COVID-19 and the Economic Reality of Preparedness

Italy’s universal healthcare system is experiencing the harsh reality of living in a world with scarce resources, as all real worlds are. Italy, like every other country, has a limited number of doctors, nurses, hospital beds, medical devices, medicines, test kits, etc. When the demand for those “scarce resources” exceeds their supply, the resources must be rationed. No matter what rationing scheme is used, some people will get some or all the care they need as others get little or none at all.

As the Boston Globe reported[i] about a Bergamo, Italy hospital’s response to the COVID-19 outbreak, “the intensive care unit was already at capacity, and doctors were being forced to start making difficult triage decisions, admitting people who desperately need mechanical ventilation… making clear that the “first come, first served” criterion that had been used among patients with the same illnesses and level of risk in ordinary times was not appropriate in dealing with the current emergency… How do we decide who gets an ICU bed and who doesn’t? Age? Life expectancy? How many kids they have? Their special abilities? Is the patient’s profession a relevant factor? Is it right to save a middle-aged doctor who will save more lives if he survives as opposed to a younger person who’s been unemployed for the last 12 months?”

When faced with an overabundance of patients and scarce medical resources, no rationing scheme is a solution, i.e., all the available options involve agonizingly terrible tradeoffs. If the severity of America’s (or anywhere else’s) COVID-19 outbreak approaches that of Italy’s, some people will get medical aid while others do not. Equality is not a solution. If available medical care were divided equally among all patients, a higher number of patients would die.

Those who have insufficient knowledge or understanding of economics will fault politicians, hospitals, drug companies, or [you name it] for having failed to ensure that the country was fully prepared for the pandemic. Some of the chronic critics will cluelessly theorize that vastly more resources could and should have been poured into training doctors, inventing and stocking tests kits and antidotes, building enough hospital rooms and medical equipment, etc. to handle the worst-case scenario of any conceivable emergency. In theory, that could have been done. In reality, however, preparing for the worst-case scenario of every possible emergency would be terrible public policy.

First, realize that only a fraction of the foreseeable potential emergencies will strike, and few that do will be as severe as the worst-case scenario. As a result:

  • The amount of money necessary to achieve such preparedness would be colossal;
  • A high percentage of that stuff acquired by the enormous sum will never be used (i.e., a high portion of the investment will have been wasted), e.g., statistically, if the country pays for preparedness for adverse effects that, on average, have a 50/50 chance of happening, half of the money spent on preparedness will have been wasted; [An example.]
  • The money spent on the underutilized or unused preparedness stuff could have been invested in projects that could have done a lot of good, i.e., the opportunity cost of wasting money is large;
  • Having wasted money on unneeded preparedness would leave the country with far less wealth and fewer resources to other pressing human needs and wants that exist or could arise, e.g., every dollar spent on healthcare is a dollar not available to spend on the environment; and
  • Perhaps most importantly, given that not all future emergencies are foreseeable, the country would have wasted wealth that could have otherwise been used for unforeseen emergencies.

Consequently, draining the country of some of its capacity to address specific problems as they arise by paying for tens of thousands of unused hospital rooms and supplies for disasters that may not come for decades, if ever, is a profoundly unwise use of resources.

It is also self-defeating. During the time between a preparedness investment is made and the time that a worst-case emergency happens, only so many doctors are required to cover the normal state of affairs.  With the hyper-preparedness demanded by chronic critics, many more doctors would be trained and added to the system. Those newly trained doctors would vie for the available doctor jobs, i.e., the doctor jobs required to serve non-emergency demand for medical services. As in all supply and demand situations, that excess supply of doctors would drive down doctors’ compensation.[ii] If, due to the overabundance of doctors, doctors pay is less than it currently is, fewer people to be willing to go to the trouble and expense of becoming a doctor. In the long run, training doctors who must sit on their hands until a catastrophe strikes would result in fewer doctors, not more doctors. That’s no solution.

The colossal amount of money necessary to chase the phantom of ultimate preparedness would require much higher taxes. Every tax dollar collected suppresses wealth creation.[iii] Worse, a noticeable fraction of the tax money the government receives is spent on running the government and placating or lining the pockets of politicians, rather than on things people need or want. [Does anyone believe that we are getting our money’s worth out of the dollars paid to or for Congresspeople and their staff?] Running money through the government to address a problem destroys wealth. Less wealth creation means that there will be less wealth to address problems than would otherwise be the case.

The complaints and demands of the clueless chronic critics are unfounded and misguided.

[i]A coronavirus cautionary tale from Italy: Don’t do what we did.”

[ii]Investment Income and Universal Basic Income Are Not ‘Basically The Same’

[iii]/sup>Tax Cuts and Employee Compensation.”

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