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The Vaccine Police

Worst Economic Reasoning, Ever. These are the sorts of folks that think they know best how to run your economic lives.

The two most egregious points are these:

(1) We really are hoping people go on the honor system and let us immunize people in the priority groups,” Southern Nevada Health District spokeswoman Stephanie Bethel said. “I think, for the most part, it’s working.”

… “We assertively asked those who were not in the priority group to move to the end of the line, so when we ran out of vaccine, those people who were left were those who were not at risk,” said health officer Dr. Gary Oxman. “And people have responded well to it.”

(2)If vaccine demand is low in some locations, it makes sense for non-priority groups to get it instead of wasting the supply. “I don’t consider it a problem,” said Schaffner. “I consider it more of a problem if vaccine is left unused.”

Yup, the honors system and assertively asking folks, that’s the ticket. And low demand as “wasting” supply. What?

The beauty of markets and the price system is that you do not need “vaccine police” to take care of all of these problems. “We” are the vaccine police when production, consumption and allocation decisions are informed by the price system. Let’s think of an analogy – when your city faces water shortages during a hot, dry, summer.

Since city water is not really priced in the market, water shortages are inevitable when water supplies are threatened. This is entirely avoidable. And let’s see why. Think of what usually happens when there is a water “shortage” … the city council often places restrictions on water use, such as how often you can water your lawn, or making it illegal to wash your car. (and by extension, you need water police to monitor these actions – once again the guns come ablazing). Some people might listen, but not all. Further, as the shortage gets “worse” the mayor comes trotting out with a big prime time speech, “assertively urging” people to be considerate in their water use. “Don’t run the water while brushing your teeth,” or “take your dog swimming instead of giving him a bath,” and so on. The mayor may even encourage us to, “think of our neighbors” when using water ourselves.

And that never works. The shortages persist. Why? Because no amount of moral suasion is a powerful enough incentive to encourage water users to cut back and economize. If I use water, there is no cost to me. The only cost is that there is a little less to go around for my neighbors. But not that much – after all, I am only one person in a city of a million. Of course, everyone makes the same decisions for themselves, and pretty soon this “little bit less” for everyone else becomes a lot less for everyone else. In fact, since the water is not priced, when I hear that there is a shortage, I might even increase how much water I use (and store) now, just “in case” water becomes less available in the future. These behaviors combined make the shortages even worse. And then the mayor comes back out and begs us to be more prudent.

So, we don’t realize the full costs of our water use – and therefore anyone and everyone continues to use water regardless of how much they really need it. There is no way to recognize the strength or weakness of people’s preferences over water. What would you do? Take a survey of people and ask them how much they value using water? Hold a “town hall” meeting where you excoriate the “astro-turfers” for arguing there is no need for the mayor to even be involved in water distribution. There is simply no way to get around this problems.

But consider what happens in a world when water is priced and that price is free to fluctuate based on the relative scarcity of water. During times of reduced supply, the price of water rises, and can rise fairly substantially. What happens when consumers see prices instead of having goods allocated by waiting in line or rationing?Well, prices force users of water to do two things. First, it makes them do a value-cost tradeoff in their head. They will only use water when and in the uses that they find most valuable. If water is pennies for hundreds of gallons – sure you water your lawn and wash your car and take 30 minute showers. If water is dollars per gallon, you then ask yourself – which uses of water do I get the most value out of and which do I get the least value out of? You naturally would give up the least valued uses first. And the amazing thing is that you don’t need anyone to direct you to do it, nor does anyone need this knowledge to figure out the best way for you to use water. You may actually get more pleasure from watering your lawn than from a long shower, or from bathing at all. So under the price system, you are free to keep watering your lawn, while you can cut back on your shower lengths. Under the government system, you must, MUST, stop watering your lawn, even if you find that use the most important for you. And that might be true, no? You could be a sod farmer, or a professional gardner, or someone who grows lots of fresh food for their family. Or you might just really like a green lawn.

