Cato Institute: Government in a Pandemic

From Thomas Firey at the Cato Institute, Government in a Pandemic

When the threat of COVID-19 became apparent, some political commentators began arguing that Americans must accept much greater governmental intervention in their lives if the United States were to respond effectively to the disease. This idea was soon distilled into a pithy slogan: “There are no libertarians in a pandemic.”

In fact, government can respond effectively to the historic COVID-19 crisis while following the principles of limited government. However, federal, state, and local governments in the United States have done a poor job of identifying and implementing good policies for the pandemic that are compatible with those principles. Instead, policymakers have attempted interventions far beyond the powers of a properly limited government—with poor results.

Americans and their political leaders are understandably worried about COVID-19 and its effects, both on human health and the economy. That worry may indeed lead some people to reflexively demand broad government intervention. But if the United States follows the principles of limited government, those principles will help see us through this crisis.

Introduction

When the threat to the United States from the novel 2019 coronavirus disease (COVID-19) became apparent, political leaders and commentators began calling for large governmental interventions to counter the disease’s health and economic effects. Many of these people added that the political philosophy of limited government—“liberalism” in the classical sense—would handicap the country’s response to the crisis and thus must be rejected. This was soon distilled into a pithy slogan: “There are no libertarians in a pandemic.”

As COVID-19’s grim health toll and economic statistics have accumulated, the criticisms of liberalism have grown louder.

Appropriate to the era, the “no libertarians” slogan was popularized by a Twitter post: Atlantic staff writer Derek Thompson used it to introduce a news item about Republican lawmakers advocating public funding for COVID-19 testing and for treatment of uninsured victims of the disease.1 A week later, his Atlantic colleague Peter Nicholas used a variant of the slogan as the title of a column criticizing President Trump for campaigning on “anti‐​socialism” while his administration pushed a host of extraordinary interventions into the economy in response to the pandemic.2 “Just as there are no atheists in foxholes, in a national emergency, there’s no truly laissez‐​faire government,” Nicholas wrote.

Others quickly picked up the theme. New York Times columnist Farhad Manjoo, noting the same news item as Thompson, concluded, “Everyone’s a socialist in a pandemic.”3 Ryan LaRochelle, a lecturer at the University of Maine, wrote in the Washington Post that a “decades‐​long war on the safety net and the government’s administrative capacity [has] made our society particularly vulnerable to the pandemic’s impact on our economic life. This has seriously hampered the federal government’s response to the coronavirus and shown how dangerously ill‐​suited this ideology is to the crisis.”4

Perhaps the sharpest criticisms came from essayist and novelist George Packer, who bemoaned “a federal government crippled by years of right‐​wing ideological assault” and “politicians and donors who wanted government to do as little as possible for the common good.”5 He described a dystopian America that, without active management from Washington, DC, is nearly powerless against COVID-19:

Every morning in the endless month of March, Americans woke up to find themselves citizens of a failed state. With no national plan—no coherent instructions at all—families, schools, and offices were left to decide on their own whether to shut down and take shelter. When test kits, masks, gowns, and ventilators were found to be in desperately short supply, governors pleaded for them from the White House, which stalled, then called on private enterprise, which couldn’t deliver. States and cities were forced into bidding wars that left them prey to price gouging and corporate profiteering. Civilians took out their sewing machines to try to keep ill‐​equipped hospital workers healthy and their patients alive. Russia, Taiwan, and the United Nations sent humanitarian aid to the world’s richest power—a beggar nation in utter chaos.6

As for the idea that private actors could respond to the virus, Packer asserted simply, “It turns out that ‘nimble’ companies can’t prepare for a catastrophe or distribute lifesaving goods—only a competent federal government can do that.”7

