Professor of Political Science, and Director of the PPE Certificate Program. His primary research focus is on the functioning of markets, regulation, and government institutions. He has taught at Dartmouth College, University of Texas, and University of North Carolina (where he was Director of the Master of Public Administration Program), as well as working as a staff economist at the Federal Trade Commission during the Reagan Administration. He is a past President of the Public Choice Society, an international academic society of political scientists and economists with members in 16 countries. He was North American Editor of the journal Public Choice for five years, and is now a Co-Editor of The Independent Review
- Michael MungerProfessor of Political Science and Economics at Duke University
Welcome to policy, Emma. A data focused conversation on tradeoffs.
I’m Karla’s core value from the Saddam Center for Policy at the University of Texas at Austin.
It’s a pleasure to have Professor Mike Munger from Duke University, professor of Political Science and Economics.
Mike, thanks for joining us. It’s a pleasure. Glad to be here, Carlos. So, Mike, we’re we’re
recording this video is trying to understand peoples process of thinking about the spent Demick
from from the very beginning. And so we’re now in any bit in particular, we’re healthy, our students
and the people that engage with us here at the Salem Center to understand the process that goes into
policymaking. So that is the sort of objective of all our chat today. Let’s go back to March or
early February. Well, when were you started? We just started thinking about
this. When you started like being like, huh? It’s something coming our way here. What’s to be done?
What was your thinking then? First time I thought it was an early march. I had
just been up at Trinity College in Hartford, Connecticut,
the last week of February and had met with a lot of students and flown
and hadn’t thought anything about it. And then the first week of March, the Public Choice Society
meetings were scheduled, and I had one of the past presidents of the Public Choice Society members
in 16 countries. And we had to decide whether we were going to hold or cancel the meetings.
And they were in Los Angeles. And within a week, I went from saying,
well, this is nonsense. Obviously, we should have the meetings to saying we have to
cancel. Even if we still have to pay the hotel. And it turns out that unsurprisingly,
the hotel said, you’re right, we’ll refund your deposit. So for
me, it was telescoped into just a week from thinking this is something that won’t affect
me to canceling the public choice society meetings for the first time in almost 60 years.
So what was the debt deal? What was the data that sort of like got into a utility function there
and now you’re processing that allowed you to make the change? Well, part of it was easier because
it was in Los Angeles, which was one of two hot spots in the United States at the time, Seattle and Los
Angeles, where the worst very quickly New York passed them. And so just having to go through the airport
in Los Angeles was a kind of uniquely dangerous thing. A lot of our professor
I’m 62, but I’m relatively young for some of the gray beards that come there with their walkers
and your horns. So for elderly people, it clearly by then
even become pretty dangerous. What I started to think about next was
the impact on what the way that universities might react and
what might happen to the economy. And so one of the reasons that I
like doing talks like this is that I actually have to try to think about those questions, which normally I think,
you know, I don’t know enough. But one problem with public policy, as your students will find out,
I should say, Carlos, that I was the dean of a master of public administration program
at USC Chapel Hill. We expected our students to be better than we were because faculty
could say, well, let’s do another study, let’s try to get more data, whereas decision makers actually
have to decide, you have to say, and not deciding is a choice. And it’s one that
you the prudence does not always require that you do nothing. Sometimes prudence requires
that you act. And so I have been thinking about universities and about
the economy. And I did an interview with Nick Gillespie, who was a reporter for
Reason magazine, and he did it online. And when I started to think about what’s
going to happen to unemployment, what’s going to happen to the central cities.
I arrived at a prediction that I hope is wrong, but is pretty grim.
I now believe that by the middle of July, there will be martial law in
New York, Chicago and Los Angeles, and that will have military style
food rationing. Because the weather, for good or ill,
the economy has been devastated. And there are people who won’t have jobs.
They still won’t have jobs. Millions, tens of millions of people still in those central cities still won’t have
jobs. And I expect that the result will be riots
out of desperation. Also, political demagogs will use this opportunity to blame
others and say we have to use this as an opportunity to use violence
to achieve our aims. So I went from thinking, well, it was nice to travel back
from Hartford, Connecticut, to worrying about martial law with armored personnel
carriers on the main street corners in our large cities giving out
rice and beans. And so more like Venezuela. Not so not a functioning
market system, not a functioning system of supply chain delivery,
but military vehicles coming in with bags of rice and beans and then rationing
them using ration cards. No functioning markets for substantial parts of the country.
That wasn’t. What was that interview in March you said on March 10th? Our stance, well,
his view, you’re not that wrong. I hope that I’m still wrong.
