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Markets are good at allocating resources

Summary:
By now, this idea is pretty widely accepted. But there’s somewhat more skepticism when dealing with shortages of important goods during an emergency. Consider these tweets: I’m not qualified to opine on the specifics of this issue.  But after all the missed opportunities of 2020, I’m skeptical of claims that society could not possibly be missing out on “no-brainers”. This long article discusses logistical problems in rapidly scaling up vaccine supplies: Take large original equipment manufacturers like 3M, for instance – they have as many as 5,000 direct suppliers, and each of those suppliers have their own suppliers. This results in quite large supply chain networks that extend all over the world – and it only takes one incident to disrupt these operations. Plus,

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By now, this idea is pretty widely accepted. But there’s somewhat more skepticism when dealing with shortages of important goods during an emergency. Consider these tweets:

Markets are good at allocating resources

I’m not qualified to opine on the specifics of this issue.  But after all the missed opportunities of 2020, I’m skeptical of claims that society could not possibly be missing out on “no-brainers”.

This long article discusses logistical problems in rapidly scaling up vaccine supplies:

Take large original equipment manufacturers like 3M, for instance – they have as many as 5,000 direct suppliers, and each of those suppliers have their own suppliers. This results in quite large supply chain networks that extend all over the world – and it only takes one incident to disrupt these operations. Plus, many organizations don’t even know who is in their supply chain. This is what we saw earlier on with N95 masks, gowns and gloves.

So what we have is a much more delicate or fragile supply chain for healthcare supplies, which really sets the stage for where we are now. Because the supply chain has become a much bigger factor, many of the components of the vaccine are subject to these same potential risks.

These are genuine problems, but these are also exactly the sorts of problems that markets are good at addressing.

Though Pfizer has already manufactured 20 million or so doses, Pfizer, Moderna and other vaccines are experiencing severe bottlenecks due to a lack of critical materials – including vials and rubber stoppers for the vials.

How might China’s vast and highly flexible manufacturing sector respond to price signals for producing more of these supplies, say a 50-fold increases in vial and stopper prices?  Hint, here’s how they responded last spring to the mask shortage:

Between March and May, China exported more than 50 billion face masks — a tenfold increase for total production last year, according to analysts

Read that again.  In three months, China exported enough masks to give everyone in the world 6 masks, ten times their normal annual production.

One mistake frequently made by non-economists, even non-economists that know far more about their own industry than economists do, is to underestimate all the margins by which supply can respond to market signals.  Almost nothing is “fixed” in quantity.  I won’t say it’s necessarily true that “where there’s a will there’s a way”, but when there’s obscene profits to be made then there’s almost always a way.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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