The belief that COVID-19 shows the need for bigger, more interventionist government has not been confined to the left of the U.S. political spectrum. The right, which in previous decades repeatedly declared a commitment to “small government,” began talking about the need to boost “state capacity” to respond to the pandemic and other problems. Two of the right’s up‐​and‐​coming leaders, Sens. Marco Rubio (R–FL) and Josh Hawley (R–MO), pushed large‐​scale government financial assistance programs, with Rubio helping to craft the Paycheck Protection Program that has blossomed into a roughly $650 billion subsidy to businesses.8 Its creation was part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act that provides federal support to businesses, households, and state governments.9 The CARES Act passed with overwhelming support from Republican lawmakers and was signed by President Trump, who had his name prominently stamped on the ensuing household subsidy checks.10

Those efforts are in accordance with the new “national conservative” movement, which endorses government intervention in the economy to promote a host of goals.11 As one of the movement’s intellectual leaders, Henry Olsen of the Ethics and Public Policy Center, told Politico about policymaking in response to COVID-19:

This is going to jump‐​start the already simmering debate over how the right should deal with domestic policy. Clearly there’s going to be demand for many types of stimulus. There’s going to be demand for the view that we’re not going to let this happen again. And a libertarian, hands‐​off policy doesn’t really respond to that.12

These calls for government to intervene in response to COVID-19 are understandable. The disease is often painful and sometimes fatal, and it is produced by a novel virus that spreads through social contact. As yet, there is no known effective vaccine against the virus, and treatment therapies are limited. People naturally want something to “fix” a crisis, and they look for government to be that powerful fixer. It is comforting to envision government scientists in their labs probing the virus, government doctors tending to the infected and uninfected alike, government financing research and development on therapies and vaccines, and government policymakers, counseled by sage experts, directing the public toward safety and away from danger.

That’s the vision; the reality is different. Government leaders and their advisers have been operating with imperfect knowledge about the recently discovered disease, resulting in public recommendations and policies that, especially in the early months of the outbreak, have been wasteful at best and harmful at worst. Though a number of those failures can be attributed to an especially inept Trump administration, they can be found across the political spectrum, at different levels of government, and among both the virtuous and dishonorable.

Government does have important roles to play in a pandemic. However, those roles are consistent with the principles of limited government. This analysis examines some of those interventions—constraining negative externalities and providing public goods—and notes instances where government has performed poorly in those areas when responding to COVID-19. The analysis also discusses interventions that limited government should not undertake—such as manipulating the production and distribution of private goods—but that government has attempted broadly in this crisis, with poor results.

Limited Government and Market Failure

Critics of limited government often equate it with anarchy, the lack of any government activity. That equivalence is false. The philosophy of limited government does place the highest value on individual liberty, including people’s freedom to privately arrange for the satisfaction of their wants. These arrangements often take place in the market, an arena for many forms of voluntary exchange. So, rather than rejecting government altogether, valuing liberty means creating important roles for government in protecting the freedom of exchange and private ordering.

Among the oldest roles of the state is defending its citizens from violent invaders, thereby protecting against a dramatic disruption of the market. This defense is difficult, if not impossible, to provide through purely private agreement. Residents operating individually would be hard‐​pressed to fend off an invading horde, and private mutual aid agreements or contracts employing mercenaries would be weakened by residents who did not join the arrangement or who joined only when a threat was imminent. A defense that protects only parts of a community is a defense penetrated by invaders.

Defense is an example of market failure: a want that cannot be adequately addressed through private exchange. Specifically, defense is an example of market failure known as a public good. Public goods are difficult to limit only to individuals who pay for them; the goods must be provided to everyone in a community if the goods are to have much value. If left to private exchange, residents would be tempted to not purchase the goods but instead free‐​ride on the purchases of others. That would result in only some residents—or perhaps none—purchasing the goods. That, in turn, would reduce the funding and quality of the public goods provided, to the detriment of all residents, including those who do purchase the goods.

Government can provide its citizens public goods via taxation. Government can produce the goods itself (e.g., by employing troops to provide defense) or contract with a private provider to furnish them (e.g., purchasing materiel to equip the troops). The key is that taxation overcomes the market failure by requiring citizens to pay for the goods. Besides defense, examples of public goods include police and fire services (private security and firefighters cannot ignore crimes and fires at noncustomers’ properties without putting their customers at risk), street lights (the lighting’s benefit cannot be limited to customers), and—at least until recently—local roads (before technological advances, it was prohibitively costly to toll local roads).

