The Defense Production Act

In my post, Let the Markets Work, I argued that the Defense Production Act was “neither especially useful nor necessary.” The earlier post focused on how markets were working to address the crisis. Today, we can see the flip side, how the government is working to address the crisis.

The NYTimes reported on Thursday that the government was balking on a deal to buy ventilators

The White House had been preparing to reveal on Wednesday a joint venture between General Motors and Ventec Life Systems that would allow for the production of as many as 80,000 desperately needed ventilators to respond to an escalating pandemic when word suddenly came down that the announcement was off.

The decision to cancel the announcement, government officials say, came after the Federal Emergency Management Agency said it needed more time to assess whether the estimated cost was prohibitive. That price tag was more than $1 billion, with several hundred million dollars to be paid upfront to General Motors to retool a car parts plant in Kokomo, Ind., where the ventilators would be made with Ventec’s technology.

At $1.2-$1.5 billion that’s $15,000-$18,750 per ventilator which is well below the standard price of $25,000-$50,000 (maybe these ventilators would be simpler or less fancy.) Seems like a bargain to me but maybe GM wasn’t the best producer. I think we could buy more pretty quickly from China, as Elon Musk did. In anycase, I’ll give the government the benefit of the doubt on the bargaining. Note that even as they were haggling over the price, GM and Ventec were continuing to work towards production. The market for ventilators is growing.

The President, however, then went on Hannity to say that he didn’t think we needed 30-40 thousand ventilators and also insulted GM CEO Mary Barra in a series of tweets. This was clearly some kind of clever bargaining strategy. Surprise! It failed. Yesterday in a pique, the President invoked the DPA.

CNN: President Donald Trump invoked the Defense Production Act on Friday to require General Motors to produce more ventilators to deal with increased hospitalizations due to the spread of the novel coronavirus in the United States.

But it’s unclear what practical, immediate effect the order will have.

…Trump also named Peter Navarro as the national Defense Production Act policy coordinator for the federal government. Trump said Navarro has been doing that job over the past few weeks but announced him as the coordinator for the first time on Friday.

Trump decided to invoke the act because he was irked by news reports that an agreement between GM and the administration had stalled, a person familiar told CNN.

So what have we gained by using the DPA? Will the ventilators be produced any faster? Will the ventilators be any cheaper? Will other companies be so quick to enter into negotiations with the government? Will Peter Navarro direct production more efficiently and fairly than market prices? No.


CNN and the NYT are your news sources? No wonder you spare no opportunity to trash the President.

Top flight parody!

No parody needed. All he needs to do is add the WP in there. Trifecta of garbage journalism.

Sorry - who could forget the Democracy Dies in Darkness house organ?

Socialism is okay if a Republican does it.

AlexT did not mention economist Robert Higgs, who wrote books on this issue. Bad.

Bonus trivia for you Herders:

80% of Covid-19 cases are mild but 20% are not mild and 5% are critical.

Off topic. Some Azerbaijani players ( Mamedyarov, Mamedov etc...) are asking FIDE to annul the first 7 rounds and start over with 9 players with Radjabov back in.

Weak, even by your astonishingly low standards.

“Trump decided to invoke the act because he was irked by news reports that an agreement between GM and the administration had stalled, a person familiar told CNN.”

How long are you gonna fall for the anonymous sources scam?

Who cares about the gossip? It doesn't bother you that a president can just order around the private sector like it was one of his departments? Does it even make any economic sense to do things this way? You are losing the plot, Rich. COVID apparently not only affects the lungs of the dead but the brains of the living.


One for the content, the other for the pen-name

Trump himself cannot remotely keep his eye on the ball. He's tweeting right now about lamestream media and anonymous reporting, rather than what he's going to do to stop the triage.

Kaiser has just put chloroquine on rationing. Patients they don't seem critical won't have existing prescriptions refilled.

But sure, let's talk about which governors aren't grateful enough.

There really is no bottom, for the man or his "base."

"deem" critical. Autocorrect doesn't like "deem."

"So I risked my life all day to save patients with COVID
and find out when I get home that the President is blackmailing governors with holding medical aid unless they are nice to him! If we don’t get rid of him a lot more people are going to die. #25theAmendmentNow"

Sounds like the poor woman has TDS, am I right fam?