I hope I’m still wrong. It’s only June if it’s this bad in June, because there are a lot of
the reason why there are riots in large cities is economic uncertainty. The spark
was of the actions of the police in Minneapolis. But there
is an economic problem, I said. So thinking about the tradeoff that we’re facing
early March. You saw. But did you see? Did you think about the trade off?
Look, what if we do nothing? Do you think that your prediction then was we’ll be indifferent to doing nothing
versus going into the lockdown that we did? I knew for a fact that I didn’t know
enough to be able to say what the correct course of action was.
So the biomedical concern was pretty traditional one about just flattening the curve.
There’s two strategies that we might use. One is mitigation. And mitigation
means that we’ve just reduced the worst parts of the effect until we’ve achieved herd immunity
and maybe get to the point where we have a vaccine. The other is suppression. And suppression
means that we think that the loss of lives that will happen as a result
of the epidemic are so great that any economic consequence
is acceptable. And I was a fan of mitigation, not of suppression. So what I thought was we
have to reduce the number of cases to the point where the hospital
system can handle the number of people that are sick at any given time.
But that’s because I thought we’re all going to get this. I thought it was like the flu and we’re all going to get
this. Now, it’s not so clear we’re all going to get this, but we have suppression and not mitigation.
And so my prediction was more once it was clear we were going to use suppression. What are
the economic consequences going to be? So I’m not an expert, but the choice between mitigation
and suppression. I can’t say which is better. I do know that an obvious consequence
of partial suppression strategy is to devastate the economy to such an extent
that we will no longer have food delivery systems in our major cities by the middle of the summer. I know that.
And unfortunately, I think that those two strategies in mitigation suppression, as you point out, it’s
it it was somehow confused by not not but put forward
clearly by our by our policymakers who say, okay, here’s our choices and we’re choosing this one and we understand the
consequences of this one. It was not before forward. I don’t think there was there was a lot of until you
could tell that happened, because we made these plans to have to have tents and we emptied
all of the hospitals. So all of the hospitals had to put off the elective surgery that they
depend on for their budgets. So the paradox is we have hospitals going bankrupt.
As a result, we’re empty. We have hospitals going bankrupt because they’re empty. We chose suppression
without really making it clear that’s what we were choosing. So I don’t know if they were confused or it was a bait and
switch, but we ended up choosing suppression. We didn’t come anywhere near our medical capacity
except in New York for about two weeks or even New York. I think
that New York had a stockpile at some point of thirty thousand ventilators. It’s at its peak use
five thousand. So it’s it’s it’s even there. When was the worst we’ve seen in the world in
some ways was not as bad as as as expected. So
going back to the suppression idea that the government actions
needed for suppression are something that that, you know, you know
you know, my general tendencies and thinking about government, I distrust their ability to plan very carefully
to have the knowledge necessary to make something work. Especially at that scale.
But also there’s that our social contract, we have some notion of what governments can or cannot do.
How are you thinking about that or how we know under our system of government? What was your sort of reaction
to this use of emergency powers to to create the
so-called lockdown set that we saw everywhere? Again, I’m not
sure about that because I’m not good enough at epidemiology to know,
because there’s there’s two factors to this disease. One is how contagious it is and how it’s
transmitted and the other is how deadly. So at some point, if you don’t know those two things,
you know that you don’t know. And prudence might require that you act to forestall the worst
outcomes. Now, the difficulty is a government that tries to do everything
is unlikely to be able to do anything well. And so there was a one of the best podcasts
that I’ve heard in the last year was a comparison on Planet Money on National Public Radio.
A comparison between South Korea and the United States, both South Korea and the United States
found out their first case on January 20th. The reaction
of South Korea was immediately to enlist private labs under a contract,
each to try to, at the local level, develop a plan for contact tracing.
So it was much more bottom up. They used a contracting system and they enlisted the private sector.
The United States, a great beacon of capitalism. Immediately centralized everything
in the CBC. And they actually had some tests that already worked and decided that they would start
the start over start on their own. And they botched it. So this this NPR podcast
on Planet Money surprisingly honest about the way that the US, by relying on bureaucracy,
got this wrong. And South Korea, which is a much more centralized system,
recognized that they need two things. One is decentralized,
where the man on the spot knows about the value of local action, just like Friedrich, I said.
