in the U.S.A. From this we can infer that there was large degree of free contracting (absence of coercion) in the vaccine buy/sell agreements.

      The Biden Administration has now decided that this arms-length deal is not sufficient to the purpose, and it will soon require producers to submit their production facilities to the government for the manufacture of vaccines and related supplies under the authority of the Defense Production Act in order to ramp up the availability of vaccines and related supplies. This is coercion at a high level, and it may include imposing price/cost recovery restrictions on producers at wartime levels (conviscation of profits, etc.). If that should happen, then it would not be a 'market' price, and the relationship between producer and acquirer would not be a contract freely entered into as between a willing seller and a willing buyer. Under such circumstances, the U.S.A. becomes not a 'free market' economy, but a centrally-planned economy, to the extent that the reach of the government extends to a greater degree in the economy. And, if the Biden Administration follows through on its announced intentions then it is without doubt a consequence of what becomes of calling a thing a "crisis" or an "emergency" when it is not (e.g., "climate change crisis", or "climate change emergency")--it allows government to ursurp private contracting and to seize the means of production to its own ends--and is a first step to the loss of personal liberties and property rights in the name of government expediency. From all early indications, there will be more such decisions from this new administration to come in the near future--all a consequence of "for want of a nail... ." Let us recall the meaning and significance of the Latin sentence: 'Vae victis.' We live in interesting times.

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    10. FRestly: "For a while I thought you might be Geo. Shultz, Hoover Instit. ... ."

      O.E.E.: No such luck, I'm afraid. I was a great admirer of Dr. Shultz and, I have no doubt that he will be sorely missed by one and all, at Hoover, and elsewhere in the U.S.A. and around the world.

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    11. Having never took Latin, I had to look it up...

      "Vae victis.." - Woe to the conquered

      And I respond by saying:

      "Those who desire to give up freedom in order to gain security will not have, nor do they deserve, either one." - Ben Franklin

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  4. People object to auctioning off vaccine priority because then people and firms that can afford it will jump to the front of the line by spending more of their money. What they don't seem to realize is that, when government allocates vaccines, then people and firms that have more political influence jump to the front of the line by spending Other People's money.

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  5. As a father of 2 children who used to go to Fairfax public schools I can only tell you that my decision to send then to private school (both in person learning with teachers on site) has never looked better!!!

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  6. Unfortunately, politicians and bureaucrats will never allow it to happen. Not because they're worried it won't work, but because it might work too well.

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  7. Fairfax County Public School District ("FCPSD") has 15,000 teachers. Of those 15,000 teachers, 2,300 teachers will provide classroom instruction remotely per approved ADA requested exemptions submitted last year. FCPSD is hiring 850 classroom monitors to oversee the students attending school in person two days in the school week. 645 classrooom monitors have been hired so far. FCPSD schools will open February 16, 2021. Note the numbers. Source: National Review (Feb. 5, 2021) -- https://www.nationalreview.com/news/fairfax-county-schools-to-reopen-with-classroom-monitors-as-thousands-of-teachers-stay-home/

    Rory Cooper's tweet inflates the number of classroom monitors and gets the date wrong. Fun? Time to come back to Earth.

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  8. Why do you conclude that the free market is not already functioning? Does the market not consist in contracts between buyers and sellers to exchange certain goods at a certain price? And has that not happened? Were the contracts not entered into freely? Do you know of laws or regulations or contract provisions that prohibit the vaccine producers from increasing production and selling additional product to non-government buyers? Your complaint seem to be that another buyer got there first and didn't consult you about what he/she/it wanted to do with the purchased product. And that the producers chose to enter into massive contracts with governments rather than soliciting your business.

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  9. John - I 100% agree with you that using price as the mechanism to ration vaccines would be far superior to the convoluted tiering methods several states like NY are imposing. What I'm struggling to understand is why you think price is superior to age as the key rationing mechanism (i.e., why not do precisely what 20+ states are now doing, and what the WSJ recommends?).

    I'm not saying I couldn't be convinced price is better than age, it's just that I've never seen the argument at all. The FASTEST* way to reopen is age-based rationing and, to me, reopening (even slightly) faster is a huge benefit hard to overcome. There are certainly benefits to the efficiency of using the price mechanism, but it's not obvious why they would outweigh the speed factor, so it'd be helpful to understand the other side.