So it seems no one listened to me when I suggested that to get POTUS to do something you want you should cater to his ego. Now we have the effects of not listening to me.

Sorry, but you don’t get to demand he take action then complain about then actions he takes. Gov Inslee wanted a penis measuring contest and unfortunately for him, he ain’t got the length. There are consequences of challenging the alpha and losing. Democrats don’t seem to understand that.

You’ll notice that POTUS has no issue with Gavin Newsome since the outbreak because Gov Newsome had the intelligence to kiss the ring. Unfortunately for New Yorkers, Fredo’s brother chose poorly.

Perhaps Democrats will learn that spending the last 40 years calling Republicans names to get them to cower doesn’t work on a man who feels no shame. I doubt they will learn, as it’s been 3 years and they still don’t know why Trump won.

So before you go about spreading any more tweets and stories about how mean the Orange Man is, stop for a second and realize that you might be making things worse. It’s Gov Cuomo’s ego and political aspirations that are keeping Trump from aiding New Yorkers, not the other way around. Swallow your pride and get on the team. It’ll be better for everyone.

As our president rightly recognized.

It is not actually a higher form of governance to cater to a mad king.

Neither is rolling in the mud with a pig. If you want better leadership demand it from people capable of providing it. Don’t try and get it from egomaniacal narcissists. In the meantime, Democrats and Never Trump Republicans should continue to call Trump names. I’m sure one of these days it will work.

We Never Trump (ex) Republicans have manged to dis-empower him, a bit. It's really too bad that there were not enough rational (and bold) Republicans to remove him. Pence 2020.

This is too simplistic and you don't really understand the how the game works. You think Gary Cohn or John Kelly didn't try that route before they unceremoniously left? It doesn't work. The only way to work with Trump is TO HAVE LEVERAGE on him. Cohn and Kelly are underlings with no leverage so they get ignored and fired. I bet they were the best sweet talkers when they had to be and the most rational when they had to be. It might work in your head but it didn't work in real life.

Look at how Pelosi and Schumer treat him, rather roughly with Congressional investigations and impeachment but they are able to push their agendas because Congress is independent from the Executive and because they exercised leverage on Trump but he has no leverage on them.

You think Pelosi sweet talks Trump? After she humiliated Trump by denying him his border wall she said "it's a manhood thing for him." She rubbed salt into his wounds yet she just passed a stimulus package to her liking with his signature on it the other day. See you can insult the guy but he has to play ball or else nothing gets done.

Comment is too long but the governors' best route is find allies in Congress or the remaining NeverTrumpers in the Executive because there's no direct leverage going between them and the White House. But if history is any guide, Trump will relent on disaster aid as he did with Hurricane Katrina. The governor there and Trump didn't exactly get along but the money was sent. If you want to kiss Trump's ass, go pucker up. Maybe you like the taste of 'alpha male' ass. Some of us understand how to deal with sociopaths and narcissists when we cross their paths.

Contrary to your spiteful tone, we agree on much. Trump isn’t signing the stimulus package, nor will he sign future ones, because Nancy beat him. He signs them because he thinks it makes him look good. All you have to do is see how he treated Rep Massie. I said long ago that Democrats could get Trump to sign just about any law into effect if they convinced him that either his ego or wallet would benefit. He has no other ideology but more me now.

Signing a bailout doesn't make anybody look good. It's an admission of failure. Trump is now a member of the same swamp he called out before.

Isnt the wall being built right as we speak? Seems like it from where I live

Maybe Pelosi and her ilk need to rethink the strategy

Keep in mind that most teams led by a narcissist fail... when instead of focusing on important outcomes people spend more time managing the fragile ego of a person that puts himself above all, including thousands of lives and never acknowledges mistakes ... teams administrations... especially in crisis fail and fail miserably

And you are lucky if there will be a team of adults around tantrum throwing big orange baby. But there is no guarantee. Compare that with how Obama mange’s the 2008 crisis...

As FYI I am not supporter, or detractor. Looking at it from a dispassionate perspective. Just keep in mind if you are an american citizen you will suffer the consequences... economically - when situation is poorly managed, and maybe even health wise - hope you do not get sick now and be part of the 20 pct of complications... bc while orange mans ego is being managed you may die bc you did not get this last ventilator.

