Free Market Vaccines

Part 1: Who should get the vaccine first? Sell to the highest bidder. The disease and recession go away faster. 

 Part 2: The cost of perfection. The vaccine was invented in a weekend, available in February. In free market land, we would not have had a pandemic, or a recession. 284 thousand people would be alive today. That is the cost of FDA "protection." 

Part 1: Who should get the vaccine first? 

Absolutely nobody* has mentioned in public the free market answer: Sell to the highest bidder. 

(Or just allow some sales to the highest bidder. Don't put people in jail for selling some to the highest bidder,) 

It's not as dumb as it sounds. Sure, there is an externality. A good vaccine policy might be to give it to those most likely to spread it to others, with the goal of swiftly reducing the prevalence of the disease. That argues for giving the vaccine in bars. 

That is not our public policy. The entire discussion centers around who should be protected first, from a disease whose prevalence is taken as given. Old people, nursing homes, health care workers, essential workers -- the argument is not the externality. The argument is entirely who should get the individual benefit of protection from the vaccine.  Just why "to the highest bidder" is wrong is then much less clear. 

The case is stronger than usual, for there is a second way to avoid infection: Stay home. Social distance. Wear protective gear. So the question is not, really, "Who should be protected from the virus?" The question is, really, "Who should get a treatment that allows them to be out and about, risking contact with the virus, rather than protect themselves by traditional means?" It is really mainly an economic benefit, avoidance of the cost of other measures to stay healthy. There is an economic answer: people should be out and about first who generate the most economic benefit from being out. And, therefore, are willing to pay the most to get the vaccine. 

To say nothing of the incentives. If vaccine companies can charge what they want to first adopters, and the cost to the rest of us is to stay home for a few more months, they can make boodles and boodles of money, incentivizing new vaccines even better. The government does not decide who gets the iPhone 12 first. 

"But the rich will be able to afford it first," I hear you complain. Yes indeed. Principle one of economics, don't mess with the price system to transfer incomes. "But we won't make the income transfers, so we have to control prices and ration" I hear you complain. So, here we are in the midst of a pandemic, in the midst of an incredibly dangerous economic situation, with $5 trillion of federal debt in the rear view window, the main point of fixing prices and rationing vaccines is... to transfer incomes. 

If it goes to the highest bidder, then the highest value activities, that benefit most from reduction in social distancing, come back faster. I don't know what those are, but pretty much by definition, the economy recovers faster. That brings back jobs a lot faster than stimulus checks. Heck tax it and transfer the money to people who choose to stay home. 

I'll stretch free market nirvana this far: If the government wants to hand out vaccines to whoever it thinks should go first, ok, let it buy the vaccine on the free market, on budget, paid by visible taxes, and hand it out. But it should not forbid anyone who wants it from paying for it, nor forbid vaccine makers from selling to whoever wants it, to artificially keep the price down and hide the immense transfer in its actions. Looked at for what it is -- only and entirely a ban on private transactions -- it is amazing that we meekly put up with such wholesale trampling of our rights to transact, to property, and to pursue our own health. In the most important market in the world right now, vaccine producers may only sell to governments.  

No, it's not as dumb as it sounds. At least economics should start with "to the highest bidder," and come up with some well documented market failure, and a public allocation system that mimics the highest bidder allocation. That nobody dares say this in public, not even my favorite libertarians (that I have seen -- send links to anyone else nuts enough to say this in public!) is a little surprising.  What happened to America, and to economics, that absolutely nobody seems to even question the holy writ that drug companies shall only sell to governments, governments shall allocate vaccines, and severe legal penalties shall accrue to anyone who doesn't like it? 

Instead... Well, here is (second hand and I may get this wrong, corrections welcome) how Stanford is going to do it. Our first allocation goes to health care. OK, that is a likely answer to "if Stanford had to bid for it, what is our highest value use." The hospital system, however, can't figure out who within health care should get it. Is it "fair" for doctors to get it first, but not custodial workers? The crack team of medical ethicists couldn't come up with an answer. So they're going to do it randomly. I don't have to tell you in the middle of a pandemic who gets it first under the discipline of actually having to bid a market clearing price to get it first.  Watch the normally crystal clear Scott Gottlieb run around in circles on the pages of the Wall Street Journal trying to figure out who should get the vaccine when. Well, without a guiding principle, there is no where to go but circles. 

In India, meanwhile, that bastion of... informal..  if not free markets, it appears you can sign up to buy the vaccine, for about $8. Markets in everything, as Marginal Revolution says documenting the story, but not here.

Part 2: The cost of perfection 

We had the vaccine the whole time, documents  David Wallace-Wells in New York's intelligencer, documenting and popularizing a known but overlooked fact. 

Moderna’s mRNA-1273, which reported a 94.5 percent efficacy rate on November 16, had been designed by January 13. This was just two days after the genetic sequence had been made public

the Moderna vaccine design took all of one weekend. It was completed before China had even acknowledged that the disease could be transmitted from human to human, more than a week before the first confirmed coronavirus case in the United States. By the time the first American death was announced a month later, the vaccine had already been manufactured and shipped to the National Institutes of Health for the beginning of its Phase I clinical trial.