But the other is to enlist the power of the private sector
to mobilize the supply chain. What the private sector does is already has these can
these contacts. So you can mobilize the supply chain. So if I say, all right,
we’re going to have a government action. And in fact, that for a while we talked about using
the Defense Production Act, which was going to take General Motors and they’re
going to make all these ventilators. Well, that would have worked, except we tried to do it top down
rather than having regional or even more decentralized system,
which is what South Korea did. Now, to be fair, South Korea is tiny, quite comparison.
It’s extremely densely populated. The United States is really spread out in the state systems
don’t articulate very well together. So in some ways, my criticism is
unfair. But the two things I would say, it actually counts
more in the United States, in a federal system with geographically diverse
and expansive, using a decentralized market based approach like South
Korea did was actually even more imperative for the United States. So many of the
US wounds, both in terms of deaths and in terms of economic devastation,
are self-inflicted. So when you talk about decentralization and using the private sector
in markets, again, the markets need neat, neat, clear signals to act. Right.
And the government, by trying to centralize things, stop the flow of information to
a source, not only true for thescene, but it’s true for ease or ditlev materials for
develop, vaccine for allocation of resources, etc. I think you talk about
price price gouging a lot and and explain to us a little bit about your thinking
in that because you get an emergency. That’s also something that comes up right. All the sudden we’re out of toilet paper
and whomever has toilet paper wants to sell for a little bit more money. And then all of a sudden there’s some politician comes
along and says, well, put you in jail because you’re gonna try to Prescotts toilet paper. Is that did that dynamic
play a role, you think, in our in our botching of the process here? Well, the dynamic played a really big
role. And what’s interesting is to recognize that people don’t really understand what price gouging
is. So I actually had quite a few people block me on Twitter because I was
gleeful for several days after Governor Cuomo in New York
said, please send us your PPE, we will pay a premium. That’s
price gouging. Remember that in an economy, scarcity
is a shortage of products that are needed. High prices are a signal
of that scarcity. If you have a policy that suppresses prices,
you destroy the signal and you do nothing to address the problem of scarcity. In fact,
you make it worse. So the choice in an emergency is between
two not very good options high prices or empty shelves.
High prices are better than empty shelves. And Governor Cuomo proved that by saying we will
pay more. So if I can pay a premium and get my workers
the PPE that they that they have to have in order to do their jobs, that’s what the price
system is telling you. And let me say one other thing about prices. Prices are
a signal of scarcity. And three things happen when prices go up. First,
consumers have a moral incentive to take into account the needs of other people.
If you have price suppression, which is what price gouging laws are,
you’re saying there’s plenty. Take all you want. But if prices are high, I think, oh, the
other people must need this, too. That’s a really important signal. So the first thing
prices do is it tells you to leave some for some other people who are behind
you and then they’re literally behind you. They might say, hey, leave some for me and I’ll feel bad, but they
may not get there for an hour. They’re trying to order it online. So prices are an abstract, decentralized
signal that tells everybody, look, there’s not enough of this stuff. We need this for
someone else. Second thing higher prices do is tell. To make more,
I ashamed to admit that just today from Wal-Mart, the Munger family received
a shipment of 96 rolls of toilet paper.
How big is the household? It’s well, it’s what we’re stocking up. But the fact is
that the high prices meant that it happens. I also owe thirty five acres
of Timberland that some of which pine trees that we knew will cut. Part of it and sell it for
paper. The price of pine is gone very high. A bunch of people have switched
from being construction crews to harvesting pine trees. So price without
anybody giving any orders. Price told people all over the country. Stop what you’re
doing and find ways to make more of this stuff that people need. Third.
High prices tell entrepreneurs to find ways to make substitutes, and
there aren’t really substitutes for toilet paper, although apparently demand for bidets has gone way up. I
was gonna say I have a friend who bought one of those Japanese automatic. For
most people, that’s not a viable option. But there were a bunch of N-95
masks. We had bought some before because I tend to be one of those people
that is a prepper. I’m worried about having thanks for an emergency. So we donated
three hundred pairs of gloves and masks because we had quite a bit we donated them,
but now we just got several very nice cloth
masks and those never existed before. These are washable cloth masks that also have a filter
in them. Entrepreneurs thought of ways to say, you know, we can actually make these with cloth in
a way that for many people, not first responders, not people that work in hospitals, but
for people like me, it’s a perfectly adequate way to do it. So the price system said
leave some for somebody else, make more if you can, and find substitutes.
Price gouging laws prevent all three of those things. Now, I do have some sympathy
for saying that we needed not to have price gouging for PPE
because. My argument about price gouging assumes that the elasticity
of supply, which means the less that the responsiveness there is possible to increase
the supply. If you only have a limited amount, maybe we do need some other form of rationing.
