In an interesting blog post, John Cochrane expresses dissatisfaction with the government's allocation of COVID-19 vaccines. He objects to both the government's decision to ban a private market for the vaccine and the criteria used to decide who gets it.
"When I suggested free market vaccine allocation on top of government distribution, critics lambasted me. Only the government can artfully offset externalities and information problems, they say. Implicitly every single dose must be requisitioned to the government's majestic planning effort, not one may be sold letting willingness to pay guide the usefulness of the vaccine. Not even a hospital emergency room treating covid patients may spring money and butt the line."
So what is wrong with the way the vaccine is allocated?
"If you want to stop a pandemic that is growing exponentially there is one rule. Give it fast to the people most likely to get it and to spread it to others. Over and over Nothing Matters but the Reproduction rate."
However, this is not the criterion used by many governments.
"First it goes to protect old folks in nursing homes. The UK gave its first dose to a 91 year old. Germany to a 101 year old. That's nice. Then to old people in general, even though most non-nursing home old people are retired and doing fine staying home. Well, it appears kind-hearted to protect those who are most likely to die if they get it. It is a purely private benefit, so one might ask why they aren't asked to pay anything for it. So it's really an income transfer to old people in the form of a vaccine."
I can feel "compassionate" people getting triggered. It is important to slow the spread but it is also important to protect the lives of those most vulnerable and the government must weigh both goals, they may say. Except, as Cochrane points out, there is no tradeoff here.
"OK, I like old people and social justice too. But if that same vaccine were given to a front line health care worker, or to a young partier who just can't seem to help themselves from giving it to 25 other people, including 3 grandparents, we solve the disease, we address the externality, and we protect old people, much more effectively."
So why are officials not seeing this?
"Do you first give a vaccine to old people who are likely to die if they get it, freeing them to go out a bit and freeing nursing homes from having to implement stringent protection requirements? But in doing so you let the disease run rampant and the economy tank for another six months. Or do you give it in a way that stops the pandemic, to people who individually won't die but will thereby not spread the disease? The overall death rate is lower in the latter case, but only in secondary infections, which you, the CDC cannot claim to have saved."
In the vaccine case, we have what economists call an externality. A person's decision to get vaccinated affects not only their own well-being but also the well being of innocent bystanders, those who come into contact with the person. As every textbook of principles of economics states, when an externality is present, a government may be able to influence the market allocation in a way that improves social welfare. But the fact that government intervention can be welfare-improving does not mean that it will be. The concern here is that a market would allocate the vaccine to those who are willing to pay enough but may not be the ones most likely to contract and spread the virus. But if this is the concern, the government's response should be to direct the vaccine towards the most infectious among us. Due to political considerations, however, this is not the case.
Several economists, especially in the field of Public Choice, have argued that a less than optimal market outcome, a market failure as we call it, may be second best. They find paradoxical that people who are suspicious of individuals when those individuals work for business, seem to trust that they will do the right thing when they work for the government. Such people either ignore that politicians are just as self-interested as business professionals, or assume that the interest of politicians is aligned with that of the public because to get re-elected they must make socially beneficial decisions. This assumption presupposes, however, that people are capable of correctly identifying not only the direct but also the secondary effects of a decision. This is not always the case.
In Economics in One Lesson, Henry Hazlitt brings the example of a government that builds a bridge of marginal value to provide employment. He points out that people who are not trained to see "beyond the immediate range of the physical eyes" will only see the bridge and the jobs created by its construction. They will not see that the funds diverted from the private sector to build the bridge could have been used to make things that people value more. They will not see the unmade cars, private houses, etc. and the jobs sacrificed in those industries. If voters cannot properly identify the secondary effects of an action, there is no guarantee that self-interested government bureaucrats will act in ways that improve upon the market outcome. The choice may be between market failure and government failure, and it is not at all clear that an imperfect government is better than an imperfect market.
Imagine someone grieving the loss of an elderly parent to covid. I can envision news outlets and social media posts holding the CDC responsible for vaccinating a college student with no underlying health conditions instead of the deceased. How easy would it be for a government bureaucrat to convince people that vaccinating the college student saved lives? How easy would it be to divert attention from the specific person who died to the abstract elderly people who were spared because they did not contract the virus? Such considerations can lead self-interested government bureaucrats to allocate the vaccine in sub-optimal ways, as it seems they have. As Cochrane remarks,
"The government is basically not even thinking about the prime market failure -- the externality that if I get it I might give it to you. In doing that it is mostly just achieving an income transfer to favored groups."
It is not at all clear that this sub-optimal government allocation of vaccines is any worse than the sub-optimal allocation that would have been achieved under a private market. And this risk carries over to every government intervention. It is important to remember that.