    *For better or worse, nearly every state is using hospitalization rates as their primary benchmark for reopening speed. And the likelihood of requiring hospitalization due to COVID grows exponentially with age.

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  10. I wonder if vaccine skepticism would be less common if the states charged something, even a couple bucks, per dose.

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  11. As Ludwig von Mises pointed out, socialist governments use markets. it is just that prices are not market determined. And as Hayek pointed out, prices convey information. With no prices there is no information about how valuable the vaccine is. The value of a vaccine is subjective and may depend on whether an individuals already had the virus. Finally, those willing to pay a high price for a vaccine are providing resources to manufacturers which can be used to help solve the many problems that seem to be arising in vaccine distribution.

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  12. Since the government is giving the benefit of early,late vaccines away with the current distribution schemes, why not take a pointer from the draft during the later stages of the Vietnam war and have a lottery based on birth dates. Divide the doses into lots of approximately 2 million (2 doses per person). Allocate the first 10 lots to those over 75. The remaining lots are allocated based on randomly chosen birth dates. Then allow individuals to buy and sell their position in line. For example a person in position 10 could sell to a person in position 20 for $X and the position 20. Coase would love this. It would also pass the political test, (everyone treated equally, not necessarily fairly). Arbitrage would also keep relative prices in line. Clean Air act of 1990 worked for SO2 allowances with a fairly simple system. This could work too.
    Might have to limit the market to each state because of logistics in distribution of the vaccine itself. But this might be overcome if a time limit for exchange was imposed. For example trading in a slot ends 1 week before the slot begins.

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  13. Unfortunately, most everyone is missing the key point here. The US has contractually purchased enough vaccines but production is limited. Both Pfizer/BionTech and Moderna are producing doses as fast as possible and have futures contracts on virtually all of them from multiple countries. It's the same for the AZ/Oxford vaccine though it is not approved in the US yet. The next two coming out, the J&J and Novavax ones are also bought out for the remainder of the year based on current manufacturing capacity. Only by breaking Federal purchase contracts could vaccine be sold at higher than the negotiate price and that's not going to happen

    With respect to who gets vaccinated, it's up the the States to make that decision as the Federal government abdicated this back in the Trump days when distribution was being debated. For the same reason this is why some states are doing a much better job on distribution than others.

    With respect to teachers, the WSJ is in error with the blanket statement on school transmission. This only pertains students in grade school. There is a real risk of transmission from student to teacher in higher grades. There have been established criteria for school reopening from both the American Academy of Pediatrics and the National Academy of Sciences but it involves some practice changes. Personally, I'm in favor of schools opening as long as procedures are put in place to reduce potential transmission.

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    1. You have it exactly right. The big problem is supply. An economist who would want to actually contribute something to our understanding, or perhaps even to improving our situation, would, through a detailed analysis of particulars, identify the barriers to increasing supply.

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  14. Cochrane says: "As the WSJ reports".

    Let's be clear: Cochrane is citing an editorial by the Wall Street Journal. This was not a report by their news division.

    Who cares? Apparently not John Cochrane, who continues to casually conflate opinionating with reporting, to serve his ends.

    I wish Cochrane would recapitulate why most scholars are mindful to distinguish theory from experiment, rationalism from empiricism, and, in the same vein, opinionating from reporting.

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  15. I am reminded of line mechanisms vs. Price mechanisms in the 70s with the oil crisis. We're doing a line mechanism to determine who should get access, strangely similar and arbitrary to the last digit being even or odd to get gas on a certain date.

    Cut points/conditions aren't so much arbitrary as they are social: giving the illusion of fairness and morality that people will buy into. After all, social stability is important. Those with wealth are perceived as being evil because they can reject social norms and buy their way out of a problem instead of cobforming. Their option set is much greater. Someone somewhere can be bought - for the right price, of course. Ah, black markets...

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  16. Dr. Cochrane, The Wall Street Journal published an article on the take-up of fast antigen testing for SARS-CoV-2 virus infections in people. The survey results are somewhat disappointing, according to the interviewees' comments reported in the article.

    Story here: https://www.wsj.com/articles/the-u-s-bought-rapid-covid-19-tests-to-help-control-the-virus-now-many-are-unused-11613397601?mod=hp_lead_pos6

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