Normally, everyone is the best authority on what they need.
Everyone is the best expert on their wants, their desires, because wants are highly varied and individual and therefore hard to predict.
Needs, on the other hand, are objective and basic. People need food, shelter, etc.
then price signals are still a very strong tool.
The main objection to the free market approach is that allowing prices to rise prevents some people getting what they need.
The fact that someone is willing to buy something tells you some combination of: they need it, or they want it, and they can afford it.
Price mechanisms don’t rule out wealthy people from buying up things they don’t need.
The fact that someone does not buy something tells you some combination of: they don’t need it or they don’t want it, or they can’t afford it.
The poor person who does not buy newly expensive supplies during an emergency might need them desperately.
But people all suddenly wanting the same few things they didn’t anticipate they would want dramatically levels the playing field between the two approaches.
Competent central provision outperforms both the options you have considered: the free market, and incompetent central provision.
Everyone is the best expert on their wants, their desires, because wants are highly varied and individual and therefore hard to predict. Needs, on the other hand, are objective and basic. People need food, shelter, etc.
I don’t think there’s such a clear division. Do I need my bed to be comfortable, and not to hear loud noises at night? Do I need my food to be tasty? What range of temperatures do I need?
If you restrict “need” to be something as limited as “2500 calories, 50g protein, sufficient garments/blankets/climate to keep the surface of the body to ~85F, …”, then I agree most people have similar enough needs that “everyone is the best authority on what they need” stops being true, but you don’t have to expand very far beyond that before people start having wide and varied preferences.
You can think of people’s preferences along a continuum, and my claim is that in a disaster we all shift along the continuum in the more “basic” direction: we start worrying more about access to food and shelter etc, things that most of us previously had our lives set up in a way where we didn’t have to worry about. Since, as I think we agree, things on the more basic end of the spectrum are more shared between people, centralized provision gets relatively more efficient.
The main objection to the free market approach is that allowing prices to rise prevents some people getting what they need.
I agree that’s the main objection, and that’s why I wrote that taking a market approach magnifies existing inequality. This is true in normal times as well: global inequality is enormous, and even within countries it’s still very large.
On the other hand, stores running out of products and hospitals being unable to fill their mask orders also prevents people from getting what they need, just in a way that’s less correlated with existing resources. The correlation between “willingness to pay” and “utility” isn’t perfect, but it’s still positive: hospitals would pay more for masks than construction companies. And you don’t have the extra funding from rich people/organizations paying elevated prices to ramp up production.
Competent central provision outperforms both the options you have considered: the free market, and incompetent central provision.
Competent centralized economic planning probably also outperforms markets in general. But this is hard, and there are organizational and incentive problems that mean we shouldn’t generally expect governments to be capable of high quality centralized planning. Central provision at a level of competence that it strongly outperforms markets doesn’t look like a practical option, or one that’s likely to become practical anytime soon.
I agree that’s the main objection, and that’s why I wrote that taking a market approach magnifies existing inequality.
Which is true denotationally, but makes it sound like a dry, technocratic issue conotationally. In fact, the worst case scenario of such inequality is some people dying unnecessarily, while others profit from desperation.
hospitals would pay more for masks than construction companies.
Hospitals aren’t profit-making free-market entities everywhere. In a public health system, the hospitals either can’t up their bid due to limited funds, or they get extra funds, and the taxpayer has to the foot the bill for what is basically an inability of the market to allocate according to need.
Competent centralized economic planning probably also outperforms markets in general. But this is hard,
But competent emergency provision is a simpler problem, and a solved problem. It’s been implemented multiple times.
makes it sound like a dry, technocratic issue conotationally. In fact, the worst case scenario of such inequality is some people dying unnecessarily
It seems to me like you’re trying to bring emotional color to one side of this tradeoff, but not considering that it cuts both ways? The deaths of healthcare workers exposed to massive viral loads without sufficient PPE are also unnecessary. Each of these scenarios has deep tragedies.
the taxpayer has to the foot the bill for what is basically an inability of the market to allocate according to need
Higher taxes seems like a very reasonable way to handle this, and not an example of the market failing to function properly? The cost to society of the lockdowns alone is enormous, and hits poorer folks harder.
competent emergency provision is a simpler problem, and a solved problem
I agree that it’s simpler—that’s the whole point of this post! But seeing so many countries do poorly here doesn’t make me think it’s been solved?
