By now, this idea is pretty widely accepted. But there’s somewhat more skepticism when dealing with shortages of important goods during an emergency. Consider these tweets:
I’m not qualified to opine on the specifics of this issue. But after all the missed opportunities of 2020, I’m skeptical of claims that society could not possibly be missing out on “no-brainers”.
This long article discusses logistical problems in rapidly scaling up vaccine supplies:
Take large original equipment manufacturers like 3M, for instance – they have as many as 5,000 direct suppliers, and each of those suppliers have their own suppliers. This results in quite large supply chain networks that extend all over the world – and it only takes one incident to disrupt these operations. Plus, many organizations don’t even know who is in their supply chain. This is what we saw earlier on with N95 masks, gowns and gloves.
So what we have is a much more delicate or fragile supply chain for healthcare supplies, which really sets the stage for where we are now. Because the supply chain has become a much bigger factor, many of the components of the vaccine are subject to these same potential risks.
These are genuine problems, but these are also exactly the sorts of problems that markets are good at addressing.
Though Pfizer has already manufactured 20 million or so doses, Pfizer, Moderna and other vaccines are experiencing severe bottlenecks due to a lack of critical materials – including vials and rubber stoppers for the vials.
How might China’s vast and highly flexible manufacturing sector respond to price signals for producing more of these supplies, say a 50-fold increases in vial and stopper prices? Hint, here’s how they responded last spring to the mask shortage:
Between March and May, China exported more than 50 billion face masks — a tenfold increase for total production last year, according to analysts
Read that again. In three months, China exported enough masks to give everyone in the world 6 masks, ten times their normal annual production.
One mistake frequently made by non-economists, even non-economists that know far more about their own industry than economists do, is to underestimate all the margins by which supply can respond to market signals. Almost nothing is “fixed” in quantity. I won’t say it’s necessarily true that “where there’s a will there’s a way”, but when there’s obscene profits to be made then there’s almost always a way.
READER COMMENTS
AMT
Jan 26 2021 at 2:54pm
Excellent point, though I would feel comfortable extending back at least to 1776, when Smith published The Wealth of Nations.
Excellent example! I also recall in late spring they were typically about $1 per mask, and by late fall it was easy to find a 50 pack off amazon for about $9, so the price dropped very quickly too.
Sarcasm: “But if we import from China, we lose the trade war!”
Jon Murphy
Jan 26 2021 at 3:43pm
Even if we want to assume fixed supply, markets work because they align quantity supply and quantity demanded. An increase in price would reduce low-margin uses of rubber and vials allowing more for high-margin uses. Example, fewer rubber stoppers may be used for reusable beer jugs, allowing more to be used for vaccine vials.
Alan Goldhammer
Jan 26 2021 at 3:54pm
The major vial manufacturers have been running lines 24/7 to deal with the unprecedented demand for filled vaccine. Rubber stoppers for vaccine vials have to be carefully manufactured and maintained in sterile environments prior to filling. The last thing you want is for a vaccine vial to be contaminated by an unclean stopper. These stoppers are not the kind that you allude to in your comment.
One of the things in short supply right now are the syringes that can extract the extra dose of vaccine from the Pfizer filled vials. Nobody thought this was an issue until they began to observe left over vaccine such that 17% of of the fill was being left behind. Pfizer is trying to control logistic distribution so that their vials match up with the correct syringe.
Jon Murphy
Jan 26 2021 at 4:18pm
Right, but the material used to make them are. That’s the key point here. Higher prices move resources from low-margin to high-margin uses.
Scott Sumner
Jan 26 2021 at 4:45pm
I wonder how quickly the Chinese could make those syringes if you raised the price ten-fold.
I read that Coca-Cola is now making test tubes.
Seo Sanghyeon
Jan 27 2021 at 9:34am
No need to wonder, read about syringe manufacturing ramp up in South Korea here: PoongLim Pharmatech to begin mass production of COVID-19 vaccine syringes.
Thomas Hutcheson
Jan 27 2021 at 7:18am
Somehow I don’t think speculating about how things would work out if vaccine supply and demand were completely unregulated (beyond, maybe that the cost of vaccinations were covered by universal health insurance).
Wouldn’t it make more sense to analyse specific regulations or misplaced taxes and subsidies that cause the biggest problems? From the discussion above, it sounds like the problem is import restrictions. Firms up and down the supply chain, or at least business associations, ought to be out there lobbying for relaxation of the import restrictions or whatever the worst regulations are.
Scott Sumner
Jan 27 2021 at 3:17pm
I think the biggest problem is price controls.
Pierre Lemieux
Jan 27 2021 at 11:30am
A maximum response of quantity supplied requires price flexibility (and no “price gouging” law). I suspect prices are, in effect, more flexible in China.
JFA
Jan 27 2021 at 12:04pm
I think Demsetz or Alchian or one of those UCLA guys wrote an article title something like “The Problem of Marginal Cost”. It gets at the difficulty of defining marginal cost. Yglesias seems to think that marginal cost of a vaccine produced at the new factory. But let’s define the unit of production as the number of vaccines they could produce this year at the new factory. The marginal cost of that batch is the material and production costs plus the cost of the new factory. I think the bank giving the loan would actually want the company to show proof of the ability to cover not only the material and production cost of the vaccines but also the cost of building the factory. Probably need higher prices to do that.
Scott Sumner
Jan 27 2021 at 3:16pm
Good point.
Niko Davor
Jan 28 2021 at 10:58am
Sorry to repost from another thread, but this seems again relevant. Read Andrew Cuomo’s criticism of the Trump Administration’s vaccine plan:
https://news.grabien.com/story-gov-cuomo-threatens-block-trump-admins-distribution-pfizers
“they’re basically going to have the private providers do it. And that’s going to leave out all sorts of communities that were left out the first time when COVID ravaged them.”
“They’re going to take this vaccine and they’re going to go through the private mechanism. Through hospitals, through drug market chains, et cetera. That’s going to be slow and that’s going to bypass the communities that we call health care deserts. If you don’t have a rite aid or a CVS then you’re in trouble and that’s what happened the first time with Covid.”
“we can’t let this vaccination plan go forward the way that Trump and his administration is designing it”
It sounds like the Trump Administration was fully behind engaging the private industry and more free market elements and the Democrats were generally unified against that. Comments?
Niko Davor
Jan 28 2021 at 11:56am
One more point: Here is White House Sr Advisor for COVID Response under the Biden Administration, Andy Slavitt, endorsing Andrew Cuomo in regards to responding to the virus. My point is Cuomo isn’t just some rogue voice, but a chosen leader among the Democratic Party and their technocrat experts specifically in regards to the virus..
https://twitter.com/ASlavitt/status/1282838800549531648
WalterB
Jan 28 2021 at 2:05pm
A friend who doesn’t believe masks are effective has informed me that Chinese masks are not effective.
Comments are closed.