Prices, said the economist Benjamin Anderson, have work to do. Prices should be free to tell the truth. With Covid cases rising, places like Los Angeles reinstating outdoor mask mandates, and social media bursting with even more indignation than usual about Those People who refuse to wear a mask (or Those People who refuse to leave the house without a mask), its time to take a couple of deep breaths and explore the work prices would do if they werent actively suppressed.
The important question, as Thomas Sowell explains in his magisterial Knowledge and Decisions, is not What is to be decided? Rather, it is How are decisions to be made, and by whom? When I first typed this, I wrote How is the decision to be made, but then I stopped myself and rewrote because treating the pandemic as if there is One Big Decision to be madeand one Great Mind to make itis a fundamental mistake. We cannot specify literally everything that could possibly happen, assign probabilities to everything, and then choose the best of our nearly infinite options.
People make innumerable decisions based on decentralized knowledge about preferences and possibilities that a single mind or select committee of minds cannot, in principle, have. That this knowledge gets aggregated into prices, norms, and customs that then confront decision-makers as data is an unappreciated marvel.
The Science, in this light, is informative but not decisive. It can highlight particular aspects of some of the trade-offs people face, but it cant tell people which trade-offs to accept and which trade-offs to avoid. Minimizing the risk to our health and safety is just one among many worthy goals that have to be traded off against one another. Importantly, scientific observers cannot have all the knowledge of what F.A. Hayek called the particular circumstances of time and place people need to make wise decisions consistent with their own values.
But there are externalities, which means markets fail to generate the socially optimal outcome! There absolutely are, and asking students if they got a flu shot and then talking about spillover benefits from vaccination is one of the standard ways I teach the concept. Then we go on to talk about cooperative and coercive solutions. An educational institution, for example, might require proof of vaccination before enrollment or give a discount to students who have been vaccinated. The NFL has a pretty extreme policy in place: players who break Covid protocols will be fined almost $15,000 per offense.
Freeing the markets for health and life insurance would help, too. Replacing political calculation with actuarial calculation would pull together the relevant information about risks and repackage it as higher or lower insurance premiums. If the vaccines are as dangerous as some people on Facebook think they are, we would see higher insurance premiums for the vaccinated. If the vaccine is pretty safe and pretty effective, we would see lower insurance premiums for the vaccinated.
We can expect the same thing in markets for schooling, food, and other goods. A restaurant might add no mask to its no shirt, no shoes, no service policy. Customers voting with their own money will tell them whether or not they approve of the policy, and whether or not they are making money or losing it will send them a pretty easy-to-interpret message. Insurance markets obviously wouldnt get it right all the time, but I would expect them to do a lot better than internet conspiracy theorists (or pundits) who dont have nearly as much skin in the game. Your imagination can run wild with scary what-if scenarios, but as Alex Tabarrok explained, A Bet is a Tax on BS. People think twice about acting on hysterical predictions when its costly.
As much as it flatters our conceit to think otherwise, we cannot plan other peoples lives or predict what will happen in fine-grained detail. This is a rhetorical handicap, especially given that people have very strong medical and political imaginations but very weak commercial imaginations. Its easy to believe people wont do the right thing unless they are forced to. It is a lot harder to accept that there isnt a well-defined, discoverable right thing independent of the unarticulated social consensus reflected in norms, prices, and other practices. Just because you dont know exactly how people will solve a problem doesnt mean that they wont, however. Elinor Ostroms work provides a lot of examples of how solutions to collective action problems bubble up from the bottom without having to be imposed from the top down.
At just about every step of the way, governments have suppressed prices and put limits on peoples ability to come up with creative ways to solve the problems the pandemic poses. The failure hasnt been the failure of otherwise-unregulated market prices to fully reflect all the relevant costs and benefits of vaccination, serving restaurant meals, or what have you. It has been the governments failure to not let market prices work at all and instead address the pandemic with command-and-control policies that have created shortages, thwarted innovation, and distributed vaccines based not on what will most internalize the spillover benefits of vaccination but based on political considerations about who should enjoy the private benefits of vaccination. The problem isnt that the prices are telling the wrong story. Its that the prices largely arent telling any story at all because they are being actively suppressed.