More simple economics of a pandemic

The difference in value to society of getting a vaccine in May 2021 vs March 2022 is huge, but the difference in private profits is not

That is from Luis Pedro Coelho.  And thus there is a great import to accelerating speed, at least in some critical matters.

Brad DeLong makes the point that if you have some downward nominal (or real?) rigidities, you should allow prices to rise in the expanding sectors all the more.

So many of the most important points of economics can be expressed succintly, which makes it well-suited for both blogs and Twitter.

That’s all!


The vaccines which are first to market are going to have a huge advantage no? The profits might not capture all the social benefits, but it seems likely that even the most mercenary private provider will recognize the importance of speed.

The first point is premised on assuming most people haven't gotten Covid by that point and herd immunity has set in (maybe when immunity wears off in 2023 or 2024 will his point be correct). And all this discussion of vaccines ignores that no coronavirus vaccine has ever been developed.

There's going to be overwhelming political pressure to require that the vaccine be given away free. There may not be any profit to cover the development costs.

look out ma
theres a new model coming up the river

"It is important for economists to recognize that, and advise accordingly: THE MARKET WAS MADE FOR MAN, NOT MAN FOR THE MARKET."

Good point by Brad

'but the difference in private profits is not'

Especially if the vaccine is not discovered (nor primarily manufactured) by private companies. The Chinese are working on several vaccines, both by private companies and governmental bodies, as is equally the case in the U.S. and Europe.

It is quite possible that a vaccine will be the equivalent of a free operating system which anyone can use, though obviously the actual vaccine still needs to be manufactured by someone. Someone whose only hope in making a profit is being able to more efficiently manufacture the doses than all their competitors.

Let us leave aside the regulatory aspect for now - AT will deal with it due time. Further, leave aside any ridiculous IP theft concerns - Google did not steal Linux to create Android.

Australia's virus stimulus is now over 10% of GDP. If things go well with the eradication of the virus -- and I hope to high hell they do go well -- then not all the stimulus will be "used" but there will still be enough to cause some inflation. This is a non-problem. This is a "Yay! Things turned out better than we expected!" situation.

Oil, copper and corn at multi-year lows. No sign of inflation in these commodities

Here in Australia businesses is picking up as good news comes in about the virus. People with jobs have money to spend now they aren't eating out, going to the pub, or on holiday. And people have jobs because the government is subsidizing pay by about $450 US a week for people in affected businesses. Also pensioners are looking at the cash payments they have been given and deciding to spend it. If there is a lot of cash chasing limited goods we'll have inflation, but it hasn't kicked in yet. Things aren't booming. Not at the moment.

I couldn't agree more. It's that pesky old upwardly sloping supply curve again (i.e., for vaccines and most everything else). And as I recall from my undergrad microeconomics class, supply curves are usually steeper in the short-term than in the long-run. Hopefully we can goose economic incentives to vaccines producers to accelerate the vaccine timeline.

@Various - I recall the exact opposite: long term supply curves are vertical (very steep). Usually large changes in supply due to new factors are represented by a shift in supply curves shift rather than a bend in the supply curve (i.e. moving along the supply curve).

Bonus trivia: Luis Pedro Coelho says: "Let's have a 50 billion dollar prize for a vaccine!" - but this ignores that invention it's very common to have simultaneous invention. So if 100 teams come up with more or less the same vaccine through independent means, do they split the prize? That's only a measly $500m each, barely enough to cover expenses. Reminds one of that scene in the comedy movie Bruce Almighty where everybody's wish is granted and they all win the lottery, for a few dollars each. It would not surprise me btw if making a vaccine is simply trial and error that takes 18 months to two years before the right combination is hit upon, and not really "creative" in the usual sense of the word. A vaccine expert's opinion would be valuable here.

I think you're right about the shape of the supply curve. Sorry about that. Been a long time since I took microeconomicd.

'Hopefully we can goose economic incentives to vaccines producers to accelerate the vaccine timeline.'

Yet the schedule of a not yet existing vaccine is not determined primarily by economic incentives, even if a few people are throwing around a few million dollars attempting to create such an illusory framework.

As always, Fred Brooks provides a now half century old quote to illustrate the basic point. "The bearing of a child takes nine months, no matter how many women are assigned." Or how many dollars are spent, to bring the quote into this pandemic age.

An effective vaccine needs to exist, and there is precisely zero lack of financial incentives standing in the way. Other obstacles remain much more relevant at this point, including those thoroughly based on the experience of creating vaccines throughout the 20th century.

Polio is an excellent past example, with different vaccines being developed over a span of 10 years.

Prizes would solve presumably. A prize of $10bn for the first vaccine to market.

The key word you left out is efficacy, not market. Which is why testing is done before coming to market, of safety and effectiveness both. The abstract of Vaccine-induced enhancement of viral infections at ncbi.nlm.nih gov pubmed 19022319 provides an overview, including relevant information concerning coronaviruses.

