Political economy of the pandemic response
If the rulers of economically conscious policymakers were making decisions in response to the pandemic, what could they do differently and why? Peter Boettke and Benjamin Powell suggest some answers to this question in “The Political Economy of the COVID-19 Pandemic” (Southern Economic Journal, April 2021, p. 1090-1106).
Their article leads to a symposium on the subject. I will list all the papers from the symposium below. I’m told they’re all available for free online now, and for the next several weeks, so if you don’t have library access at the journal, you might want to check them out ASAP. Boettke and Powell write:
[F]From the perspective of promoting the overall well-being of society, we believe that governments in the United States and around the world have made significant mistakes in their policy response to the COVID-19 pandemic. … [A] The political economy perspective challenges the assumptions of omniscience and benevolence of all actors – politicians, regulators, scientists and members of the public – in response to the pandemic. We live in an imperfect world, populated by imperfect beings, who interact in imperfect institutional environments …
In what ways might pandemic policies based on micro-theory and welfare economics differ from the policies actually used? The potential answers strike me as both interesting on their own, but also a good live topic for class discussions and writing exercises.
For example, when discussing how policymakers should respond to negative externalities, a general principle is that there is a wide range of possible responses and that the cheapest response should be chosen. Considering society as divided into old and non-elderly, for example, it seems plausible that the low-cost social response to COVID-19 will involve restrictions on the elderly. Boettke and Powell write:
The activities of the young and healthy impose a negative health externality on the elderly and infirm. But it is also true that while the activities of young people are restricted due to the presence of the elderly and infirm, the latter group has imposed a negative externality on the young and healthy. If transaction costs were low, Coase’s theorem would dictate that it does not matter to which party the activity or restriction rights were assigned, as the negotiation would lead to an efficient outcome. However, in the case of COVID-19 and large populations, it is quite clear that the transaction costs associated with negotiation would be prohibitive. Thus, the standard approach of law and economics would recommend assigning rights such that the least expensive attenuator bears the burden of adjustment to the externality. In the case of COVID-19, it is clear that the low opportunity cost mitigating factors are the old and the infirm. Thus, the Coasian economy would recommend allowing the activities of the young and in good health to impose externalities on the elderly and infirm, and not the other way around. Door locks and home controls lead to the exact reverse allocation of rights and lead to great inefficiencies as the costs are disproportionately borne by the high cost mitigators.
Another common view of economics is that those closest to the externality usually know how to react. In the case of pollution control, for example, there is a standard argument for using a pollution tax or marketable pollution permits, rather than trying to establish command and control rules for each chimney or stack. source of pollution. Ask those who create pollution to bear the costs, and they will be encouraged to find ways to reduce those costs.
Of course, the response of most states and communities to COVID-19 was largely a command and control response, with extensive and ever-changing rules on the exterior and interior, on restaurants, parks and churches, on businesses or schools. could be opened under what conditions. As the authors write: “The thousands and thousands of varying restrictions are too many and diverse for us to classify them here exhaustively. But their number and their variability clearly show that these command and control rules in no way favor any form of cost reduction. transmission attenuation. “The alternative could have been to rank activities based on their chances of spreading COVID-19, and then impose a tax to participate in such activities.
The marginal costs of reducing risk-generating activities are in reality the inverse of the subjective marginal benefits of participating in a myriad of social interactions in the market, civil society, families, politics, religious communities. and recreation. No regulator will know the value of these various activities to those engaged in them. Economists have long understood that in the face of heterogeneous mitigation costs, regulating the command and control of much simpler pollution mitigation is less effective than a pollution tax, because companies know better their mitigation costs than regulators. This informational asymmetry between the economist regulator and the regulated people is even greater in this case. Thus, an efficiency-maximizing economist policy advisor would recommend leaving people free to choose activities for themselves, while imposing a tax on activities aimed at reducing the marginal benefit of engaging in activities, commensurate with an increased risk of transmission of COVID-19.