America needs a leader not a Narcissistic man. Narcissism is not the same as leadership.

Yes you are correct. America does need leadership. And that’s precisely what I am saying. Getting in a pissing contest with Trump isn’t working. Governors and other institutional leaders should be stepping up to do what’s right instead of worrying about the man-child in the White House.

now & are taking Dr. Birxs statements about current ventilator and hospital bed availability out of context
in order to attack the president

-100 to everyone for derailing yet another thread

pointing out that the can't actually
"spin" a viral pandemic is not off topic

The DPA should be amended to require consideration of foreign suppliers.

As others have noted, you know Boeing is going to get a hell of a lot more than $1 billion, basically for screwing up.

Penny wise and pound foolish.

We got two massive flat tops floating that don't work and the defense department is cancelling four more because it was all a McCain boondogle and he is dead.

These steel hunks of, now, junk cost $12 billion each. So a billion is a pittance compared to the political costs alone, much less material costs, that this boondogle has caused.

We should did up John McCain and put him on trial, then erase that idiot from history. Inhofe of Oklahoma was the other idiot in the deal.

Not to mention that they are sitting ducks in modern warfare

I think the ventilators will be produced more quickly now, since invoking the act ends the haggling over price.

Bingo. I’m puzzled why you think the gambit somehow it backfired, Alex. Having the ability to compel the party across the table is an advantage in the negotiation. Sounds like Barra didn’t notice the very big stick the government had behind his back. Bad call, poor negotiation on her part.

Now let’s get on with the production.

As I indicated in the post, GM and Ventec were ramping up production regardless. Haggling over price was not holding up production. Now there will be haggling over price in the courts. Moreover, now that GM and Ventec are compelled do you really think they are going to work faster? Moreover, how do you think other companies now feel about producing for the government? The ill will and failure to use incentives is going to cost us all.

Alex, this is an emergency. It is absolutely true that shifting from a market based approach to a command based approach puts ALL of the burden for success or failure on the quality of that command. Bad commanders do mean the situation is worse. But the idea that in the short term, a quality command based approach isn't far superior to markets is absurd.

Why would there be haggling over price in the courts? Would GM really engage in a public fight with the President over compensation for ventilator contracts now? Who cares how companies feel? With better leadership, they would do what they are told. The problem here is that we have a weak command structure at the federal level, not that the idea of emergency command is intrinsically flawed.

"Moreover, how do you think other companies now feel about producing for the government?" That's not really how the DPA works. I'd guess, in the future, they'll do what is needed because they know that DPA will be used. Not defending its use now though. Seemed unnecessary, but I'm sure we know about 10% of the details.

"Moreover, now that GM and Ventec are compelled do you really think they are going to work faster?"

Bingo. What does it even mean for the government to "force" GM to produce ventilators? If production falls behind schedule, what happens when GM says, "Sorry, we are already moving as fast as possible. These things take time?" And, GM won't actually be disingenuously lying either: moving "as fast as possible" always means relative to the resources available. If the government is unwilling to pay, then production will be under-resourced. Will government then jail the executives and workers, pushing production back even further? That did not work so well when the Soviets thought they could run the whole economy that way.

At most, the government can prevent GM from producing other things like cars at that factory. One can stop someone from working; one can't really force someone to work.

Even if government coercion were to "succeed" in forcing GM to meet production volume targets, what would happen to quality and reliability? Again, we already know the answer from the Soviets' (and other communists') experience. Lots of parables about uselessly large and small nails...[]

Which incentive do the firms have to produce ventilators if their expected revenue from them does not cover the cost?
Now GM will be clearly slower in producing the ventilators as well as other firms will be less likely to even start negotiations with the government about it.

It's likely a cost + contract under the DPA. They are guaranteed to cover their costs.

They aren't guaranteed to recover all of the money they are losing because they aren't producing cars that they can't sell anyway.

"The decision to cancel the announcement, government officials say, came after the Federal Emergency Management Agency said it needed more time to assess whether the estimated cost was prohibitive. "
This seem to suggest that this is not a cost + contract. Government seems unwilling to cover the cost of producing the ventilators (or even unable to calculate it in less than 1 month).

