Libertarians in a Pandemic

“I wonder how libertarians are dealing with the fact that the current crisis is annihilating their entire ideology” — @hilaryagro

Lately, I’ve been seeing a lot of snark about the how the Covid-19 pandemic is proving libertarians are wrong. Columnists declare “There Are No Libertarians in an Epidemic,” and people on Twitter ask how libertarians would handle a pandemic as if it’s some kind of “gotcha” question. I thought I’d try to provide a few answers.

First, the standard disclaimer: Folks who call themselves “libertarian” have a lot of different ideas about what that means, and some of them are way outside the libertarian mainstream. In this post, I’ll be talking about what I consider to be mainstream incrementalist libertarianism. I.e. the kind of thing you’d find at Reason magazine.

Libertarians don’t want to eliminate the government, we just want it to be smaller. That doesn’t explain much unless we delve into what libertarians mean by “smaller.” It’s more than just the caricature that libertarians want less spending and lower taxes. “Smaller” is shorthand for a more nuanced position: What we really want is for government to only be as big as it needs to be to do the things that only government can do. Some things truly do “take a village,” but the village should only do those things that truly take a village.

The classic example is national defense. It would be difficult to have a free market system of national defense. Try to imagine if every household had to contract with a mercenary army to defend it from invasion by a foreign country. How many people would actually buy such a contract? After all, there’s no way for the mercenaries to let the attacking army invade only the homes of non-customers, so if only a handful of my neighbors bought defense services, my house would be protected too. So why would I spend the money to buy a defense contract when I can freeload off my neighbors?

That sounds selfish, and perhaps it is, but libertarians aren’t arguing that everyone should behave that way. The libertarian argument (and neoclassical economic theory) is that everyone will behave that way. The problem is that if everyone — or nearly everyone — acts in their own self-interest and declines to buy a defense contract, then there won’t be nearly enough money to fund the defense effort, leaving everyone undefended. Each of us would be endangered by this, but there’s nothing to be gained by any one individual contributing to national defense since no single one of us has enough resources make a difference. Thus we need a government that can tax people to fund national defense.

You can see a similar dynamic at work with pollution. The quality of the air I personally breath has very little to do with the amount of pollution I personally release into the atmosphere. I’m only one of millions of homeowners in the Chicago metropolitan area, so regardless of whether I heat my house with coal or solar energy, it will make only a minuscule difference the quality of the air. So I get no personal benefit from choosing expensive zero-pollution technology. And if everyone thinks that way — as we assume they will, because everyone can figure this out — then everyone will act in their own self-interest and choose the cheapest way to heat their home, even if it pollutes more, resulting in more air pollution than anyone wants. Everyone is disappointed by the result, but no one person can do anything to improve the result. This is why it can help if the government forces everyone to reduce pollution.

In the interest of (relative) brevity, I’m skipping a bunch of steps in this argument, and ignoring a number of important objections and caveats, but I hope you get the picture: There are certain things that are best done by government because the market does not do them well.

The other side of that argument is that government intervention is not necessary if people can provide for themselves or obtain what they need on the free market. To pick a favorite libertarian example, people who want to avoid snorting cocaine can accomplish that themselves through the simple expedient of not snorting cocaine. For most people, this is not hard, and millions of Americans have been not-snorting-cocaine for decades. Thus there seems to be little need for the government to provide the service of making people not snort cocaine, and that’s especially true since the government insists on providing that service, violently, even to people who don’t want it. To us libertarians, this just seems dumb…and also kind of evil.

Similarly, we can obtain an awful lot of stuff we want from the free market — music, movies, shoes, shirts, chairs, tables, plates, silverware, laundry soap, aspirin, smart phones, bed linens, fried chicken, baked beans, hairspray, makeup, screwdrivers, fresh fruit, power drills, lawn mowers, cars, bicycles, roller blades, computers, mirrors, drywall, paint, ladders, lunchboxes, aluminum foil, toilet paper, toilets, air conditioners…and boxes to put it all in. We don’t require government intervention to provide that stuff because in a free market other people will happily provide things that we want in order to be able to get things that they want.

(Again, I’m skipping over a lot of gray areas and edge cases for the sake of brevity.)

A global pandemic seems a lot more like national defense or air pollution than like drug prohibition or free trade. My infection status is strongly affected by the infection status of people around me, and if I get infected, it can harm people around me, even if that’s not my intent. This kind of effect is called an “externality” by economists, and it’s one of the reasons free markets can fail and government intervention could be useful.

