When Efficiency Isn’t Enough

THE INTERPRETER

NYT

March 12, 2020

Welcome to The Interpreter newsletter, by Max Fisher and Amanda Taub, who writes a column by the same name.

One of the great strengths of capitalism, its proponents argue, is that it allocates scarce resources through markets, rather than through central planning. In an efficient market, goods go to the people who value them most in the quantities they are willing to pay for. No one has to be in charge.

There were always drawbacks. Most obviously, markets do not take morality or ethics into account when distributing necessities. And poverty, inequality, discrimination, inefficiencies and imperfect information have always warped distribution of goods and services away from the smooth curves the theories predict.

But now the coronavirus is revealing an even more fundamental problem: Following market incentives may be the most efficient way to make a profit, but that goal may be at odds with what is needed to stop a pandemic like COVID-19.

Consider service workers in retail shops and restaurants. They come into contact with many people each day, making it especially important for them to stay home if they contract the virus. But in the United States, Britain and elsewhere, many of those workers won’t get paid if they don’t go to work. The market, in other words, is telling them to go to work sick, even though it is in society’s interest for them to stay home.

In the United States, the private health care system lets the market allocate health resources to those who can pay the most for them. The huge bills for a hospital stay or serious illness are beyond many families’ means. That had terrible costs, financial and otherwise, before the pandemic. But now, if people who are sick avoid going to the doctor for diagnosis or treatment because they are afraid of catastrophic medical bills, they will be more likely to spread the disease,.

A market approach to consumer goods has created problems as well: private citizens buying up masks and other protective gear that they don’t need but hospitals desperately do, shortages of hand sanitizer, grocery store shelves standing empty after people panic-bought necessities to hoard at home.

In ordinary times, an economist might say that we shouldn’t worry too much about that. Shortages, the theory goes, will send a loud message to manufacturers, who will ramp up production until availability returns to normal.

But these are not ordinary times. Plenty of companies would like to increase their production of masks and hand sanitizer but can’t because the virus has disrupted global supply chains. It will get even harder to meet demand if quarantines shut down factories closer to home.

Following market incentives at a time of public crisis can seem like selfishness. Glance at social media these days and you are likely to see screeds against people who are raising prices for goods that are scarce or buying more toilet paper than their families really need.

But in a system designed around everyone protecting their own interests, failing to do so carries risks. Acting differently requires information, planning, and trust — all of which are in short supply at the moment.