There is no calculation in a cost plus contract. The producer submits there costs of production (subject to verification) and the government pays the costs plus a guaranteed profit.

So you don't need to know what its going to cost.

u sed
"Which incentive do the firms have to produce ventilators if their expected revenue from them does not cover the cost?"

wereckon the long term incentive is to reduce the mortality/morbidity and economic damage to the country on which general motors depends (sorta like ww2)
did you see the high I.Q. Panera CEO fello/a at the daily news conference yesterday? He understands the implications of a
viral pandemic
it wasn't reported on by or

There's a difference between
A drunk driving a car
Mr. Rogers driving a car.
Sometimes you still need a car.
Just a better driver.

Think of Trump as what the BMV is supposed to be - replacing the idiot drivers of all the lettered agencies. And then Pelosi as the way it is now, fighting all the efforts against corruption and partisanship.

we would choose to walk rather than get stuck in a car with mr rogers

Until 1973 the US conscripted eligible males for mandatory service in the military and paid them at a rate that was non-negotiable. Failure to show up for work meant AWOL or desertion and the consequences were serious. This situation still exists, a Selective Service System, unused for 47 years, remains manned and funded and requires the registration of all resident males between the ages of 18 and 26.

If the battle against Covid-19 is some equivalent of war there's no reason that the federal government can't require manufacturers to supply its wants at whatever price it stipulates.

"Failure to show up for work meant AWOL or desertion and the consequences were serious."

Sure, you can get people to show up, but can you get them to be good soldiers? I believe most military generals today view our all-professional military to have better soldiers than would be the case with a conscripted force.

There is some very bad, even irresponsible, reporting on the ventilator issue.

The NY Times (March 27) has an article critical of claims by Dr. Birx that we may not have a major ventilator shortage. The reporters make a very basic error by comparing the stock of ventilators with the flow of patients requiring one.

Here is what the article states: "The United States currently has 160,000 to 200,000 ventilators, but as many as one million patients might need to use one of the machines during the outbreak, according to the Society of Critical Care Medicine."

The authors (Weiland and Haberman) don't even bother to mention that the million patients is a flow, likely spread out over many months. This is fear mongering and blatantly irresponsible journalism.

OK, Phil, since you have the flow statistic and the distribution of ventilators, why don't you post below your data or sources:

Post below.

If you don't have that data, could you post by major city the anticipated peak and also the ventilator capacity.

I think the point is neither does the NYTimes and they don't even realize what the right way of looking at the supply situation is

True, but then if he is going to argue there is not a shortage, defending Birx, he should offer support, since she did not.

Maybe the question should have been asked of Birx for evidence to support her assertion.

As for the flow issue, what is the duration upon which a person is on a ventilator. Flow can match supply in a 4 week period if people are on the ventilator four weeks. You could make the other argument: that patients flow into the system and stay there for 4 weeks, while the supply is limited. Backup happens. Pressure relieved by death.


I am even more critical of Phil since I have read the article he refers to.
It cites to other experts who are very critical of what she said, and specifically refers to the data from the Society of Critical Care:

From the same Society's document: A recent AHA webinar on COVID-19 projected that 30% (96 million) of the U.S. population will test positive, with 5% (4.8 million) being hospitalized. Of the hospitalized patients, 40% (1.9 million) would be admitted to the ICU, and 50% of the ICU admissions (960,000) would require ventilatory support.1

Also, if you read the NYT article, there is a correction at the bottom of the page: "An earlier version of this article misstated the estimated need for ventilators in the United States as described in a study by the Society of Critical Care Medicine. The study projected that there might be as many as one million people in the United States who would need treatment with a ventilator during the pandemic, not that the country would need up to one million ventilators."

Bill, I'm usually with you on 'post below your data '. This one is logic error though. The NYT screwed up stock and flow. This is exactly what 'flatten the curve' has been all about.

TMC, Stock and flow can work against you as well. Remember that algebra example where water was flowing into the bathtub, and the drain was letting water out at a certain rate, and you had to figure out when the bathtub would overflow. That's why surge capacity is what people usually refer to. You might want to look at the piece cited in the NYT article.