So this is not an argument that we would if we were in a small town and you have a hospital.
People should donate PPE to the workers that we have a duty of charity. But most
of the time it is possible to get a pretty quick supply side response and back.
That is what is happening. We have plenty of this stuff now. It’s expensive, but we have plenty of this stuff.
So price gouging laws do nothing to solve the problem of scarcity, but
they suppress the signal that would tell people try to solve the problem of scarcity.
So they’re a disaster. So can you talk a little bit about that in the context of
the vaccine? I think one of the things that we’re seeing right now is that, of course, there’s a huge incentive to for us to develop
vaccine to cover it. But at the same time, it costs them an enormous amount of
money. So, again, we have a choice of trying to do this centralized by the central planner or by allowing
our pharmaceutical companies all over the world to invest and try to find a solution for it.
But that’s only going to work if they have, again, the signal of prices to be able to
cash on this if they are able to do it successfully. There’s a lot of discussions about, oh, who
gets his versus his moral foreign, let’s say, the United States to pay its way and get it first before other poor countries,
et cetera, et cetera. How do we think about it differently in that situation?
Vaccines kind of a unique problem. And if I’m a pharmaceutical company, I weigh
the very high costs for certain against the extremely
uncertain prospect of being the first to discover and patent a usable
vaccine. So I don’t know if I want to get that business, if I’m a pharmaceutical company.
So the this in a way, it reminds me of what the British government did to
try to encourage people to figure out a way to measure longitude.
To do that, you had to come up with a clock that worked on board a sailing ship
for at least six months. It was accurate within a second. So they paid a huge bounty to
do this because nobody individually had enough incentive to do it. Well, it may
be that the some sort of subsidy for kind of the basic science
that leads us to the point where we know enough about the vaccine itself
may be required. But the decentralized search means that many
different companies are going to be searching on many different dimensions.
And it may be an RNA vaccine. And RNA vaccine
is really easy and fast. It’s just extremely expensive to make and it’s really perishable.
So it’s a difficult thing to to get the supply chain for that together.
I don’t expect that we will have a widely available and usable vaccine
before at least February of next year. So we pretty much have to plan without it.
It’s just too expensive to put it together and get it tested. And to be fair,
the testing part of it is really important. You want to make sure that it actually is effective and doesn’t have side
effects and it takes months to be able to learn that. So you have a pretty large but I don’t
think that vaccines are as good a hope as what I think
would be a better plan. And that is how a lot more private
labs involved in testing and not testing for president for the
presence of the pathogen have testing for presence of the antigen.
So I can tell if you have antibodies, it doesn’t mean you’re immune, but you’re much more resistant.
That means that you could work in a restaurant. It means that you could work as a first responder
because your substantial and pay the more let labor price gouge. That’s
another reason a lot of people blocked because they would set, you know, those nurses. They should make more money. And I
set your price gouger, shouldn’t you? You’re you’re charging higher price just because we need
this. Well, it’s not price gouging. Let’s pay those people that are able
to get the economy and the health system back on track. Let’s pay them extra. That would be great.
But what I would focus on in the near term is much more wide
distribution of testing about the presence of antibodies, because if we could do that, that’s
an intermediate step towards reopening. Final question on this
topic. The same way that that, again, the price signals are so important
for ramping up production of something that Scarr site, we have Gamez decided to
lay down laws that said you are essential versus you are not essential. And things like,
you know, you’re essentially if you sell groceries. Well, but you selling groceries. A lot of different things that go in the
process of selling groceries that government may not understand are essential parts. So decision by governments and bureaucrats
this side of what’s essential? Not rely on on on mostly the political process
unnecessarily. Someone has to do with with resource allocation to a market economy. So
I was very concerned about that in the beginning. I was concerned that all of a sudden it was SIRC shortages
of really important days because, you know, I don’t know what goes into the production of a lot of things. Like, for
example. Right. Like toilet paper maybe is one of those things a cycle or whatever, whatever it is, I’m actually sort of surprised
that we got to be where we are. And it seems that almost nothing is really
in deep shortage right now. And I’m sort of really, really glad that the American economy
is so resilient. But that was one thing that I was concerned in the beginning. And
so anyway, so. So did you see any alternatives to that at that point in time when government saying
we need to we’ve got to shut down, we’re going to intervene and shut down what you saw? It was bad, but to me, there was an eco
surnow like all of us. I’m going to break down the chains of production because we don’t understand how they work. Nobody does
well. And that was part of your question earlier. There is some confusion between
mitigation and suppression. And at some point, we can’t have complete suppression
because people have to eat. They have to have basic services. And so we
in the economy, we basically tried to mitigate and it was essential. Maybe it was economically essential.
