Government Corruption vs Free Markets

The article below my article was the headline in today’s Idaho Statesman. It was taken down at 12:00pm. Can you guess why?

Economics is the study of the allocation of scarce resources that have alternative uses. Today in our country we are seeing the various forms of resource allocation being played out as the lines for being vaccinated for Covi-19 are getting longer and longer. Certainly, vaccines are a scarce resource, but so were ventilators, anti-virals, hospital and ICU beds, and even the most important scarce resource—doctors, nurses, and technicians. I refuse to be a “Monday morning quarterback” because I have made several bad calls in this pandemic. I thought more people would die—many deaths is part of the traditional definition of a pandemic—I was wrong, Our hearts and prayers go out to the now almost 500,000 people who have died nationwide in this pandemic but that is less than 0.1% of the population. 51% of them are over the age of 80 (<4% of the population).

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We have already vaccinated 30million people and the elderly >80 years of age make up less than 4million people. We could cut the death rate in half by vaccinating them and even more of those with immune compromised conditions like my daughter in law who has just undergone chemotherapy and a splenectomy for diffuse histiocytic lymphoma and has been assigned to “tier 3″—early March for her vaccination! I was also wrong about the ability of the virus to spread—I thought it would have a Ro factor more like seasonal flu—1.0-2.0. Corvid’s Ro is more like 2.0-4.0 still very low when compared to measles or smallpox or chickenpox—all over 10. I also thought the virus would mutate faster—it didn’t.

There are only three ways to allocate resources in a society: 1. Lottery 2. Fiat by government commissar or bureaucrat 3. Markets using a pricing system. Imagine that some politician declared that everyone had the “right” to a beach front home. How long would the line be if there was a lottery system in place to allocate that scarce resource? Maybe as long as the lines at Dodger Stadium in LA County where people are waiting hours to be vaccinated. Or suppose we were in a command economy with top down control of supply. That resource could be allocated by a commissar, bureaucrat, politician or corporate head of a private company or non-profit who might all be working with each other (corporate capitalism at its best). Or one could use markets and a pricing system to allocate the resource—always the best choice when considering costs to suppliers and prices in most economic transactions.

The argument against a market pricing system is that it would favor the rich—as those in the upper classes wouldn’t seek favor in the other systems—please see the headline below from the Idaho Statesman about those on hospital boards and administrators and even those working at home in back office jobs (billing and coding) who are receiving front of the line privileges for vaccinations.

In Idaho, those living on the margins make up 10-15% of the population. If needed they could be directly subsidized by government or non-profits instead of giving money directly to third parties like providers and insurance carriers. Physicians could choose to participate or not participate in insurance plans. By participating they would agree to a fee schedule and the carrier would reimburse the provider. By not participating the doctor or hospital would not agree to a fee schedule nor would they receive a subsidy directly. What we have seen with ACA subsidies is that the hospitals and carriers are receiving subsidies and that they are not sending the entire amount into patient care services. These economic “frictions” though present in open markets, are far greater in the government command and control models than in market systems. The money should follow patients, not institutions.

The situation with the vaccines is that the risk to the drug companies has been socialized—Governments across the world paid over a trillion dollars (world GDP is 85 trillion dollars) for vaccine development, while the reward has been capitalized—most of the money goes back to the drug companies. The cost to the companies of distributing “free vaccines” was many times over realized by the upfront subsidy. Who loses in the end—patients, taxpayers, citizens. By allowing all transactions to take place independently and unfettered, “economic frictions” would be minimized because each party involved was able to see the cost of each transaction—transparency. In non-market systems costs are never transparent. In free market systems subsidies could be replaced with loans or equity stakes in projects—the government would be on the hook for only a fraction of the at risk capital. It is the role of government to facilitate those kinds of activities—they don’t have to be a major partner.

On the public health side we have seen how top down directives and government policies and fiats have slowed the response. Mismatching of supply and demand and closing down of whole sectors of the economy has created individual suffering, economic chaos, a new “mental health pandemic” and a lost year for educating our children especially those children living on the margins. Those making the decisions—politicians and those on the government payroll have no skin in the game. Where government assets have been leveraged they have often times been misused—3000 beds in NYC on the USS Comfort and two Army Field hospitals attended to fewer than 200 patients while nursing home patients with a COVID-19 diagnosis were sent back to their parent facilities to reinfect their fellow at risk elderly brethren—42000 died. And Governor Cuomo writes a book about his leadership in the pandemic when his executive order effectuated mass medical mal practice. Had he been a physician or a hospital administrator of a private or non-profit facility he would have been fired on the spot for negligence and probably sued for malpractice. That is the other problem with command and control systems. There is no accountability after the transactions are completed. There is no “law of contracts” in transactions within government.

The clinical side of the response has been a great victory for entrepreneurship and innovation. Early on physicians and clinicians communicated with each other using social media and e-mail, circumventing the academic inertia that we saw in the 1^st 4 weeks of the response. Reputable journals—JAMA and Lancet’s symbiotic relationship with government granting organizations (NIH CDC) were exposed. Clinicians relied on professional relationships across the country. The overuse of ventilators in early hypoxic patients was recognized by clinicians at the University of Nebraska and clinical protocols were modified benefiting thousands of patients without government mandates. Antivirals in the prodrome phase of the disease process, use of steroids and in hospitals across the country—though only a few in Idaho, of type 3 mitigation strategies—reverse isolation techniques instead of isolation techniques, all have led to impressive improvements in morbidity and mortality.

The crises that unfolded before us has shown us the difference between command and control systems and free markets. Doctors and nurses and technicians without even realizing it many times have shown us how “transparency” and the real time sharing of information is always better than a top down algorithm or “best practice” models. It takes months to get an article to be reviewed and published. It takes seconds to fire off an e-mail. Academicians have time. Clinicians many times don’t. Clinicians and technology ruled the day these past 10 months.

Corruption doesn’t have to be illegal. Corruption can be legal and immoral. Corruption occurs when there is a loss of fiduciary regarding an agent. The hospital administrator who gives front of the line access to vaccinations to themselves or board members is not fulfilling their fiduciary duty to the patients in their communities. When politicians, or hospital board members, get front of the line privileges and people like my daughter-in-law are required to wait two months for their vaccination that is corruption in my opinion and patients suffer.

Let’s take care of those at risk first. It is the moral thing to do

From the Jan 30th Idaho Statesman: