Usually, the free market delivers the best results. Not so during an emergency. Thus, there is a need for the government in liberal democracies to switch to some of the command and control mechanisms prevalent in non-market economies.
During normal times, the best outcome is achieved if the Federal government, the State of New York and Ms. Mary Smith bid for the right to buy a car. Car manufacturers would deliver to the highest bidder. Cars would be allocated by a combination of ability to pay and the consumer’s desire to buy a car. Supply and demand would play themselves out.
Not so during an emergency. During WWII, the Federal government could not be bothered with outbidding the State of New York or Ms. Smith. It basically ordered Detroit to stop producing cars and instead manufacture tanks, trucks and jeeps for the war. Instead of a bidding process, the Federal government assigned a 7% profit margin to manufacturers.
As the economy went into high gear, spurred by the demands of war, and in spite of Rosie the Riveter joining the labor force, there was upward pressure on salaries. Allowing salaries to reach its market level equilibrium would have increased the cost of the war for the Federal government. Thus, a salary freeze was enacted to prevent this.
The allocation of production was performed by the Federal government. The U.S. armed forces received priority. However, exports of war material were not prohibited but rather controlled by the Federal government. The U.S. was the arsenal for democracy, and communism, as productions from the U.S. was exported to allies such as the United Kingdom and Soviet Union. Through its exports of arms and food, the U.S. contributed to Soviet victories in the biggest land battles of WWII (Stalingrad, Kursk, Operation Bagration).
The parallels to the present situation are obvious. There is an urgent need to suspend the free market during the coronavirus emergency and deploy command and control mechanisms.
For example, all ventilators should be bought by the Federal government through the Defense Production Act (DPA), enacted during the national emergency of the Korean War. This purchase by the Federal government is not to take advantage of bulk buying, a concept of the market economy. It is to commandeer available resources to address the national emergency.
Ventilators should be assigned to states on the basis of need, striving to maximize the saving of lives. Again, the normal rules of allocating production on the basis of purchasing power are suspended during the emergency.
Exports would not be prohibited but controlled. It is in the interest of the United States that the pandemic is controlled worldwide. This goes beyond the humanitarian concern because, someway, the coronavirus could find its way back to the U.S. Thus, while priority is given to use the critical medical supplies at home, some targeted exports is the optimal policy.
Like coordination with the U.K. and the Soviet Union during WWII, economic coordination with allies during the pandemic is necessary. This is more so because today’s economies are much more intertwined than the economies of the mid-20th century.
For example, 3M, based in Minnesota, is the quintessential American company. However, it produces N95 masks out of its facility in Singapore. Should the U.S. try to command and control the facility in Singapore? How would the government of Singapore react? How would Singapore’s neighbors react if it allowed the U.S. to get these masks without taking into account the region’s needs?
It is past time that the Federal government address the coronavirus pandemic as a national emergency and engage in command and control mechanisms of critical medical supplies.