How do we normally decide what’s essential for people? We let them decide. And so
if they want to go out and they were not to pay money for this, they’ve decided that’s essential.
Interestingly, the model of many people on the left, Sweden, that model of socialism,
they chose mitigation exclusively. They didn’t do any suppression.
And so the restaurant stayed open. They did have quite a few deaths, but the damage to their economy
has been much less. I think it’ll be interesting that the epidemiologist who supported
this for Sweden because they were trying to establish herd immunity faster, it said we probably would do it
differently now if we had it to do over. So there there is a there’s quite a bit of room between
having the central government decide, all right, you’re essential and you’re not knowing don’t get it wrong in
ways that are likely. We’re not going to see for a while that parts of the economy
are devastated. They’re actually dead. So it looks like looking at a coral reef, it looks OK, but it’s
actually dead. There’s nothing there but Paul and the Sweden,
which has had quite a few deaths. The economy’s in pretty good shape. They may
recover pretty quickly. And if they have herd immunity, their deaths are going to start falling
and cars are going to continue cause flattening the curve means that you have many more deaths
for a much longer period. The United States is still doubling. We’re only doubling every two months,
but we’re still doubling. That means that if that continues every two months, another
hundred thousand deaths, that’s a lot. And so the Sweden, in trying to get
through this fairly quickly, may have threaded a needle. They may not have. But
to your question, Sweden said we’re going to leave it up to the individual to decide what’s
essential in the United States. We tried to say the government’s going to decide what’s essential.
And the kicker, which is really unfortunate. Suppose that I work at a grocery store
in a central city in a pretty rough neighborhood and I make $12
an hour. There are people that got laid off, got
unemployment from the government for six hundred dollars a week. I make
four hundred and fifty a week and I’m working and I have to leave my children at home. So
all of the incentives were for people not to find work, not to participate.
So I suppose that the grocery store is trying to hire someone. This is essential. Well, I’m not gonna go
work at a grocery store for four fifty a week when I get six hundred a week for staying home.
So the government actually made it very difficult even for what it called essential
work to be carried out because they did a perfectly sensible thing. And that
is we’re going to have unemployment compensation to try to keep people from starving. So the
the combination of lack of information and perverse incentives made this much
worse than in retrospect it had to be. So let’s fast forward to now. We learn
a lot about about about this disease since March, when a lot of the sort of suppression
ideas were put in place. Right. And now it seems that every
single state is moving into a mitigation strategy. Everybody
is opening with some restrictions, with some sort of like understanding that is going to be with us for a
while. As you said, to be desk for a while until we get to herd immunity or a vaccine. And
it might be the case that, as you said, also, that doesn’t matter really what we did, as long as there’s no vaccine,
whether we do a bunch of that at once or we do it at over a year. The total number is the same.
One strategy might have killed us in the long run. One strategy might not have killed us in the long run.
So we are we are now learning that a couple of things. I think that that the the the
spread seems to be not as bad as we thought it was gonna be. And the fatality rate is not
as bad as we thought initially. So those two things are positive updates. Still pretty bad. Still not
not you. But I like to compare to the flu. It’s three to five times the flu,
which is not not pleasant, but we are in a mitigation strategy, I think particularly how
how you see these is unfolding now. And it also, I guess from the federal system that we have,
we did this a different thing to different states. Do you expect a significant
difference in the recovery process between the states that went up early versus states that are still in
lockdown for similar levels of the disease? It’s very
likely that there’s going to be a second wave and that the dramatic rate of
increase in particular hot spots is going to be really hot. And
it’s very difficult to predict when. So let me ask you why. Why you say that’s very likely
and why. The reason I ask is you’re using Sweden as an example. It seems that day by doing mitigation,
they were able to just avoid the exponential growth. And just to say that chugs along and why not expect
those places to have similar process from now on? A very substantial part of their population
is probably had it so that now we’re back to my point about being able to test for antigens,
being able to test for antibodies. Well, it appears that 40 percent of Sweden
has had less than 5 percent of the United States has had it. And
it is interesting that the flu influenza generally.
Well, the way that this flu works and the reason why it’s hard for antibodies to find it is that
the influenza is RNA. It enters a cell and it replicates it
replicates really badly. It’s like a fuzzy Xerox machine. And so there
may be a hundred different copies and 50 or 70 different varieties of
the virus. Both of them are not viable, but some of them are slightly different from the virus
that went in. Some of them are going to be more deadly. So if you look at the great influenza epidemics,
including the one in 1918 and I’m I’m happy to blame Spain for a lot of things,
but the reason that we called it the Spanish influenza was that
Spain was honest about reporting their statistics. It actually started in Kansas. It started
at a military base in Kansas and then was taken to Europe by American G.I.s
and then it died out. And then the second wave was catastrophic. The second wave was the one
that was really damaging. So if you look at the great influenza epidemics,
there seem to be four waves. The first is bad. The second is terrible. The third is not
so bad. In the fourth one is almost negligible. The reason is that the virus is
being trained not to kill its host in evolutionary terms. But viruses don’t
want to kill their hosts. They want to survive. But the second wave is the one that has
been in the past has been virulent. So I am worried that the second wave
in the fall, people are more inside. We’ve opened the economy. We’re not taking as many
measures against. It may be very significant in some states. And
that means that we need a decentralized approach. We need the individual states
to respond to this and the way to respond. I hate to keep talking about South Korea and Sweden.
Both South Korea and Sweden are pretty kind of centralized authoritarian places,
but they provide a model for how this might be done, keeping the economy open
and using contract contact tracing so that you you
actually can tell who has it immediately and then isolate only those people
rather than the prophylactic isolation of the entire population, which has just
terrible consequences. And not just economic, it’s health consequences. So spousal abuse,
stress, all sorts of deaths are going to happen that wouldn’t have happened
that are not directly covered 19, but are going to happen as a result of this isolation.
So I’m worried about a second wave in the fall and us reacting to it
badly. I’m afraid that if that comes up
and I’m still hopeful that it won’t, and given some of the I guess maybe looking
at the positive effects of mitigation, a lot of places, I’m hoping that we can keep this chugging
along without like a big a big city, like almost nobody in Texas
has had it. That’s right. So that’s one of the things that we stopped way too early here.
And, you know, some economists are talking about the timing of a lock down if you were to do a lock down. It’s
not worth it to do it too early unless you’re able to kill it. But there’s no way to kill it once there’s enough
disease out there and in this reintroduction. So doing too early is incredibly expensive. And I think
we did too early. Texas taxes, the lowest per capita death rate in the country for any given
for any large state. Maybe Wyoming is a little below us, but that’s an account.
And only an economist would say that’s bad. But economics. You recognize
that the optimal number of deaths is usually not zero given the
opportunity cost. And that’s the thing. Is this important for students to recognize the opportunity
cost of just a quarter solution focusing on just one target imposes
costs that include deaths and health. This is not economy versus health.
This is health versus health. So the Texas decision to have a prophylactic lockdown
too early did almost no good in health terms. But it’s going to have bad health
consequences. So how come? How come? How come they become that became sort of
like like educated opinion and conventional wisdom seems that that we had a herd.
Mentality on this to a point where, you know, I was attacked. He thought
to you the questioning that. That that particular idea early on and been
questioning from the. From a trade off perspective. Exactly. From opportunity cost perspective. It seems that even the economics
profession was very silent on this. I mean, one of the few papers early on talking
about talking about the opportunity costs, it had like silly metrics like, well, we threw value every
life at 10 million dollars. Then do whatever it takes. But.
That’s not a number that I think, you know, pass muster. If you look if you look more carefully at it, well,
we tell people is the object to the idea of talking about tradeoffs with lives.
But again, we’re back to whatever day we talked about it at the beginning. Not making a decision is
still a decision. You have to say I have to record it. Once you think of opportunity
cost in terms of the health consequences. The other thing that I
think is interesting and I’ve actually I’ve worked with physicians on this and
some physicians are sort of bravely questioned this. They
are there’s an ideology that’s the most important thing is the preservation
of life. And so that means that if you’ve got someone in a coma who’s
living on tubes and a ventilator, they may be very reluctant to disconnect
those things. And so in two years, you spend five hundred thousand dollars to care
for someone who had no real chance of recovering. But the medical profession hasn’t.
You know, I want fighter pilots to be arrogant jerks because they will need to think they can
defeat the enemy. I want physicians to really, really be
focused on health care. The problem is that they should not be in charge of
public policy. We need economists to be in charge of public policy, because you have
to think in terms of tradeoffs. Now, I don’t blame people for mistrusting economists, given how
botched a lot of the government economists have made policy with the bailout.
So economists have lost their position of being able to say we should worry about tradeoffs
because the economics profession doesn’t talk in terms of opportunity costs. It talks in terms
of optimization. It’s the sort of applied mathematics that you learn in a micro economics
class doesn’t help this out very much. So think thinking in terms of
humility, uncertainty and decentralised solutions is what economists
should be doing. So the reason economists were silent about it was I think they rightly thought
we don’t know how to optimize this. I can’t write out the objective function or the constraints because
we’ve gotten away from political economy. We’ve gotten away from thinking about this
as a combination of policy and a moral proposition. And somehow the
doctors and other theologies were the first ones to to to talk to governments. And I suppose, you know, they’re they’re
they’re biased in their focus. And it’s so, you know, on health, which they should have. That’s not a problem.
They shouldn’t do it. But even that, as you pointed out, there was a tradeoff in health. I am.
Some doctors pointed it out. As I mentioned, we had some here know discussions with us.
But like like I did the paradox that you mentioned in Guinea, we’re concerned about overrunning the health care capacity.
So we’re gonna do is shut down the hospital for two months. It’s like, wait. Well, I
think a lot of logic is impeccable. Yeah, a lot of doctors now would say, OK,
that that didn’t work out, particularly in states that are not
New York, Washington and California. So the Iowa had
very few cases and they bankrupted their rural hospitals. So there weren’t many rural
hospitals anyway. They’re gone. So let’s talk a bit about
the governments again and their ability there, I guess even their
their legality on doing what they did. One can look at at a shut locked down,
as you know, violating a constitutional amendment of taking squaws right now. Lot to take something
from me without fair compensation. And you did. You took from me my business. Lots of business would take you by
fiat through the actions of government right now. One might argue
that no states have the right to do so on emergency powers, a constitution that the courts have been
in general, that they have deferred to governments in situations of public health emergencies.
But they have we need safeguards. I mean, one of the things that worries me the most about this is that we’ve just learned
that if you cry wolf a government, we have a mini dictatorship in the US
on 50 states based on 50 people. What are the safeguards we have against that? Because,
you know, this wasn’t a real bad one. In some ways, it could have been worse. And we were
doing those things right now. Are there safeguards that did not we didn’t look carefully at? Should we be looking
at revision, those safeguards? Do you have any thoughts on that?
Well, after 9/11, we established an enormous
bureaucracy in airports, if nothing else, that engaged in security
theater and made traveling much more uncomfortable and had
probably very little impact on actual safety because there’s plenty of instances of people
that actually made it on. Because through ineptitude or whatever else, we’re not able to solve the problem
after the financial crisis. We spent a trillion dollars,
more than a trillion dollars added to the deficit. We have a bunch of new safeguards
that actually make the financial industry much less nimble and able to respond to emergencies
under the guise of having increased reserves. So we have two emergencies.
We created enormous obstructive bureaucracies that made things worse
as a result. I certainly think that as a result of this third great
crisis, we’re going to do exactly the same thing. We’re going to create a health
bureaucracy that is going to be on top of everything else.
Companies will probably have to advise, have advisers, and it means that it’s going to be much
harder to smart to start a small company. It’ll be much more difficult to participate in the economy
if you were an entrepreneur. And the benefits of this are negligible. We’re always
trying to fight the last war. So, look, the just on prudential grounds,
I think it’s a bad idea to do that. Ask the constitutional question. And
I would say on its face, the Constitution would say the federal government cannot do what it’s done.
That it doesn’t have that kind of police power. And in fact, just recently
there have been some attempts by the Trump administration to assert a federal police power.
And just yesterday, there was a district court judge that said it was a Trump appointee
that said there is no federal police power. The 10th Amendment says the states
have the police power. Full stop. So if the courts start to intervene
and say there is no federal police power, this is up to the states, then
the federal government could suggest it could win, to be fair. This this
actually did mostly work out in the states. But the federal attempts,
I think are likely in a panic. Most of us think are the federal government is the one that should take care
of this. And the part of the reason is they can borrow. Most states cannot. Most states have a constitutional
event where they can’t run a deficit. And we the idea is we need an enormous amount of resources.
I guess I think it’s pretty rare to see a situation so bad that the federal
government cannot make it worse. I agree with that,
but but still, states went in and violated safeguards that have been incorporated
to do due to an individual’s right. You answered your own question. The courts deferred to
that. Deferred to them. So although I think there won’t the exception be Wisconsin,
where they had in their state constitution some rule about how emergency powers should be given to
the governor, that a process and the government did not follow the process. It turns out that to follow that he
didn’t have the evidence that’s needed to follow the process. Therefore, he stopped. He didn’t even try
one. One answer might be that people could look to Wisconsin and say, we
need to have a process that’s more like that. I think that’s unlikely.
So InTech, I maybe see that being likely in a place like Texas, but not but not
Texas didn’t do much anyway. Texas was relatively less intrusive, although it was
whatever Texas did, it was pointless. Right. Rioted. But it’s it’s funny because we’re less
intrusive at the state level and then localities in particular, the more left leaning localities
were incredibly intrusive. All right. Yeah, exactly.
And I learned about a position that know as an elected position that I thought was just like a figure that
didn’t have any power or the county judge. Turns out the county judge in this particular situation
has an enormous amount of power and a power to actually block me in my house,
to put me in house arrest. The county judge had the power and nobody in that town can name that person,
which is which is my bodily. Until the governor said, no, I to remove your powers because he has the ability
to do so. I hope that you’ll pay attention, but they vote for going forward into a county judge.
But I’m not. I hope. But I don’t really hope. I don’t think’s gonna happen. I don’t think it’s possible.
So I wonder if there’ll be a little bit more of an attempt at least to to think more carefully about
the local government arrangements in order to avoid something like that. Again, especially
if we go into waves of a state goes something goes bad, they go in, lock down again and
damage further. They’re there. I I think that we will do like
we did with 9/11. And the financial crisis will create a new separate bureaucracy
with the power to act swiftly and unaccountably that will make things much worse.
All right. Let me ask you a final question. And that relates to one of your books. So you wrote a book
recently called Tomorrow 3.0, where you talk a lot about the sharing economy and how that dad
is going through this new revolution of what technologies allowing us to reduce transaction costs by so much
that that lots of things that were deemed not gonna have anything to just share a lot of things. And
that’s going to allow us to do a lot of things more efficiently. In your book, you talk
about the role of cities in that revolution in the sense that density becomes even more beneficial
in it to the to the that the new economy, the new paradigm that we’re developing
now, we have a pandemic that seems to be much worse in the best place and riots
that may end up leading to people again questioning the value of the city. Do you
rethink that, that idea at all, or do you think there’ll be the value of cities
somehow going to take a hit, given what we’ve just lived through 2020?
Well. I have an advantage in a way that’s being
old and a professor. If I think about something, I get to write about it.
So my new book is called Platforms Perils and Paul Promise that be out
next month. And in it, I took back
some of the claims that I made into tomorrow 3.0 book, Network 3.0 book. I really concentrated
on sharing and reduction in transactions cost and the commodification of excess capacity
in Uber was kind of my model. I would now say that Wikipedia
is my model. Wikipedia is a platform. And so if you remember,
one more night was in Texas. My claim was there’s three kinds of transactions cost triangulation,
transfer and trust. Platforms are a piece
of software, an organization, an entity that solve all three of those problems.
And it doesn’t have to be with money and it doesn’t have to be with sharing. And so it means that a decentralized
solution may be possible. So let me just briefly say why Wikipedia is so interesting. Wikipedia
solves the problem of triangulation by people who identify themselves as being interested in the topic.
They write on it and other people look at it. Judge whether it’s good or not and give the reviews.
Transfer means that I get to claim credit for having edited it because you can look at a whole edit chain
going all the way back and trust. Wikipedia did an amazingly smart thing to make
it really easy to get rid of bad changes.
So whoever is managing the page, there’s just one button that says revert.
If I click revert all of the changes. So you you wanted to hack
my Wikipedia page. The micro monger Wikipedia page, you go and you put a bunch of bad stuff.
Guy looks at it the next morning and says, all this is wrong. And it’s reverse. So the five hours that you spent
reading, writing terrible things, but it’s all gone. So Wikipedia,
tool libraries, source software that allows us to share things
in ways that don’t really require markets. But it’s a more toelke valiant and approach to sharing.
It still requires association with the association. The logic of what you’re talking
about is right, but I’m not. I’m not so sure it’s important anymore. I think that
platforms are able to redirect themselves to solve this problem.
And that means that ways of sharing that do not involve physical proximity
or touch are going to be the next thing that people should invest in. I’m not smart enough
to know what that is, but that’s the value proposition is to be able to share without requiring
proximity or touch. So I would now say that platforms are more important than
I thought they were before and new ways of sharing are likely to replace this. And you’re absolutely
right that the Corona virus is going to make it. It’s a big problem
for the sort of rental model that I was thinking about five years ago. I don’t necessarily want
to use your power drill. It’s always fun to see how innovators who will
think through this and figuring it out. So, anyway, Mike, thanks so much for joining
us. A pleasure. It was great. Thank you. Thanks so much. Absolutely.
Thanks for listening to Policy McCombs.