Therefore, the libertarian answer to handling a pandemic is “Yes, you’re right, this is in fact one area where government can be really helpful.” Which is why libertarians are so pissed off that our government has not been doing a very good job of fighting the pandemic.

Perhaps the government could have handled the pandemic better if hadn’t been wasting so much time and money on less important stuff. The CDC, for example, wastes a lot of money on things other than infectious diseases, such as studies on gun control and binge drinking. And right up until the start of the Covid-19 outbreak, the government’s hot-topic public health initiative was an anti-vaping campaign. Maybe if the Center for Disease Control had been paying more attention to diseases, fewer Americans would be dying this month.

Consider the critical role of government in disaster preparedness. It is a practical impossibility for free market enterprises to provide that service. To see why, imagine that after the 2003 SARS epidemic a bunch of enterprising investors realized that a more widespread outbreak in the future would strain the medical system, and so they decided to fund a ventilator stockpile, with plans to recoup their investment when the need for ventilators rises. They’d raise $2 billion dollars to buy 100,000 ventilators at $20,000 each. And then they’d put them into safe storage in warehouses and wait. And wait. And wait. For seventeen years.

That’s a long time to to have $2 billion invested in a risky venture. The same $2 billion invested in an S&P 500 index fund would have grown to about $6 billion by now (and that’s after the recent plunge in the stock market). In addition, the ventilator stockpile would incur warehouse fees, and the ventilators would have to be maintained and certified. They would probably require periodic upgrades — selling older ventilators to hospitals and buying new replacements — to keep up with the latest technology. So in order to attract that initial $2 billion from investors, the company would have to be able sell those 100,000 ventilators for a lot more than $2 billion. Probably, they’d need about $8 billion, which works out to about $80,000 each.

Currently, inexpensive ventilators cost about $25,000, so the investors would need to sell their stockpile for more than three times the market price. Could they really do that? Not in ordinary times, but during a global respiratory disease pandemic, quite possibly. As the existing stock of $25,000 ventilators starts to run out, desperate hospitals would be more than willing to pay $80,000 for ventilators instead of letting patients die. The company would sell out its stockpile, and investors would would pocket a tidy profit.

But that’s not what really happens in disasters. If some company started selling ventilators for triple the normal price, people wouldn’t be quietly thankful that some far-sighted investors had foreseen the need for ventilators and risked $2 billion of their own money to make it happen. Heck, people get angry when lumber yards raise the price of plywood for boarding up windows after a storm. They’d go insane over a tripling of ventilator prices. State attorneys general would cry “price gouging” and open criminal investigations. Governors would try to find a way to seize the ventilators. Pundits and populist politicians would be screaming about selfish billionaires and “disaster profiteering.” The ventilator stockpiling company would be forced by threats and public pressure to sell ventilators at a loss, and their investors would make less money than they could have made if they’d invested in something much safer.

Of course, potential investors realize that this will happen, and consequently conclude that ventilator stockpiles are not a good investment. You might claim that selling ventilators at triple the price is selfish and greedy, and many investors might even agree. But the thing is, investors who are squeamish about charging high prices during a disaster don’t decide to sell at lower prices when disaster comes. Instead, they simply decide not to invest in ventilators in the first place.

And that’s why we don’t have free market stockpiles of disaster supplies.

So disaster stockpiles would seem to be an excellent project for the government, and when it comes to infectious diseases (natural or man-made) there have been plenty of discussions and plans and simulated pandemic response exercises to test those plans.

But now that an actual pandemic is unfolding around us, the government doesn’t seem to have stockpiled nearly enough supplies — from filtering face masks to gowns, gloves, and ventilators — and a lot of those supplies are expired or in need of maintenance. Again, maintaining disaster stockpiles seems to libertarians like the sort of thing that our government should do, and it angers us that they haven’t done a very good job of it.

Libertarians have a pretty good theory why that happens. Remember that markets fail because people’s self-interested decision-making as individuals conflicts with the interests of the people as a whole, which is why many people argue that the best solution is for government to take over and do what’s best for everyone.

But there’s an ugly snag with that idea: Governments at high and low levels are run by people, and there’s nothing in politics or government employment that guarantees the people running the government are any less self-interested than the people running the markets. In government, that self-interest is less likely to take the form of profit seeking — although that happens — and more likely to involve a quest for larger fiefdoms, more power, greater fame, and higher national office.