The deaths of healthcare workers exposed to massive viral loads without sufficient PPE are also unnecessarily.
So what’s the fix?
Higher taxes seems like a very reasonable way to handle this,
They are not necessary, because the stuff you are short of did not suddenly become more expensive to produce. You are trying to use prices to allocate equipment to people who need it the most, and then spending money unnecessarily to fix the problem that that doesn’t work.
The cost to society of the lockdowns alone is enormous, and hits poorer folks harder.
The cost in money or the cost in lives?
But seeing so many countries do poorly here doesn’t make me think it’s been solved?
Who’s doing it poorly? The US is doing it less than most wealthy countries, and is
doing worse than most.
the stuff you are short of did not suddenly become more expensive to produce
I think that’s a major place we disagree? If producers know their products will sell for more, options to ramp up production start making more sense.
This would be different for a very short disaster, like a tornado, where all the supplies you will use are ones that have already been manufactured. But for something more sustained, like covid-19, we’re still running production facilities, which can be scaled up in a range of ways. You can start running 24hr schedules, working weekends, bringing in extra people to run the line faster. You can pay people to work 12-hour shifts for a month straight without going home: https://www.washingtonpost.com/nation/2020/04/23/factory-masks-coronavirus-ppe/ More money can’t solve everything, but it can solve a lot of things.
If producers know their products will sell for more, options to ramp up production start making more sense.
The consumer usually does not foot the cost of increased production. Why would they? In fact, the consumer can reasonably expect lower prices as a result of economies of scale.
The money has to come from somewhere. It usually comes from lenders. If producers can guarantee sales, lenders are happy.
If you build a bigger plant you generally spend more up front but less per unit, while if you take your existing plant and pay workers to go on 24hr shifts your costs may go up a lot. And if you pay for rush handling when things break (couriers for broken parts to minimize downtime) and rush shipping of incoming materials (since slow cheap shipping takes a long time to catch up with your increased production) that’s another increase. When you push hard to maximum production you should expect diseconomies of scale.
You’re suggesting that the costs instead come from lenders?
But then production will be limited by the point where the marginal cost of a unit exceeds the price before the emergency (assuming financing is free), instead of the point where the marginal cost exceeds the value during the emergency. That is, you’ve unnecessarily limited production.
The fact that someone does not buy something tells you some combination of: they don’t need it or they don’t want it, or they can’t afford it.
+1, further decomposition on ‘don’t want it’ of don’t understand need for it and/or ‘outside of normal variance needs’ aka insurance subsidies. This is a useful inroad for thinking about the way price signals collapse certain sorts of information and what sort of markets that capture that information (and sell it?) might look like. E.g. many humanities departments basically specialize in repackaging this sort of lost info as politically relevant narratives.
Everyone is the best expert on their wants, their desires, because wants are highly varied and individual and therefore hard to predict.
Needs, on the other hand, are objective and basic. People need food, shelter, etc.
The main objection to the free market approach is that allowing prices to rise prevents some people getting what they need.
The fact that someone is willing to buy something tells you some combination of: they need it, or they want it, and they can afford it. Price mechanisms don’t rule out wealthy people from buying up things they don’t need.
The fact that someone does not buy something tells you some combination of: they don’t need it or they don’t want it, or they can’t afford it. The poor person who does not buy newly expensive supplies during an emergency might need them desperately.
Competent central provision outperforms both the options you have considered: the free market, and incompetent central provision.
I don’t think there’s such a clear division. Do I need my bed to be comfortable, and not to hear loud noises at night? Do I need my food to be tasty? What range of temperatures do I need?
If you restrict “need” to be something as limited as “2500 calories, 50g protein, sufficient garments/blankets/climate to keep the surface of the body to ~85F, …”, then I agree most people have similar enough needs that “everyone is the best authority on what they need” stops being true, but you don’t have to expand very far beyond that before people start having wide and varied preferences.
You can think of people’s preferences along a continuum, and my claim is that in a disaster we all shift along the continuum in the more “basic” direction: we start worrying more about access to food and shelter etc, things that most of us previously had our lives set up in a way where we didn’t have to worry about. Since, as I think we agree, things on the more basic end of the spectrum are more shared between people, centralized provision gets relatively more efficient.