Checked with my daughter pathologist:
typical time on a ventilator is 2-3 days on average;
for covid: 11 days on average.

True you need to account for surge, but error remains the same. So if we could flatten the curve to our liking (I know we can't), 1 million people would use the 200k ventilators over 55 days. I think we are expecting this to last longer than that. Also, limiting factor really seems to be having the people trained to use them.

Trump is the most socialist president ever. He tells GM what to do. He gives bailouts to anybody that asks. Trump should start a chapter of Democratic Socialists of America at Mar-A-Lago. Bernie could use a job after this primary.

he is definitely having a moment. from early on we were told we were headed for the american version of putin/kim, but maybe we'll get Chavez instead...

Trump is certainly not market oriented in his thinking.

.. the Defense Production Act is also non-constitutional, not that that means much these days with all levels of American government vigorously acting outside the Fedeal and state constitutions under the guise of imagined public-health "emergency" legal powers

Sorry, no . Here is some constitutional scholar discussion and history:

An interview with a ventilator manufacturer:

Excellent link. It illustrates, yet again, that the simple answers we're seeing from both politicians and on-line non-experts only serve to confuse and add noise to the discussion.

Some key quotes:
DER SPIEGEL: Car manufacturers and other firms have announced that they can manufacture ventilator components. Is that purely a PR move or is it actually helpful?
Dräger: There is little point in adapting unused production capacity to manufacture respiratory aids. I spoke with Daimler over the weekend. They would also like to help. But it’s unfortunately not so simple. We can’t build cars either.
DER SPIEGEL: What is so demanding about these devices?
Dräger: It’s not about the device, but about the person who is attached to it. You have to be able to evaluate the person’s state and know how to precisely adjust the device to first save the person's life and then ensure that they quickly grow healthy again. This requires years of experience.
DER SPIEGEL: Have you received a call from U.S. President Donald Trump yet?
Dräger: We are waiting for it. The U.S. authorities have made a request for 100,000 ventilators. That likely exceeds the annual production capacity of all manufacturers. It is absolutely mission impossible.
DER SPIEGEL: What are the lessons to be learned from this crisis?
Dräger: It shows that common sense is more important than we all thought. This situation is so new and complicated that the problems can only be solved by people who carefully weigh their decisions. Artificial intelligence, which everyone has been talking so much about recently, isn't much help at the moment.

There was also some good stuff on repairing old stock, and ..

"I believe it’s possible to use devices from ambulance service or anesthesiology departments. Such devices aren't meant for long-term respiration, but they can serve that purpose. We estimate that in Germany alone, 5,000 devices could be mobilized from this reserve. To make that possible, hospital staff, of course, need to be instructed in how to use these devices. And it also requires action on behalf of the regulatory authorities."

However, Daimler's 3d printers are fully available to manufacture any items required - they are working on interfacing the systems. Some Germans call this framework Industry 4, by the way..

Outsourcing production of essential goods to China is exactly why we're in this mess.

We even have to import our viruses from China. Sad!

Let the markets work (if they can) to manufacture and distribute ventilators worth producing in the first place. Not all modern ventilators are alike, necessarily, or so it might seem.

Some reports do suggest that silver-coated endotracheal breathing tubes cut down considerably on opportunistic lung infections that often come of using modern ventilators. Silver is known to possess anti-microbial properties not entirely understood, but in terms of endotracheal breathing tubes, the metal seems to lessen the likelihood and/or severity of opportunistic infections (I could not begin to say what virtues a silver-coated endotracheal breathing tube possesses when or if shared with a random neighbor in a plague ward).

We might find some wisdom in deploying "older" respiratory therapies: non-computerized ventilators surely existed a scant fifty years ago--could those technologies (far easier for mass production today, one might be lured to think) well serve the COVID-19 population not suffering from the most extreme infections? --Is there a place for "older technologies" presently that do not entail the costs (much less the time for manufacture and distribution) that "state-of-the-art" digitized machines might require?

The media ran non-stop stories of how we needed to invoke the DPA earlier in the week, now it is a crime.

We need a better media.

Let’s be clear what happened: GM was haggling over price without thinking that, in the end, the company had little leverage due to the DPA. They got burned. That’s the whole story.