Only economists are able to imagine something that doesn't exist when making their various pronouncements such as 'Fix this now. I mean you!' A trillion dollar prize will not be any more effective than a 1 million or 1 billion dollar prize. The problems are not related to money, they are related to why there is no human vaccine for any coronavirus presently.

Here's the link. I've read and updated my view.

If a vaccine is not possible, then with a prize we have lost nothing. If it is possible, and the prize brings it forward by 6 months we have gained a lot.

Leaving aside the framing, do you honestly believe that all those currently involved in searching for a vaccine would be working faster for a prize?

History is a guide here - the effort to develop penicillin production involved a vast effort, and the pressure was at least as high then as today. Prizes played no role in it - it was the combining of scientific and pharmaceutical resources to focus on a single goal. Do you honestly think that the Chinese are not treating finding a vaccine much the same as the U.S. did penicillin?

Did you read the OP?

I don't disagree with you, but it is interesting that we do say "to market."

It is deeply engrained in our society that solutions will be sold, rather than freely available at the post office.

After all, those of you who want her immunity should want a free stab of vaccine for everybody!

Exactly. The people and companies working on a vaccine are well aware that they will likely be told that they have been working for free.

Yes, another reason for a prize!

There's definitely not enough attention being paid to vaccine development right now. Cuomo and Trump are on TV all day talking about PPE and testing, but not a peep about vaccine progress.

My bet is that tasking the military with developing the vaccine (military as they're not bound by many rules of normal society) and using the Defense Production Act to compel every lab in the nation to cooperate could've resulted in a working vaccine found and manufactured in less than 6 months. That's what they would've done during WWII if COVID-19 was a threat back then.

Myst's comment doesn't at all reflect reality:

"More than 140 experimental drug treatments and vaccines for the coronavirus are in development world-wide, most in early stages, including 11 already in clinical trials, according to Informa Pharma Intelligence.

Counting drugs approved for other diseases, there are 254 clinical trials testing treatments or vaccines for the virus, many spearheaded by universities and government research agencies, with hundreds more trials planned. Researchers have squeezed timelines that usually total months into weeks or even days."

Yes there are 80+ vaccine candidates in development right now, but they all have pessimistic 12+ month timelines. To solve this crisis we need 3-6 months timelines or at least a better understanding of why that's not possible.

The reason it isn't possible is that we could wind up mass-distributing a vaccine that kills a non-trivial fraction of people who receive it or even infects them with a contagious version of the virus. See the controversy over the vaccine for dengue fever for instance.

The vaccine needs to be proven to be less dangerous to society at large than actual exposure to covid-19 and that is the part that takes time.

How much more data are we gaining by waiting for 12-18 months after injection as opposed to 3 months after injection? What percentage of side effects are found after more than a few weeks? I don't have an answer to these questions, but also haven't seen experts debate them anywhere.

For example the 1976 vaccine (which is widely cited as a "failure") caused patients to develop the Guillain-Barre syndrome after just a couple of weeks, so you wouldn't have needed to test it for 18 months to see things go wrong.

Myst---start reading Derek Lowe's In the Pipeline blog. You have a lot of catching up to do on vaccine development, efficacy, safety, manufacturing build up, and the like. There is no, none, absolutely zero financial impediment to vaccine development for this virus. No prize will speed it up. And no toddler tantrum of "I want it in 3-6 months or I want to know why!" is going to speed it up either.

Yes there are 80 pregnant women gestating right now, but they all have pessimistic 9 month timelines before birth.

We can cut corners, whether by vaccine development or pregnancy (surgical delivery at 8 months is certainly possible), but first, you need to be pregnant or have an actual vaccine. Then it needs to be proven to be effective (by whatever definition of effective is suitable). This requires a longer time frame. Just getting an antibody response that fades completely in 12 weeks, at which point a vaccinated patient has the same chance of infection as an unvaccinated person would be an example of why no one expects a vaccine to be available before a long enough time to see the result has passed basic milestones.

That Gates is spending a massive amount of money building vaccine production facilities is an example of how to shorten the time required for people to get vaccinated. In a way that is explicitly wasteful, and if a government did it today, would definitely be decried as an example of pure government inefficiency at a blog like this.

'There's definitely not enough attention being paid to vaccine development right now'

Clearly you are paying attention to the wrong sources of information, starting with MR.

Nine women can't have a baby in one month. Flexing testing takes time, Don't want the vaccine to be worse than disease -- they're going to be giving this to 80%+ of be entire world population, you don't want there to be side effects. Many vaccines are tested for over 10 years before widely deployed.

Don't want the vaccine to be worse than disease

Yes, and this outcome is far from impossible given the overall low fatality rate of the disease itself. I'm not at all sure I'd be lining up for the first available vaccine myself (especially one developed in record time and with no long-term testing).

