[Before starting, let me point out that there is a new Macromusings podcast where David Beckworth interviews me on the role of monetary policy in an epidemic.]
Many people became disillusioned with the government when it failed to respond to warnings that might have prevented 9/11, or warnings that the Madoff hedge fund was a scam, or the excuses used to invade Iraq. For me, the recession of 2008-09 had a major effect on my view of government.
Prior to the recession, I had read many academic articles discussing “foolproof” ways to escape a liquidity trap. Thus I was quite dismayed to discover that the Fed had no plan to deal with the zero bound issue.
This isn’t about the people in the government, who are often quite talented. Ben Bernanke was one of those academics that discussed methods for escaping a liquidity trap, such as level targeting and a “whatever it takes approach” to QE. But he was not able to convince his colleagues at the Fed of their merit. Nor does it matter which party is in charge; governments are big, cumbersome institutions, not capable of protecting us in a crisis.
Now we see that the US government is woefully unprepared for Covid-19, despite many previous predictions that a pandemic was inevitable. The stockpiles of surgical masks are barely 10% of what’s needed, and the rollout of testing facilities has been much slower than in countries such as South Korea. Regulations against predatory pricing slow the manufacture of new masks. Programs put in place after the SARS epidemic were abandoned a few years later when people lost interest.
Some people argue that we need to centralize information dissemination so that “the government speaks with one voice”. This would be a disaster. Mike Pence doesn’t know any more about this than you or I do, indeed he botched the HIV epidemic in Indiana when he was governor. It’s much better to have a wide variety of government experts offer their opinions, even if their views differ.
This also applies to other existential risks, such an accidental nuclear war, solar flares from the sun, asteroid/comet strike, AI run amok, Yellowstone eruptions, etc. Don’t assume the government has a secret plan if there is a disaster. They’ll be just as dazed and confused as the public.
READER COMMENTS
ChrisA
Mar 2 2020 at 12:57pm
It seems some Governments are able to deal with issues like this, the South Korean government by all accounts has organised quite am effective response with lots of testing kits available. But perhaps it is better to live in a country where the Government is not so effective, you might die by accident but you are at less risk perhaps of a bigger catastrophe, sort of like Talebs anti-fragility philosophy; lots of small failures rather than than one big one.
Scott Sumner
Mar 2 2020 at 1:13pm
Good point.
Nick
Mar 3 2020 at 5:35am
The important aspect of living in a place where the government is ineffective is that you also know the government is ineffective. But if a government isn’t best placed to deal with a pandemic, then why is it best placed to deal with anything.
Thaomas
Mar 2 2020 at 3:13pm
Not having a plan does not explain doing cost ineffective things like confining people returning from Wohan and the Diamond Princess, the SNAFU of CDC not letting others test for exposure and travel restrictions.
Alan Goldhammer
Mar 2 2020 at 3:41pm
I know first hand that gene testing results can be turned around in 24 hours. Some years ago I got bitten by a tick and our area is a Lyme repository. I took the tick up to a local lab and to the results the next day. Tick was positive for Lyme, so I got a scrip for the short dose of doxycycline. Six months later, I had a Lyme titer done which turned out negative. I don’t know how complex the test kit for COVID-19 is but do know that there are lots of labs that can do this testing reliably and quickly.
One of Scott’s main points that the government was asleep at the wheel is spot on.
Robert Seber
Mar 2 2020 at 5:47pm
“Don’t count on the government to protect you.”
Of course, not. Is there anything the government does well? I will answer my own question. The government does better in areas where it is able to attract the best talent. Management of the National Parks is an example. If you study, say, wildlife management or archaeology, working for the National Park service is one of the best options available. On the other hand, there are multiple governmental areas where that is definitely not the case. Anything related to healthcare falls into those categories.
Phil H
Mar 2 2020 at 9:24pm
I think there’s a confusion of ideas here.
“Programs put in place after the SARS epidemic were abandoned a few years later when people lost interest.”
Sure, but that’s a few years more than any market solution. Government is imperfect, but what other remedy is there?
If South Korea can do something, then clearly “government” is capable of responding quickly.
But actually, I want to suggest that a vastly underrated feature of government is precisely that it slows things down and applies bureaucratic brakes. In the absence of government regulation, we would be bombarded right now with advertisements for snake oil remedies for coronavirus. We know this because it happened in the 19th century, when they sold literal snake oil. I’m sure they also had snake oil equivalents in the economic sphere.
I’d even suggest that perhaps it was a good thing that the Fed/other government apparatus didn’t jump on the exciting but untried suggestions of one superstar economist in its response to an almost unprecedented crisis.
Mark Z
Mar 3 2020 at 4:05pm
I’m not so sure putting the breaks on things is an improvement. In fact this strikes me as a case of weighting visible costs more than inevitable but invisible costs. Consider drug regulation: the cost of absence of regulation – useless or harmful drugs sometimes making it to the market – is more apparent than the cost of regulation – people not getting drugs they would otherwise have access to but we’re held up by the process. Assuming regulation is not perfectly efficient in identifying what should be suppressed, the ‘optimal’ number of snake oil salesman is probably > 0. The cost of a few false positives may be worth the benefit of the true positives that otherwise would be suppressed or delayed.
A nice counterintuitive example: show me a very safe, well policed neighborhood, and rather than praising the police for how effective they are at keeping the neighborhood safe, perhaps we should consider if they’ve policed too much, beyond the point where the cost of reducing crime exceeds the crime itself? It’s possible it’d be better off with more burglaries and fewer police. Just because a regulation succeeds at reducing the one bad thing it targets doesn’t make it a success in general.
Mark Z
Mar 3 2020 at 5:21pm
https://mobile.twitter.com/ScottGottliebMD/status/1224042220665307137
It’s getting harder I think to defend the government putting on the breaks here as productive. It’s stopping hospitals – not snake oil salesman – from performing a test well within their capabilities. The intervention seems pretty much purely destructive at this point.
Chris
Mar 9 2020 at 6:34pm
The state is not great at dealing with unforeseen crisis. However, private businesses don’t even try, and after a crisis begins, business will do its best to maximize profits, even if that comes at the expense of lives. The free market just does not care about life; it has minimal value to it, and is more likely to take advantage (through snake oil or price gouging) of those disadvantaged by the crisis than to help return them to financial stability. On the other hand, the state can (but does not always) care about life to the extent that its populace sees it as morally correct and is willing to spend money on recovery efforts that do not have a direct profit motive.
Also, the state tends to collect experts in crisis management in general and within specific fields, which isn’t a thing that business even tries to address. For instance, the issues our country is facing right now with the coronavirus is not due to a lack of expertise within the government, but to an administration that is actively contradicting the experts at every turn and silencing them wherever possible. I would also argue that drug companies looking for actual treatment options is directly due to regulation: if the government didn’t regulate treatments then it would be far more profitable to sell snake oil now than to put effort into research and development. And without the government, it would be nearly impossible to judge one treatment against others in the marketplace, so there would be a huge information disparity.
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