Political economy of the pandemic response

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If the rules of economic 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 opens a symposium on the subject. I will list all the papers from the symposium below. I’ve been told they’re all available for free online now, and for the next several weeks, so if you don’t have access to the journal in the library, you might want to check them out ASAP. Boettke and Powell write:

[F]From the perspective of promoting the general 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 living 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 selected. If one thinks of society as divided into elderly and non-elderly, for example, it seems plausible that the lowest social cost response to COVID-19 would involve restrictions for the elderly. Boettke and Powell write:

The activities of young and healthy people impose a negative health externality on the elderly and infirm. But it is also true that while the activities of the young are restricted due to the presence of the elderly and infirm, the latter group has imposed a negative externality on the young and the 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 achieve an efficient outcome. However, in the case of COVID-19 and large populations, it is quite clear that the transaction costs of 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 mitigators are the old and the crippled. Thus, the Coasean economy would recommend allowing the activities of young and healthy people to impose externalities on the elderly and infirm, and not the other way around. Lockdowns and stay-at-home orders bring the allocation of rights back exactly upside down and lead to significant inefficiencies, as the costs are disproportionately borne by high-cost attenuators.

Another common idea in economics is that those closest to the externality usually know best how to respond. In the case of pollution control, for example, there is a standard argument for using a pollution tax or negotiable pollution permits, rather than trying to establish command and control rules for each stack or stack. source of pollution. Let those who pollute bear the cost, and they will be incentivized 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 be able to categorize them exhaustively here. But their number and their variability clearly show that these command and control regulations in no way favor any form of cost reduction. transmission mitigation. ”The alternative could have been to categorize activities based on their risk 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 engaging in a myriad of social interactions in the market, civil society, families, politics, communities. religious and recreation. No regulator will know the value of these various activities to those who engage in them. Economists have long understood that in the face of heterogeneous mitigation costs, regulating the command and control of pollution mitigation much simpler is less effective than a pollution tax, because companies know more their mitigation costs than regulators. This informational asymmetry between the regulatory economist and the regulated people is even greater in this case. Thus, an efficiency-maximizing economist policy advisor would recommend leaving people free to choose their activities for themselves, while imposing a tax on activities aimed at reducing the marginal benefit of participating in activities, commensurate with the increased risk. 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, “public funding to increase hospital capacity and the purchase of supplies and equipment, and research funding for 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 implemented these policies to varying degrees.

But the interesting observation here is that the size of government activities that focused directly on reducing disease was eclipsed by the size of payments the government made to affected individuals and businesses. For example, the government has invested $ 10 billion in the Warp Speed ​​program to produce vaccines and guarantee the purchase of certain volumes, but has spent billions of dollars – over a hundred times as much – in payments that do not reduce not directly the risk. transmission.

A final example concerns decisions about who gets the vaccine first. For example, should it go to “essential workers”? Or to the elderly or more vulnerable to disease? Who defines these groups? Will lotteries be involved at certain stages? As all the rules are debated, 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 policy makers cared 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 resale right to receive the immunization, rather than the vaccination itself. Priority individuals 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 responses here are demonstrably “good” – one can certainly point out the trade-offs that would be involved – but that the trade-offs have hardly been 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 liars, but they will tend not to make the mistake of being overly optimistic. pessimism.”

The combination of media and public attention in the age of social media also does not seem predisposed to calm the scrutiny of trade-offs. Instead, compromises are usually 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 tradeoffs and the calm calculation of risk, we get extreme projections of nothing here or catastrophe awaits us. And, of course, these incentives to attract audiences have intensified over the past decade, with traditional print media competing with online sources. …

Politicians and the mainstream media have kept much of the population in such an alarmed state throughout the pandemic, which has allowed both paternalistic interventions and created upward parental demands for such interventions, which no have nothing to do with effectively correcting a market failure.

Here is the complete table of contents of the symposium. Once again, I am 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 non-free 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 stay-at-home orders ”, 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

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