The second thing the price system does better than preachy moralizing is that it forces you to consider the value that OTHERS place on using water. That is in fact the most ethical and fascinating feature of the price system as compared to other systems that are apparently more “just.” When the price of water jumps to $10 per gallon or some obsence number like that, what that price is telling you is that there is someone out there who is willing and able to pay $10 for that last gallon of water. If you do not value water in your next use for at least $10 per gallon, then you will “share” that water with everyone else. You will make the decision to not buy the water, leaving it for someone else that “needs” it more than you do. Without this price mechanism, there is no way for you to know about, or to act on, other people’s preferences. Imagine the information the mayor would have to accumulate to be able to do the same thing. If you happen to value your longer shower far more than someone values washing their car, you will bid away that last gallon of water and water will end up in its highest value use. If you don’t value any use of water at $10 per gallon, then you will choose not to consume it, and water will be “saved” for the future when perhaps people will value it more.

That is pretty powerful stuff. You don’t need anyone to beg you to use less water. You have an incentive to do it yourself. But what if in your city, lots of people don’t wish to use water, but the shortage persists in a nearby city? The price system really kicks into gear here. Since there is low demand where you live, and high relative demand somewhere else – if prices are free to adjust, then there would be an enormous incentive for someone to figure out a way to get the water from your (low demand) neighborhood and over to the higher demand neighborhood elsewhere. The reason this happens is because there is an opportunity for people to gain from this transaction. So, under a price system, it never makes sense for everyone in the low demand neighborhood to simply “water their lawns” so to speak just because that is “better” than some of the water not get used up. That is not a decent idea, that is a morally and economically bankrupt idea. But that is the kind of thing that sounds like good reasoning among the vaccine policemen.

Furthermore, if you price water, and its price rises – this provides strong incentives for suppliers of water to come up with ways to produce more. Maybe it makes sense to desalinate it. Maybe firms will create new rainwater collection technologies. Maybe entrepreneurs from other cities will figure out a way to bring water to you. Absent prices, relying on the “brotherhood” of men will never, never, never result in these sorts of things happening. So in the vaccine police world, you get a limited amount of water to be rationed. In the price world, you get rationing by individual choice, but you also expand the future amount of water that will become available. So again I ask, which of the two systems is morally and economically bankrupt?

There’s lots more to this story too, and perhaps we shall explore it in future posts. But by now I hope the analogy to the vaccine problem is clear. It should not come as a surprise to anyone with even a passing understanding of how economics works that “non-targeted” people are using the vaccine. And it should not come as a surprise that low-demand users are using it. And perhaps it should not come as a surprise that you only hear horrific Orwellian terms like “vaccine police” when the government is involved in the allocation of goods. When the price system is used, rather than the political system or some other “fairer” method of allocation, the only policeman you need to deal with is yourself. Find me a person who prefers to deal with the real police.

So, without prices, there is virtually no way to insure that those who most want to get the vaccine are going to get it. And no, talking about prices and income are not the same thing. If you wish to argue that lower income or otherwise income constrained individuals “really” want the vaccine, but simply cannot afford it – that is not a reason to indict the use of the price system. At best, that is a suggestion that income transfers are in order. But I’d even settle for redistribution that works this way: give tickets to get the “free” vaccines to all people below a certain income level, and then allow those tickets to be sold. Both problems solved without the need for vaccine police (by the way, I do NOT support that idea, but it should be one that is appealing to those who argue that the price system is somehow less fair or just than a lottery system).

Finally, it should not be hard to understand that in the long run, having a price system may lessen or even prevent entirely the existence of price shocks. For example, in the expectation of major storms and economic disruptions, Walmart has about 10 nationwide distribution warehouses stocked with necessities that people like to have in times of disaster. This is a cost on Walmart of course, but this action is like an increase in supply, now, in anticipation of a future increase in demand. This ironically keeps prices from rising in the future should disaster strikes. A better example is to simply recognize that at this time of year, a time when turkeys and stuffing and all the trimmings are in especially high demand, that we don’t actually see spikes in the prices of Thanksgiving food, and we don’t see stores like Wegmans running out of anything. That would have been unfathomably incredible to the minds of people just 100 years ago, and to most people who reject what markets can do, yet we barely take notice of this miracle.