Furthermore, government lacks the discipline of the free market: Bad companies go out of business, but there’s much less punishment for bad government, which gives government functionaries a lot more leeway to screw things up and let us down. Here are a few examples of government screw-ups and bad ideas in the fight against the Covid-19 pandemic:

• In many states, hospitals are subject to Certificate of Need (CON) laws which require them to demonstrate that a community has a need for additional hospital beds before they are allowed to expand. This was justified as a supposed cost-saving measure, but seems designed to create de-facto hospital cartels which artificially limit hospital capacity, to the benefit of the hospital industry. That seems questionable in the best of times and disastrous in an epidemic.
• For years now, California has been limiting enrollment in nursing schools, and now it faces a shortage of nurses.
• The FDA and CDC were slow to approve Covid-19 tests in the early stages of the epidemic.
• The field test kits from the CDC were defective, requiring many labs to ship their test swabs to the CDC for testing. The CDC may have also misrepresented the tests.
• Healthcare licensing laws make it difficult for healthcare workers to move between states or for retired workers to assist in fighting the epidemic. States are frantically waiving these laws now, but it’s a hodge-podge effort that makes it hard for hospitals and healthcare workers to understand what’s allowed.
• As mentioned earlier, governments at various levels did not build sufficient stockpiles of medical equipment and supplies.
• In New York, where millions of people were visited by large numbers of national and international travelers, the initial response by health authorities at several levels was confused, inadequate, and late, which probably helped make it the worst-hit state in the country. (Many other states and municipalities probably had similar problems that have not been as well reported.)
• Distilleries are trying to make hand sanitizer, but the FDA is so afraid that people might be able to drink the resulting concoction that they are tying up distilleries in red tape.
• FDA rules are slowing down the production of masks and other protective equipment.
• Imports of protective equipment also require FDA approval, and they’ve been blocking the import of some foreign equivalents of N95 masks.
• Vermont has decided to forbid stores from selling “non-essential” items to reduce crowding. For some reason this includes clothing, including work clothing.
• States are making policy based on GPS travel data that they don’t really understand.
• Speaking of data, the CDC data site is not very comprehensive or timely. Almost everyone is relying on the Johns Hopkins CSSE site, Worldometers, or the Covid Tracking Project. Even Bing has more accessible data, and the IHME model everyone is using is funded by the Bill & Melinda Gates Foundation. In our all-data-science-all-the-time world, the CDC or some other agency really should have contracted out the analytics years in advance.
• There’s also no standard protocol for hospitals and health departments to report much of this data.
• There doesn’t seem to be a coordinated system for tracking and managing the resources being used to fight the epidemic in our states and cities, from hospital beds to protective gear to ventilators and medical personnel. This leaves states to fight over vital supplies.

(I’ve deliberately omitted highly politicized issues, such as the response to the crisis from various elected officials, and issues with broader implications for healthcare policy and the economy.)

Many of these mistakes — some of them quite serious —  are due to poor preparation by government agencies. Obviously, it’s hard to plan for unforeseen disasters, but epidemics are not an entirely unforeseen problem. Many of the weaknesses in our current response were first identified through analysis of pandemic response exercises going back many years. Our government knew about the danger, knew what was needed to respond effectively, and didn’t do very much about it.

On the other hand, it’s been fascinating to watch government agencies at all levels being forced by this crisis to admit that a lot of what they normally do really isn’t that important after all. Every third news story includes an explanation that some regulatory agency is waiving/relaxing/choosing not to enforce some obstructionist rule or another:

• The TSA agrees it’s okay to carry bottles larger than 3.5 ounces onto an airplane again, because most hand sanitizer bottles are bigger than that.
• States that used to prohibit alcohol delivery have decided that it’s no longer sinful.
• The Health and Human Services Department has agreed that maybe less-than-strictly-HIPAA-compliant technology is good enough for telemedicine.
• And now your pets can get telemedicine too (because for some reason that was prohibited).
• Jails and prisons have been releasing non-violent criminals earlier than planned, which raises some questions about how badly they needed to be jailed in the first place.
• And when was the last time you saw anti-vaping ads?

It shouldn’t take a global pandemic to make the government stop doing stuff it shouldn’t be doing in the first place.

In the end, the libertarian policy response to a pandemic is informed by the same principles libertarians apply to most everything else:

1. When people and businesses and markets are working on the problem, the government should get out of the way.
2. When government intervention is necessary, it should be competent and efficient.
3. The latter will be a lot easier if the government stops wasting resources doing things it shouldn’t be doing.

This is not, to be sure, a detailed plan for fighting the epidemic. Libertarianism doesn’t have an answer for everything. Instead, libertarians prefer that, whenever possible, the people most affected by a situation to have the most control of the situation, because they know the most about it and have the strongest incentive to make the right decisions. Sure, they might make mistakes and harm themselves, but distant bureaucrats make mistakes too, and those mistakes can harm millions.