Other types of market failure exist. Though there is no definitive list, several forms are commonly recognized. One of these is externalities, which are costs or benefits of an exchange that are borne by some party other than the participants who agree to the exchange. Externalities result in less welfare than if all involved parties had voluntarily reached agreement. For instance, a polluting factory inflicts a cost (negative externality) on its neighbors, who may not be part of the voluntary exchange between the factory and its customers. Positive externalities, in which a third party receives a benefit, are less commonly cited as a problem, but they do exist.

Government can intervene to address other market failures.13 Often, such policies take the form of laws, regulations, and enforcement. For instance, environmental law is intended to reduce the negative externality of pollution.

Minimizing Government Failure

From an economic perspective, under a properly limited government, market failure is a necessary but insufficient condition for government intervention. Another necessary condition is that the proposed policy does not violate established liberties. Also, intervention always comes with costs, and those costs must not outweigh the benefits.

Further complicating matters, many of the troublesome dynamics that produce market failures also afflict government policymakers and bureaucrats, producing government failures.14 For instance, policymakers often suffer from imperfect information, resulting in bad policies.15 Also, policymakers and bureaucrats are motivated by private incentives just like everyone else, and those incentives can yield misguided—and even corrupt—outcomes.16 Unlike in the marketplace, where interaction is voluntary and participants can look for the exchanges that best fit their wants, citizens are compelled to abide by and pay for the choices of government policymakers and bureaucrats regardless of how sensible those choices may be. Classical liberal principles help to minimize those problems.

Despite the constraint of limited government, there is much it can do to address COVID-19 by focusing on the market failures associated with the disease. Unfortunately, the U.S. federal government and some state and local governments have struggled to identify and implement such policies. Instead, they have intervened in ways beyond the powers of properly limited government, with poor results. The following sections describe some of those government failures.

Limited Government and COVID-19

Several market failures are present in the COVID-19 crisis. Among them:

  • Negative externality: Infected persons can transmit the virus that causes the disease, severe acute respiratory syndrome coronavirus 2 (SARS‐​CoV‐​2), through common social contact. Transmission involuntarily inflicts costs on others, making it a negative externality. As libertarians often say, “People’s right to swing their fists ends at the tip of another’s nose”; likewise, people’s liberty ends at the point that they put others at involuntary risk.
  • The public goods of medical research: People want to avoid the disease and recover from it quickly if they are infected. That creates market incentives for research into the virus and disease and distribution of the findings. But the benefits from that work are difficult to confine to the individuals who pay for it. Information is easily transmitted, and the academic world rewards the broad distribution of many types of research to accelerate scientific discovery. That makes research into SARS‐​CoV‐​2 and COVID-19, and the resulting knowledge, public goods. Though some people would still pay for that work even if others free‐​ride on the results, private funding would likely be below optimal levels.
  • The public good of acquired immunity: Relatedly, an effective vaccine against the virus has public goods characteristics. A population can become resistant to an infectious disease if only a portion of its members develop resistance to it, a phenomenon known as “herd immunity.” Some diseases require high member immunity rates to produce this resistance—80 percent or more—but others have lower thresholds.17 Currently there is no scientific consensus on a threshold for COVID-19, though early guesses by epidemiologists fall in the 60–70 percent range, and one study argues that it could be as low as 43 percent.18 Those numbers suggest that a third to more than half of the population could free‐​ride on others’ bearing the cost of the vaccine, allowing for a public goods problem.

Some government interventions are justified to address these market failures regarding COVID-19, provided that the interventions’ benefits outweigh the costs and that the interventions do not violate protected rights. The U.S. federal government and state and local governments have made efforts at this sort of policymaking. Below are a few examples…(continues)