Why are people shocked to find stores running out of essential goods, hospitals suddenly lacking supplies and equipment (even beds), the general lack of flexibility by actors, whether government or private business, to respond to the crisis? It is exactly what we should expect from an economy that is heavily regulated. So, we need to talk about regulations, because they are at the core of many of the problems we are dealing with.
Regulations make economies function poorly–and much, much *worse* in times when we need solutions urgently. People have a romantic view of regulations as something inherently beneficial, but the fact is that they are simply restrictions: regulations stipulate that some actions are not allowed or are otherwise penalized (added cost, such as a fine or tax).
In normal times, this means it is more difficult for entrepreneurs to freely figure out how to best serve their customers. But in normal times we do not feel the effects because we don’t know what we’re missing. Perhaps entrepreneurs would have invented a new means of transportation, new forms of communication, new types of healthcare or immunizations? We don’t know, and thus do not feel the pain. (But we’re not getting what we could have, so we are worse off.)
Enter some crisis or panic, and suddenly we would benefit greatly from quick solutions, even if they are subpar (non-perfect). Such as repurposing industrial respiratory protection masks for medical use. In normal times, the problem appears limited. It may even seem like a good thing that hospitals are not allowed to use masks that are not “medical grade.” But if something happens so that many, many more masks are needed urgently, the requirement that masks are of a certain “grade” means there are not enough masks available. It may not even be possible to manufacture them quickly. So medical staff is unnecessarily risking their health going without.
Why not use the second best option when no medical grade masks are available? Regulations. They are not allowed. This is no fluke, folks. It is what regulations do and are *intended* to do: restrict the use of masks to only medical grade.
So I just heard Pence talk about a federal regulation that’s been lifted to allow companies to sell industrial products to health care facilities. They can now ramp up production & sell them N95 masks.
So the shortage has really been the government regulation in the first place?
— MichaelBoldin (@michaelboldin) March 19, 2020
When such masks are easy to come by, when they’re not needed in great numbers, then we don’t feel much of the pain. The masks just cost more than they should. No big deal, right? Except when something unexpected or unusual happens. Then, suddenly, what seemed like a great idea–to restrict (prohibit) hospitals from using anything but medical grade masks–becomes a problem. Certainly, hospitals and medical professionals could be trusted to choose masks themselves? No, says the regulators. They cannot be allowed to use other masks. So their choice in crisis is to work without masks or break the law and risk fines or even prison. Just when we need them the most, their job is made a lot harder.
Again, this is no fluke. This is what regulations are intended to do. The CDC even brags about it on their web site. How well did they respond to the need for testing for the #coronavirus? The CDC is the appointed monopolist–everybody else is restricted from conducting such tests. So on February 4 the CDC issued an Emergency Use Authorization, i.e. a temporary deregulation, to allow more labs to conduct tests.
This is likely “by the book”, but why is it not pure madness? Ask yourself, now that we are experiencing a pan[dem]ic, what could possibly be the reason for restricting who can test whether you have contracted the virus? There are plenty of labs with competent personnel to conduct (and develop) tests, so why not let them?
Sure, one can argue that this is exactly what the EUA does–but it only opens for some specially appointed labs to act on CDC’s behalf. Why not have every medical lab in the country freely conduct tests? It is prohibited. Because a seemingly reasonable argument can be made in normal times for tightly controlled medical testing. I say “seemingly,” because it has the appearance of being sound but is not. With less draconian regulations, virus testing could be as hard to come by as glucose meters. With no regulations, medical entrepreneurs would compete to provide the best solution possible limited only by their imagination.
Who knows what that might look like? If experience and theory are any guide, we would see greater quantities of better and cheaper tests. Note that what we’re seeing is not a result of this unique situation. A time of crisis only makes it obvious what the results of regulations are: we see the effects, because we feel the pain. But these effects are always present–and by design–only we do not see what it is we’re missing. Regulations do not work in normal times and fail in exceptional times. Regulations *always* work: they always restrict possibilities and thus deny opportunities. This is what they are intended to do, and we need to realize what it is we are asking for when calling for something to be “regulated.” It is never anything but a restriction.
You can still favor regulations, but it is irresponsible to support them without knowing or even considering the real effect. The fact is, if you support(ed) regulations on hospitals that require them to only use medical grade masks, you are the reason there are no masks available. Learning about how the world works is the antidote to causing unintended madness. I felt compelled to write a book summarizing how regulations affect us and the world, whether we like it or not. Check it out:
The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives
This book shows the effects and implications of regulation on how the market functions, with an emphasis on how regulation affects economic actors in other parts of the economy. Learn More