+1 - great point that not enough people appreciate

Luis' prior tweet to the one TC quoted helps with context:

"By the end of this thing, it is possible that governments will have spent more bailing out the hotel industry than trying to accelerate vaccine development"

Not sure why he pulled out just the middle tweet of the three, it's much more coherent as a whole.

Speed kills: speed increases, greatly increases, errors, and being dead in 2021 from an unsafe vaccine cannot be corrected by a safe vaccine in 2022. Maybe Cowen views the possibility of an accelerated development of a safe and effective vaccine from the perspective of having the right people in charge of the task. Who might that be?

will be very interesting if China gets an effective vaccine before the West

Moderna's stock is up more than 100 percent. Profits aren't the only financial motivation .

Eh? Their stock is only rising because people anticipate them making more profits.

I guess I was unclear. Being a first-mover garners immediate rewards. Even if there is no profit advantage for getting to market more quickly, your company still gains value.

If economics is well suited to blogs and twitter then it really is time for me to resign. Things in economics are so clear that they can be succinctly stated? That's why the comments on this blog are so deep, well thought out, and in total agreement? And twitter and blogs should not be lumped together, although these days reading this blog has become like reading twitter - in fact, more and more of the posts have twitter as the source (I don't bother clicking on those). Before everyone piles on in disagreement and belittling comments, let me state my position as clearly as possible. Virtually no policy decisions are so straightforward that twitter and blogs (at least such as this one) are places for them to be resolved. And the disparity between the complexity of economic research (papers appear to be averaging over 50 pages each and are getting almost impossible to read without spending a week on each) and the goal of succinctness are in almost total conflict. That last sentence in this post is perhaps the most inane I've seen on this blog - except perhaps for the one about the GRE scores of the epidemiologists.

Now that would have been a great last sentence, we can all agree.

There is possibly a (shortish) paper waiting to be written about current economists and inanity.
In my country (Australia) we have just witnessed possibly the inanest piece of economic analysis signed off by several hundred of our economists - mostly employed academics with tenure. This letter advised the government that a trade-off between public health and economic aspects of the crisis is a false distinction but then noted that the current cost to economic activity and jobs are far outweighed by the lives saved (see
For the first time in my life I am ashamed of my profession. Nonetheless, I am looking forward to several hundred epidemiologists signing a letter to the Government on the optimal tax policies needed to fund our new levels of debt.

Those same downward rigidities mean that inflation should rise. If 2% pa was optimal for the normal amount of economic churn at full employment, the Fed ought to be providing a lot more monetary stimulus than it is. Judging by the TIPS spread, inflation expectations are now UNDER 1%.

There's 100+ vaccines candidates in development, even if most end up effective (entirely possible, the theory behind most is sound) only a few are going to dominate the market. Some of that will be on the merits of the vaccine, but a lot will probably down to first mover / first scale advantage. There's a reason me-too drugs rarely surpass the original (in terms of revenue at least). There's a bit of compounding here, the longer available drug/vaccine has more data backing it, more familiarity with Dr.s, better understood side-effects and behavior. This is likely to be widely used and quite possible require boosters every x years (in which case natural choice is to give them same vaccine as before, they already tolerated it well). If your vaccine is coming out in 2022 it better offer a significant, step change, improvement in some way over the 2021 version.

The difference in total private profits may be minimal between the two scenarios but exactly who gets those private profits drives innovation and is the whole point of how markets work.

Here is a harsh critique along similar lines:

We Are Living in a Failed State

I think Tyler and Alex have some of the right hobby horses, but not all of the right hobby horses.

More here.

I sent money to Second Harvest a couple weeks ago. I better send them more.

But obviously libertarians, from those photos you can see that private charity is not a complete solution.

The unemployed are making about $1,000 a week now in benefits. Most under median income are now making more than they did while employed.

Throw $1200 in TrumpBux and more in food stamps.

South Florida, Anaheim, San Antonio....

I’ll save everyone (including myself) a click:

Let me guess, the only thing wrong with the US your personal near Out-Group ?

It strikes me that you get about 1/3 of what I say, and you have a bad answer for that 1/3.

I'm not sure whether you get off on that as a shallow troll, or if that is just your level of competency.

"So many of the most important points of economics can be expressed succintly, which makes it well-suited for both blogs and Twitter."

Economics is fertile ground for many half-baked thoughts.

The statement may be succinct, but it’s also shockingly ignorant of entrepreneurial dynamics. Of course, it makes a huge difference to a business’ profit if it is the first to bring a vaccine to the market.

Seems to me that if we still need a vaccine in spring of 2021 then we have failed.

Here is my Bryan Caplan bet - China will have the first licensed vaccine for general use.

Yes to letting the price mechanism work. But, also, what about the simple economic lessons on public goods being under-provided in a market? It sounds like there's a public goods problem here.

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