The numbers involved, however, suggest that a more comprehensive and aggressive solution is likely to be required: not only military provision but also a means of diverting manufacturing effort to the cause. Much of this has been lying idle due to social distancing. The need is for a centralized process to unlock that potential and ensure timely provision. In World War II, businesses quickly retooled for military production. The same is required now. Moreover, there will likely be a need for additional healthcare workers. This too could be a mobilization effort (perhaps even supported by conscription). The good news is that those resources are idle. The better news is that, unlike in wartime, no one will be asked to kill others.
Price Controls
Hand sanitizer and toilet paper went first. Hand sanitizer made sense. It was a genuine surge in demand as people expected to use more, much more, of it and were advised to do so. Toilet paper came as a surprise. The lack of it was not just due to a surge in demand but was said to be a result of hoarding. But why? As Justin Wolfers argued, showing that economists were unafraid to tell it like it is, “[o]nce they have more toilet paper, people aren’t going to poo more.”7 He saw it like a bank run. People saw that toilet paper supplies were dwindling and bought more because they were concerned about supplies down the track. This created a run on the product just like a bank run. As it turned out, some toilet paper (even if it wasn’t the good stuff) was back in the store after the initial rush before people found that they didn’t have a square to spare.8
Hand sanitizer and other products that might be subject to real shortages are another matter. One story involved a couple of entrepreneurs who bought up a huge supply of hand sanitizer right after the first US death on March 1.9 They had intended to sell their stock of 17,700 bottles at a large markup on Amazon. Before they could do so, Amazon cracked down, preventing them and others from selling the items that were in high demand. eBay followed suit. In the end, the bottles were donated to hospitals.
Price gouging is given an ugly name because, of course, it is associated with people taking advantage of shortages in times of crisis to make a profit. At normal times, economists usually like to let prices rise because they signal to others were demand is high and there are profitable opportunities to produce more. In other words, they are part of a market process for resource allocation. When we outlaw or otherwise try to provide a cap on prices, what we are doing is accepting a shortage.
As John Kenneth Galbraith, who headed up the US World War II office of price controls, noted, this is an acceptance of a “disequilibrium system” where demand persistently outstrips supply. This meant that items subject to controls needed to be rationed. As Galbraith noted, the outrage at this process tended to involve surprising items (just as we saw with toilet paper):
[F]or some reason ceilings on fur coats inspired them to special anger. On several occasions I found myself contending with new colleagues (and once with a new administrator) who were enthusiastic about dropping price controls on fur coats. When they saw that this action would put a premium on high-priced coat manufacture, would draw materials (“trim”) away from cheaper lines, they soon reversed themselves. In doing so they adopted a position entirely consistent with a broad theoretical pattern for allocating resources and equalizing incentives. Of the existence of any such theoretical pattern they were totally unaware.10
Given this, it is instructive to consider why we happily resort to price controls in times of crisis. The reason is that it may well do a better job at resource allocation. According to research by Piotr Dworczak, Scott Kominers, and Mohammad Akbarpour,11 whom we want to get hand sanitizer can be different from whom the market will allocate it to. In that case, the social value of who has sanitizer is unrelated to wealth. Thus, had the price gougers got their way, only the wealthy would have got their hands on it and, in the process, protected themselves and the people they interacted with from infection.12 But those are the very people who have the best access to healthcare, who don’t live in more densely populated neighborhoods, or who can easily work from home. What makes more social sense is for the poorer members of the community to be allocated the hand sanitizer. Price controls give them a fighting chance. What might even be better is directly allocating hand sanitizer supply according to where it can have the greatest impact.13
Restrictions on Movement
We need to keep infected people isolated because one infected person can have the same impact as that of a mass shooter. Here is the calculation. If the R0 for COVID-19 is 2, then an infected person will cause two others to be infected. But it obscures the magnitude of the problem. Those two people will infect two more people, and so on. After 10 rounds of this, that adds up to 1,024. (If R0 = 3, it is 59,049!) If 1 percent of those people die from the disease, one infected person has been responsible for 10 deaths. Suffice it to say, that puts mass shootings in perspective. It is no surprise we want to keep infected people isolated.
The problem is how to do that. For starters, you have to know you are infected, and with COVID-19, as was already explained in chapter 1, the majority of infected people are unaware of it. Moreover, once you do know it, using claims (such as I have just done) that you might be responsible for between 10 and 600 deaths means that being infected carries a social stigma. Laura Derksen and Joep van Oosterhout found this when examining the spread of AIDS in Africa.14 They found that when people were asked to opt for testing or AIDS-related care, there were few takers because people feared the stigma of being seen to be concerned that they may have the disease. People have to be generally and publicly knowledgeable about the social benefits of these actions, otherwise they might choose to cover up symptoms fearing discrimination. If refusing to go out is seen as a cover, that may be a problem.
Ordinarily, if you were going to restrict movement of people, you would try to target the individuals both at risk and who are likely to be people with a higher individual R0. For COVID-19, some physicians wondered if a more targeted approach could be achieved. For instance, as those over the age of 70 were more likely to require the higher end of health costs (including death) associated with the virus, would it be better to isolate them and leave the rest of the population to circulate?15 Doing this would greatly mitigate the economic costs from a broader policy.
The problem with targeting is that there are real doubts it would work. If a large proportion of those under 70 still become sick and need hospitalization, resources could still be overwhelmed. Moreover, with large numbers of infected younger people, we lack the people to support the elderly being isolated. As Alex Tabarrok agues, there are internal contradictions that may well render it impossible for a more “surgical” approach to social distancing.16
Targeted policies are also hard to enforce. When there are restrictions on movement, it is very easy for the authorities to see whether people are moving or not. In their absence it is harder to tell and can require more resources.17 For these reasons, to deal with the costs associated with COVID-19 transmission, governments have opted for blanket policies akin to martial law in wartime or other times of emergency. These may be supported by penalties for violations but nothing like the type of taxes that economists would otherwise recommend so that exceptions can be made at the discretion of individual decision makers willing to bear a taxation cost. Instead, a heavy-handed approach is used without much room for nuance.