What Should Government Do About Possible Pandemics?


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A new coronavirus similar to the one that sparked the SARS panic ten years ago is rumbling across the world. As Reuters reports:

A nurse in a hospital that held France's only confirmed case of the SARS-like coronavirus that has killed 18 people has been admitted to hospital in northern France on suspicion on being infected herself, French health officials said on Friday.

The World Health Organisation (WHO) raised the number of cases confirmed worldwide to 33 after Saudi Arabia said that two people who were admitted to hospital there in April had been determined by laboratory analysis to be infected.

There is no evidence so far of sustained human-to-human transmission of the coronavirus. But health experts are concerned about clusters of new possible cases of nCoV, which started in the Gulf and spread to France, Britain and Germany.

Earlier this week, George Mason University economist Tyler Cowen proposed in his New York Times column that governments should provide big grants to innovators to develop medicines and vaccines when a plausible deadly new communicable disease threat emerges. As Cowen writes:

Our current health care policies are not optimal for dealing with pandemics. The central problem is that these policies neglect what economists call "public goods": items and services that benefit many people and can't easily be withheld from those who don't pay for them directly.

Protection against communicable diseases is a core example of a public good, as is basic scientific research, which can yield new ideas that may be spread at very low additional cost. (In contrast, Medicare, which is publicly financed, has some elements of a public good, but any particular expenditure tends to benefit an individual receiving treatment, rather than being spread over a number of beneficiaries.)

One obvious step forward would be to exempt biomedical research from cuts of the current federal budget sequestration. Research and development grants are a way to pay potential innovators up front — an important move, as an innovator can't always charge high-enough prices for the value of its remedies when they're actually needed.

If a pandemic became a major issue in the United States, demand for remedies would surge far beyond the level associated with a typical seasonal flu outbreak, and permitting high prices would be unpopular — and perhaps unfair. The threat of contagion also makes it crucial to spread the net of protection as widely as possible, which again suggests low prices.

Yet it is crucial to have some reward system in place for medical innovators. Well in advance of a pandemic, research needs to be done, and vaccine capacity and drug distribution facilities need to be built up. In the H.I.V./AIDS crisis, for instance, the United States was caught flat-footed — and an appropriate response has taken decades, in part because we were not prepared. Without government financing for such public goods, the capacity wouldn't be there if a new pandemic produced a surge in demand. This would amount to an institutional failure.

The government could also take another, more unusual step: it could promise to pay lucrative prices for the patents on drugs and vaccines that prove useful in dealing with pandemics. The point of buying the patent is to distribute the remedy, if needed, as widely and as cheaply as possible. If the pandemic never occurs, the reward wouldn't have to be paid. But the very promise of such a reward might induce suppliers to take the risk of increasing capacity in advance….

OVER all, the American government seems to be turning its back on its traditional role of producing and investing in national public goods. If there is any consistent tendency in recent government spending, it is that spending on entitlements like Social Security and Medicare — which provide mostly private benefits — is rising and that investment and spending on national public goods is falling.

As a budget category, "government consumption and gross investment" is a proxy for many kinds of public goods spending. As a share of gross domestic product, it has fallen to less than 19 percent, from a peak of 24 percent in the 1980s, with no expected reversal in sight. Yet total government spending is expected to increase because of income transfers and entitlements. Neither political party seems able to halt that logic or even cares to make an issue of it.

Focusing government on the production of public goods may sound like a trivial issue, too obvious to be worth a mention. But, in fact, we have been failing at it, and the consequences could be serious indeed.

The whole Cowen article is well worth your attention.

For more background see my column, "Disease, Public Health and Liberty," in which I point out that the spread of communicable microbes is a case of the tragedy of the commons and conclude:

Until somehow we can all be held responsible for our own microbes, managing the medical commons by sometimes coercive means will be necessary.

That means quarantine or spending, as Cowen suggests, taxpayer dollars on public goods.