Even under operation Warp Speed -- a truly commendable accomplishment of the Trump Administration that, maybe a year or so from now the TDS crowd might acknowledge -- the only thing we have been waiting for is FDA certification: Randomized clinical trials to prove safety and efficacy, before anyone is allowed to take the vaccine.

What's the free-market way? A drug company can sell a vaccine on January 14, and you can buy it, without fear of going to jail. 

Sure, there is an FDA, and a Federal Trade Commission which monitors drug labeling. The vaccine has to say "this is totally untested, and has not been proven safe or effective in clinical trials" and offer a stack of paper about known risks. You sign a stack of consent forms. If you take it, you're enrolled in our big national database -- you just volunteered for the national non-random clinical trial. (We don't collect much data on drugs that are out there).  The FDA rapidly collects information. At the same time, randomized clinical trials are going on. Drugs can give more and more hopeful labels as the results roll in. At some point after Phase III and FDA review, a drug can get the official FDA seal of approval. No, insurance and medicare don't pay for non-approved stuff. This is free-market nirvana, you pay for unapproved medicines if you want them (see part 1). There is an FTC and a tort system. Drug companies that sell things they know are unsafe or ineffective pay billions.  

What happens in free market nirvana? Yes, there are quite a few more cases of people who are hurt by side effects. Not that many actually, as we are following the early adopters carefully and broadcasting data as it comes out. Quite a few useless drugs get tried a bit more widely. 

But, going on the current assumptions that these made in a weekend vaccines work, we would not have had a pandemic at all. Every job lost, every business closed, all 284 thousand US deaths, $5 trillion of federal spending, the biggest (though mercifully short) recession in US history, would not have happened. All of this cost stems from one thing -- the ban on using any medicine before the FDA approves it. 

Reflect also on the vast asymmetry of effort. Two or three vaccines were invented in a weekend. Then we spent the next year testing those few, not developing better ones. The vaccines have serious side effects. Think how much better we would be now if we were using vaccines that had been developed... in the next weekend alone, to say nothing of 8 months of constant innovation.  This ratio of invention vs. testing is off by orders of magnitude. 

Now, free market nirvana: The developers start selling the vaccine to wiling guinea pigs on Monday morning, as well as running randomized trials. In a matter of weeks some side effects get noticed. They or other developers start tweaking and building better vaccines! In a rough tumble of competition, within a few months we have much better vaccines. But you can't try anything at scale without the one-year FDA approval -- and that by itself is a miracle compared to the usual multi-year process.   

The benefits of FDA protection -- the prohibition of selling drugs before full randomized clinical trials have been run and then painstakingly reviewed -- are not zero. They are the people who are not hurt by the slightly larger (than in clinical trials) experimentation with new drugs. 

The costs of this FDA "protection" are immense: In the free-market world, we would not have had a pandemic. 

Maybe free markets aren't so dumb after all. 

(We also would have had home tests months ago, which at zero side effect to anyone would have slowed if not stopped the pandemic. But you all know that story.) 

Wallace-Wells:

our approach to the pandemic here raises questions, too, about the strange, complicated, often contradictory ways we approach matters of risk and uncertainty during a pandemic — and how, perhaps, we might think about doing things differently next time. That a vaccine was available for the entire brutal duration may be, to future generations trying to draw lessons from our death and suffering, the most tragic, and ironic, feature of this plague.

Indeed. 

Update

DWAnderson commenter below makes an excellent point that I am embarrassed to have omitted. I need to recheck my free market catechism. To restate it, ok, keep the current allocation system, which we now realize is about transferring income. But don't give out vaccines, give out the right to receive the vaccine. And allow people to trade that right--properly, remove the legal prohibition against trading the right, the threat of being thrown in jail for taking money in return for your place in line. If the Stanford hospital custodian wants to sell his right to a hedge fund manager, and take the  month off in quarantine in a nice hotel, let him. Everyone is better off -- the magic of trade. 

Forbidding ex-post trade is one of the silliest of market interventions. 

From Twitter,  the first person in the UK to get a vaccine. She's 90. She looks like a very nice lady. But what is the chance she gives the virus to anyone else, goes out to a bar or a party, works at an ICU, or gets the economy going with her vaccination? How much would it cost to protect her from covid by other means? Of course I want her to have a vaccine as soon as possible, but when we only have so many doses is it faintly reasonable that this is the single most important person in the whole UK to get the first vaccine?  

Update 2: The more I think about it, the more ridiculous this is. We waited a year for "science," clinical trials. We know there are side effects. How many 90 year olds were in the clinical trials? Zero. There weren't enough 75 year olds in the trials to get confidence intervals between 0 and 100%. And they put the 90 year olds first. How many 90 year olds will get complications? How many will die from complications? Nobody knows because they have never tried it on a 90 year old. Until now. They are unleashing a vaccine completely untested on the most frail vulnerable population. 

As above, I'm fine with unleashing completely untested vaccines on willing volunteers. But we might as well have done that last January. 

Update 3:

"A vaccine auction" by Romans Pancs

Steven Landsburg on trading the right to get a vaccine. 

*Update 4. 

I hadn't looked hard enough. Tyler Cowen had it back in May. Of course.