2 Responses to “The Vaccine Police”

  1. Ben says:

    The argument for the comparison of vaccine shortages to water shortages is flawed when we consider details regarding vaccines, and specifically, the interesting externalities associated with them. Let’s consider the forces that drive a person to become vaccinated for a contagious disease. In this situation economic costs (C) associated with developing the disease (treatment costs, lost work, pain, potentially death, etc.) times the probability of contraction, which is a function of the number of people one comes in contact with that have the disease, will be the willingness to pay for that vaccine.

    Vaccines exist not only to prevent disease to the individual getting vaccinated but also to prevent the spread of disease. When someone is vaccinated that is one fewer person to spread the disease. I benefit if my neighbor gets vaccinated since I have decreased chance of becoming infected when I go see them. Therefore, even if a non-priority group receives the vaccine there is a decreased chance for others to contract the disease. This positive externality associated with vaccines is often called “herd immunity” [1]. If disease weren’t contagious, we may draw better comparisons here with a water shortage.

    Furthermore, vaccines are not quantitative in regards to the individual. For instance, I gain very little by getting two vaccines in comparison to one. Therefore, we won’t see people stock piling vaccines for better immunity when we see shortages, whereas, in the case of water, great quantities are needed throughout our daily lives. The average person has 42L of water in their body; 60% of their total body weight. It makes sense that we are naturally selfish when it comes to water since the quantity we possess correlates to our health and well-being.

    While a pricing system is almost always the most logical way to proceed, we may see otherwise here. While a free market may in fact satisfy the individual willingness to pay, we will fall short of the target for society. Society’s willingness to pay should be higher due to herd immunity. In a market the private individual will not feel society’s willingness to pay, and thus fewer people will be vaccinated resulting in a lower than optimal social benefit.

    Overall, I see very little analogy to water shortage with vaccine shortages; however, I do see connections to a shortage of military personnel during times of war. More thought on this would be interesting.

    In medicine we try to minimize the negative consequences starting with the most severe (death from disease) and then prevent what we can from there. We accomplish this by targeting the “priority” groups (old, sickly, healthcare workers), that is those people at greatest risk of death from disease and those people that could potentially spread disease to the “death risk” individuals. Therefore, we want to vaccinate those with the highest economic costs and those that would contribute the greatest to spread. From an economic standpoint, we might argue that those people facing the high economic costs would have a high willingness to pay, and the free market will drive all to equilibrium. However, the healthcare field is filled with asymmetries. The patients that most health experts would consider at high risk of complications may not know they are. On the same note, they may not be able to afford to pay for a vaccine if it were not subsidized. In short, those who most “need” the vaccine will not always be those who want it, leading to a less than optimal social benefit and likely decreased herd immunity (since the effect of herd immunity is not felt by the individual). Vaccinating the optimal number of people and targeting those at high risks can be difficult, but we do so by compulsion and subsidies.

    Compulsion will indeed bring into play some costs to individuals who prefer not to vaccinate for religious or personal beliefs, or those who see negative health consequences from the vaccine itself. This seems to be the more heavily debated topic of the day. Consider this hypothetical: Nurse X refuses flu vaccination because she feels it infringes upon her personal freedoms. Nurse X contracts the flu, which could have otherwise been prevented. Nurse X comes in contact with thirty patients, four of which contract swine flu. Patient Y, one of the four that contracted the disease, dies due to complications. Does the cost of infringement upon Nurse X’s personal beliefs outweigh the cost of Patient Y’s life? These are the potential situations that trigger spite towards those healthcare workers refusing vaccination.

    By now I’ve spent enough time worrying about the economic consequences of contagious disease and vaccination. I must get back to studying pulmonary physiology. I welcome and look forward to your comment. Thank you.

    [1] Phelps, CE. Health Economics. 3rd Edition. pp. 471-474.

  2. Camila says:

    I always go back to this post, and read it as many time as I need to convince myself that everything you wrote should be making sense to everyone, and not only to some of us. It is hard to think out of the box when we take a concept for granted. Professor Rizzo, you always amaze me with how effective your metaphors are to explain such simple concepts that people seem to complicate.

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