Richard Hanania recently suggested to Tyler Cowen that we might have been better off with a libertarian response to Covid. Tyler responded:
Tyler: I have more sympathies for the libertarian solution than most people would. But I think in this case, it’s not time consistent. So one issue is simply how do you deal with legal liability? Now the FDA process, for all of its flaws, does give manufacturers the ability to bring the thing to market in a way consistent with corporate law and their other fiduciary responsibilities. So no FDA means everything is fair game in the court system. That is much worse even than the FDA. It’s a bigger constraint. But also, government won’t let them keep the prices high.
Governments confiscate resources ex post. We know that, so you need to reward them upfront, even if in principle you think the higher price would be a better incentive. I would also point out that when there’s an externality through contagion, you don’t want the price of a vaccine to be very high.
I have two thoughts on this response:
1. From one perspective, Tyler is actually showing the advantage of the libertarian approach to Covid. It would be better if governments were not able to put price controls on vaccines. It would be better if vaccine sellers could insist that customers sign contracts promising not to sue if there were bad side effects, and if those waivers were legally enforceable.
2. Given that we do not live under that sort of libertarian regime, there may be a case for subsidizing vaccine development, or providing an FDA stamp of approval to reduce the risk of lawsuits.
Similar examples occur in many contexts. In an unregulated free market banking system with NGDP targeting, it probably makes no sense to have minimum capital requirements for banks. But in a regime where FDIC creates moral hazard and Fed policy creates cycles in NGDP growth, there may be an argument for regulations that make the banking system a bit safer. (Whether those regulations work in practice is another question, but it’s at least possible that some regulations are beneficial in terms of offsetting the negative effects of other regulations.)
PS. The interview also includes an interesting discussion of why Tyler believes that (at the margin) the developing world needs to become more woke.