Another policy option would be for the government to subsidize activities that would reduce the spread of the externality: for example, “government funding to increase the capacity of hospitals and the purchase of supplies and equipment, and research funding. to accelerate the discovery of new medical treatments and vaccines. They could also include removing regulatory barriers that hinder medical capacity and the development of drugs and vaccines. Unlike effective policies related to mitigation activities that risk transmitting disease, governments have undertaken these policies to varying degrees. ”
But the interesting observation here is that the size of government activities that focused directly on reducing the disease was eclipsed by the size of payments the government made to affected individuals and businesses. For example, the government invested $ 10 billion in the Warp Speed program to produce vaccines and ensure that certain volumes would be purchased, but spent trillions of dollars – over a hundred times as much – on payments that didn’t reduce not directly the risk. transmission.
A final example concerns the decision of who would get the vaccine first. For example, should it go to “essential workers”? Or to the elderly or to those most vulnerable to the disease? Who defines these groups? Will lotteries be involved at certain stages? As all the rules are discussed, enunciated, and then enforced, an obvious question (for economists) is whether a more flexible, market-oriented system might work better. The authors write:
Even if policymakers care more about the well-being of people than the guidelines currently prioritize immunization, they could design a policy better than the CDC guidelines by assigning a salable right to receive immunization, rather than the right to receive immunization. vaccination itself. Priority people reselling the right will indicate, through their actions, that they are even better off, and transferring the right to higher value vaccinators would also promote greater efficiency. No politician contemplates such policies.
What interests me is not that the economic answers here are obviously “correct” – one can certainly point out the trade-offs that would be involved – but that the trade-offs were hardly noticed or discussed as real options. Boettke and Powell point out here some underlying problems of political economy. For example, public health officials “are not necessarily lying, but they will be biased so as not to make an over-optimistic error – no prediction or treatment protocol or vaccine will be defended that underestimates the downside risk. . It is better for them to make mistakes of over-pessimism. ”
The combination of media and public attention in the age of social media also doesn’t seem predisposed to calm thinking about trade-offs. Instead, compromises are typically presented as involving “good people”, who are judged leniently, and “bad people”, who are judged harshly. The authors write:
One implication is that fair and balanced reporting can be too boring to grab the attention of the middle listener / viewer / reader. Rather than a nuanced and subtle discussion of trade-offs and the calm calculation of risk, we get extreme projections of nothing here or catastrophe awaits. And, of course, these incentives to attract audiences have intensified over the past decade, with traditional print media competing with online sources. …
Politicians and mainstream media have kept much of the population in such an alarmed state throughout the pandemic, which has both allowed for paternalistic interventions and created upward parental demands for such interventions, which did not. have nothing to do with the effective correction of a market failure.
Here is the full table of contents for the symposium. Again, I’m told that all articles will be open access for the next few weeks:
- “The political economy of the COVID-19 pandemic”, by Peter Boettke and Benjamin Powell
- “Externality and COVID-19”, by Peter T. Leeson and Louis Rouanet
- “The Political Economy of State Responses to Infectious Diseases”, by Christopher J. Coyne, Thomas K. Duncan and Abigail R. Hall
- “Stay at home orders were issued earlier in economically nonfree states,” by Bryan C. McCannon and Joshua C. Hall
- “The Federal Reserve’s Response to the COVID-19 Contraction: An Initial Assessment,” by Nicolás Cachanosky, Bryan P. Cutsinger, Thomas L. Hogan, William J. Luther and Alexander W. Salter
- “The Political Economy of Drug and Alcohol Regulation During the COVID-19 Pandemic”, by Audrey Redford and Angela K. Dills
- “The FDA and COVID-19: A Political Economy Perspective”, by Raymond J. March
- “Essential or not? Knowledge issues and COVID-19 prescriptions at home ”, by Virgil Henry Storr,
- Stefanie Haeffele, Jordan K. Lofthouse and Laura E. Grube
- “Economic freedom, pandemics and a robust political economy”, by Rosolino A. Candela and Vincent Geloso
- “Combating COVID-19 with Dysfunctional Federalism: Lessons from India”, by Abishek Choutagunta,
- GP Manish and Shruti Rajagopalan
- “Separation of Power and Expertise: Evidence of Expert Tyranny in Swedish Responses to COVID-19”, by Per L. Bylund and Mark D. Packard