I am sure that when you said
"We need a better media"
You were referring to
Fox News

It’s pouting by an ego maniac. I can make you... peasants.

"The decision to cancel the announcement, government officials say, came after the Federal Emergency Management Agency " FEMA again, covering itself in bureaucratic glory.

Gotta love how in a crisis where having more ventilators, PPE, and test kits are probably the key to getting people back to work on some level and where the government just passed a $2 trillion stimulus to see what if anything will stick to the wall or maybe to just signal to voters that they’re trying hard, that spending $2 billion on one of the key components to getting out of this mess was deemed too expensive. Seriously? These politicians and Trump in particular are disappointing on so many levels.

I suspect Trump used the DPA also for credit claiming purposes. If GM was going to make these anyways, Trump might as well invoke the DPA so he can say he was leading the way and taking action to save American lives. The MO for most politicians is to take credit and avoid blame but none do this so nakedly and without shame as the current occupant in the White House.

"So what have we gained by using the DPA?"

We stopped "anonymous sources" from "inside the failed negotiations" gutter sniping the President for "haggling over prices and killing people."

That has a real value to people's states of mind. Bargaining is much easier when you can make offers that can't be refused.

This is $10,000?

The current stock of ventilators and PPE is adequate to support surgical and medical requirements under normal usage and demand. COVID-19 demand and usage is superimposed upon normal usage and demand, rendering current supplies inadequate to meet the surging number of case of the virus.

By invoking the Defense Production Act, the president gives the administration the power to requisition facilities, production personnel, and materiel wherever situated in the country to address the need for medical equipment to support doctors, surgeons and nurses, and to do so on a priority basis. His executive order of March 18th designated medical ventilators and protection equipment "essential to national defense"; his executive order of March 23rd classified "health and medical resources neccessary to respond to the spread of COVID-19" as subject to the DPA to prevent hoarding and price gouging.

Pres. Harry Truman (D) invoked the DPA during 1950 to support the Korean War, establish new industries, control heavy industry, and impose price and wage controls.

Pres. Barrack Obama (D) invoked the DPA to compel the telecommunication industry, under penalty of criminal offenses, to provide his administration with information in detail about the presence and use of foreign supplied telecom equipment in the U.S. telecommunication networks.

Starting in the 1980s, the DPA has been used to develop new industry, materiels, and technologies in support of national defense.

Mr. Alex Tabarrok's argument that the free market will provide if only we let it get on with the task free of government interference is not convincing. The narrow focus on GM and CEO Barra is a red-herring. GM, as a private for profit entity, acts in its own self-interest, just as every other for profit entity would do. It will produce goods up to the point where its marginal net private benefit diminishes to zero and it will produce nothing beyond that point. It will take its own sweet time in so doing.

Under the DPA, GM will be required to put its self-interest aside and produce the materiel in amounts and at a cost that the administration determines, even if the reimbursement is only at cost. If GM drags its feet, the executives could be fined or summarily dismissed or both. The penalties are not insignificant. GM can move faster, and it now will. So too will other private businesses, if for no other reason than to avoid GM's fate.

On simpler ventilators, there are indeed vast differences in ventilators. This comes back to war-time like product design. The AK-47 is simple, can be buried for months and then dug up and after a simple clean you can start firing with no problems. There is very little training required for an AK-47.

Likewise, there are very simple "just keep the patient alive and breathing" ventilators that are good enough for the current health crisis and then there are over-engineered expensive ventilators, that try to wrap into the product many different forms of health analytics on the patient that are entirely unnecessary.

Furthermore, the simple ventilators don't require significant training time, which you need when you want to increase the utility of less skilled health staff in a time like now. The more complicated ventilators require weeks and weeks of training even for the most skilled health practitioners.

Simple stupid will be the most effective strategy. Also, don't buy from the CCP, those machines often don't work very well, as Europe is finding out to its dismay.

Did Franklin Delano Roosevelt need a “Defense Production Act” in order to get FORD and others to build that "Arsenal of Democracy" that saved us all during WWII?
So why in the COVID-19 war?
Key though for FDR’s success was that he managed to keep Congress at distance.

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