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The Failure of Government Command-and-Control

Summary:
If another example was necessary to confirm that government command-and-control allocation of resources is far inferior to market allocation by prices, the continuing shortage of Covid-19 tests could be one. Yesterday’s Wall Street Journal (Scott Patterson and John Simons, “Labs Struggled With Surge in Covid-Testing Demand; How One Made it Through,” September 6) reports: Labs have competed for limited supplies of plastics and chemicals used to run tests, struggled to understand how federal supplies were allocated, and scrambled to come up with workarounds. “Scrambled to come up with workarounds” instead of just paying the market price as free enterprises do on a free market. Not only are private companies dependent on approvals from the FDA or the CDC, but their

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If another example was necessary to confirm that government command-and-control allocation of resources is far inferior to market allocation by prices, the continuing shortage of Covid-19 tests could be one. Yesterday’s Wall Street Journal (Scott Patterson and John Simons, “Labs Struggled With Surge in Covid-Testing Demand; How One Made it Through,” September 6) reports:

Labs have competed for limited supplies of plastics and chemicals used to run tests, struggled to understand how federal supplies were allocated, and scrambled to come up with workarounds.

“Scrambled to come up with workarounds” instead of just paying the market price as free enterprises do on a free market.

Not only are private companies dependent on approvals from the FDA or the CDC, but their supplies are, since March, subject to price control and allocation, or threat thereof, both under presidential orders and under the states’ “price gouging” laws. (I had a number of Econlog posts on that—for example, “When Free-Market Prices Are Banned,” April 1, 2020.)

The government-as-it-is always shows this disorder. Only the government-as-it-should-be is rational and orderly, until it becomes the new government. The lesson to draw from this repeated experience has to do with poor incentives to satisfy consumer demand compared with strong incentives to cajole special political clientèles.

One objection to these conclusions is that, during the current crisis, at least as far as the availability of Covid-19 testing is concerned, other national states have done better than the US state despite a similar sort of mixed (capitalist-socialist) economy. More reflection on this objection is warranted but the explanation may simply lie in different mixes of ingredients in the interventionism. For example, Americans have very powerful and often arbitrary central agencies but an otherwise decentralized political structure, and the benefits of the latter don’t always compensate for the costs of the former; emergency price controls and allocation rules are especially vague and confusing in America; and we, in America, live under a particularly ignorant and naïve political establishment, which (if this mention is necessary) has not improved during the past four years. A simpler hypothesis: if the lider maximo believes in both A and non-A (in the sense that something can be true or false if he says so), pretty much anything can happen.

The Wall Street Journal article also includes an illustration of increasing short-run marginal cost (which explains why increasing quantity supplied requires higher prices) if only because coordination costs increase and running the equipment over usual capacity costs more. On the last point:

The machines’ efficiency requires close examination, said Geoff Monk, the company’s president and head of operations, mainly because “they were never meant to run 24-7.” Sometimes they break down, he said. Occasionally, they get clogged with mucus and need to be taken offline.

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