I agree that’s the main objection, and that’s why I wrote that taking a market approach magnifies existing inequality. This is true in normal times as well: global inequality is enormous, and even within countries it’s still very large.
On the other hand, stores running out of products and hospitals being unable to fill their mask orders also prevents people from getting what they need, just in a way that’s less correlated with existing resources. The correlation between “willingness to pay” and “utility” isn’t perfect, but it’s still positive: hospitals would pay more for masks than construction companies. And you don’t have the extra funding from rich people/organizations paying elevated prices to ramp up production.
Competent centralized economic planning probably also outperforms markets in general. But this is hard, and there are organizational and incentive problems that mean we shouldn’t generally expect governments to be capable of high quality centralized planning. Central provision at a level of competence that it strongly outperforms markets doesn’t look like a practical option, or one that’s likely to become practical anytime soon.
Which is true denotationally, but makes it sound like a dry, technocratic issue conotationally. In fact, the worst case scenario of such inequality is some people dying unnecessarily, while others profit from desperation.
Hospitals aren’t profit-making free-market entities everywhere. In a public health system, the hospitals either can’t up their bid due to limited funds, or they get extra funds, and the taxpayer has to the foot the bill for what is basically an inability of the market to allocate according to need.
But competent emergency provision is a simpler problem, and a solved problem. It’s been implemented multiple times.
It seems to me like you’re trying to bring emotional color to one side of this tradeoff, but not considering that it cuts both ways? The deaths of healthcare workers exposed to massive viral loads without sufficient PPE are also unnecessary. Each of these scenarios has deep tragedies.
Higher taxes seems like a very reasonable way to handle this, and not an example of the market failing to function properly? The cost to society of the lockdowns alone is enormous, and hits poorer folks harder.
I agree that it’s simpler—that’s the whole point of this post! But seeing so many countries do poorly here doesn’t make me think it’s been solved?
So what’s the fix?
They are not necessary, because the stuff you are short of did not suddenly become more expensive to produce. You are trying to use prices to allocate equipment to people who need it the most, and then spending money unnecessarily to fix the problem that that doesn’t work.
The cost in money or the cost in lives?
Who’s doing it poorly? The US is doing it less than most wealthy countries, and is doing worse than most.
I think that’s a major place we disagree? If producers know their products will sell for more, options to ramp up production start making more sense.
This would be different for a very short disaster, like a tornado, where all the supplies you will use are ones that have already been manufactured. But for something more sustained, like covid-19, we’re still running production facilities, which can be scaled up in a range of ways. You can start running 24hr schedules, working weekends, bringing in extra people to run the line faster. You can pay people to work 12-hour shifts for a month straight without going home: https://www.washingtonpost.com/nation/2020/04/23/factory-masks-coronavirus-ppe/ More money can’t solve everything, but it can solve a lot of things.
The consumer usually does not foot the cost of increased production. Why would they? In fact, the consumer can reasonably expect lower prices as a result of economies of scale.
The money has to come from somewhere. It usually comes from lenders. If producers can guarantee sales, lenders are happy.
If you build a bigger plant you generally spend more up front but less per unit, while if you take your existing plant and pay workers to go on 24hr shifts your costs may go up a lot. And if you pay for rush handling when things break (couriers for broken parts to minimize downtime) and rush shipping of incoming materials (since slow cheap shipping takes a long time to catch up with your increased production) that’s another increase. When you push hard to maximum production you should expect diseconomies of scale.
But those costs still don’t have to be passed on to consumers.
You’re suggesting that the costs instead come from lenders?
But then production will be limited by the point where the marginal cost of a unit exceeds the price before the emergency (assuming financing is free), instead of the point where the marginal cost exceeds the value during the emergency. That is, you’ve unnecessarily limited production.
I appreciate the nuance (and variation of expression) these comments added to the post.
+1, further decomposition on ‘don’t want it’ of don’t understand need for it and/or ‘outside of normal variance needs’ aka insurance subsidies. This is a useful inroad for thinking about the way price signals collapse certain sorts of information and what sort of markets that capture that information (and sell it?) might look like. E.g. many humanities departments basically specialize in repackaging this sort of lost info as politically relevant narratives.