Via Economic Policy Journal

F. A. Hayek

By Jonathan Newman and Anthony Gill

We are now more than five months into the Great Coronavirus Crisis of 2020. Epidemiologists, public policy experts, and politicians have been scrambling to find a solution that would minimize the public health effects of the disease. Their policies and suggestions have, at best, been confusing. Mask off, mask on. Only allow businesses selling essential goods. But what is essential? No large gatherings, except these and those. It is no wonder that average citizens are getting increasingly annoyed. It is as if we are walking blind across treacherous terrain.

But infectious disease and plagues are not new. Even before the global coronavirus pandemic, we battled seasonal influenza. Indeed, influenza, in its many guises, is an annual event. During flu season, people wash and sanitize their hands more often than during other times of the year. While rare in the past, a few people declined handshakes if they felt ill or suspected illness in others. In cases of localized outbreaks, schools took breaks to slow down the spread of the flu.

We’ve been there before. And we’ve adjusted. Economics has something to say about this.

The first thing that economics tells us is that we live in a world of diversity. Each person has their own varying risk preferences. Some individuals are very concerned about contracting certain diseases, while others live a bit more carefree. And each person has their own particular circumstances. These circumstances include the likelihood of contact with an infected person, the health of the individual’s own immune system, having immunocompromised friends and relatives, and access to a host of possible prevention measures. One doubtlessly could think of many other considerations that affect our personal decisions with respect to health.

Our “policy” before COVID-19 was largely to let individuals, organizations, and businesses decide for themselves the appropriate way to deal with the flu and other contagious diseases. The measures taken by a healthy 20-year-old living by himself and working from home obviously differed from the measures taken by a elementary school principal with a large and growing number of cases among students and faculty. Individuals chose where to eat, who to eat with, and how late to stay out.

None of this seemed preposterous then, but advocating for a similar approach today in response to this virus is met with accusations of “denying science” and “killing grandmas.” If you don’t believe us, just type “why don’t we let people decide how to respond for themselves” on any social media platform where coronavirus is a topic.

Granted, COVID-19 is not the flu. Based on our present state of knowledge, it does appear to be more infectious and dangerous than the typical influenza, and those parameters have more severe impacts on different demographic groups, namely the elderly and individuals with preexisting health concerns. However, the statistics on communicability and lethality differ in degree, meaning our responses should differ in degree. 

Alas, our response to COVID-19 has not been different in degree, but in kind. State governors have imposed lockdowns, with arbitrarily chosen “essential” businesses allowed to stay open. State and local governments have instituted face mask mandates in public spaces. The federal government undertook massive mobilization of ventilators and other medical equipment and shut down travel to and from certain countries. In short, we have substituted individualized and decentralized decision-making for central planning.

Central planning seems like a good idea in a time of crisis. After all, we are all in this together (or so we are told). But if we are different in important ways, decentralized decision-making might be the better path to take.

In his landmark 1945 article, “The Use of Knowledge in Society,” F.A. Hayek explains how the price system of a market economy leverages decentralized knowledge in ways that a central planning board never could. The knowledge about the availability of resources, preferences for consumer goods, and ideas about how to produce both consumer goods and capital goods all exist in the minds of consumers and producers in a dispersed way. Nobody has, or could have, the totality of this information, much less act on it in a way that economizes on resources. Since much of the information is produced “on the spot” (e.g., your unplanned purchases while shopping), even supercomputers with Big Data archives could not solve this information problem.

Note that this argument is not against planning. Nobody is suggesting that we should jettison policies directed at dealing with viral outbreaks entirely. Hayek’s suggestion is that the planning done by a multitude of individuals in a decentralized way makes use of the critical yet decentralized knowledge held by those individuals. According to Hayek:

“This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.” (pp. 520-521)

Hayek directed his argument at economic central planning, especially under socialism. However, we can easily translate his ideas to the way we respond to viral outbreaks. Plagues are an economic problem, because they require scarce, valuable resources to overcome them. Masks and mask-wearing are costly. Ventilators require production. Doctors and nurses with variable skills have positions in hospitals with differing capacities. All the scarce means we have to prevent, treat, and eradicate the virus have competing uses, and people have different preferences and ideas regarding how to combine those means to achieve their different ends.

The medical doctors, epidemiologists, and other science experts advising governments would have us believe that this is not an economic problem, but a purely biological problem to solve. If we could just muster the political will and listen to the experts, then this thing would have been over in a few weeks, not many months or years, they say. The fact that we are still dealing with COVID-19 with a major election approaching makes all of this more political and intensifies the cries for centralized action; spikes in cases and arguments over what curve we are flattening become fodder for opposing political parties to claim their foes have failed to heed the advice of The Experts. But what experts? And expertise in what? Is there just one problem we are trying to solve, or many?

According to Hayek:

“If it is today so widely assumed that the [experts] will be in a better position, this is because one kind of knowledge, namely, scientific knowledge, occupies now so prominent a place in public imagination that we tend to forget that it is not the only kind that is relevant.” (p. 521)

We tend to marvel at the medical experts with their academic degrees, past accomplishments (truly impressive in some cases), lab coats, and proximity to presidents and governors in televised briefings. But then we allow the same experts to make policy prescriptions, not realizing that in so doing they have jumped outside the boundaries of their own scientific field and into economics. But even more so, the policies that medical experts propose assume uniform knowledge about all the diverse individuals they affect. They step into the disparate world of individual preferences, and the expertise we each have of our own particular condition.

Understanding the science behind viral transmission is not the same as understanding each of 300+ million individuals’ risk preferences. Doing a study on different mask materials and their ability to stop particulates from going in or out is not the same as judging the future market demand for different kinds of masks and comparing it to the costs of producing those masks. Nor does it inform us of how individuals will use this equipment. Knowing the statistics on cases, hospitalizations, deaths, and recovery is not the same as knowing the value of forgone production and income if thousands of businesses are prevented from allowing employees to go to work.

It is easy to assume that everybody wants to live and not die, but how we want to live — i.e., the trade-offs we want to make as individual people — is much more complicated.

Unfortunately, this claim is heretical in today’s social climate. Hayek struggled with the same reception in his own day:

“Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place.” (p. 521)

The knowledge Hayek referred to is your knowledge. Only you know your need to continue working and earning income. Only you know the pros and cons of working from home, if such a thing is even possible for you. Only you know the life-giving benefits of seeing friends and family, attending community events (including funerals), learning in a classroom with a live teacher and live classmates, and going on a date at a restaurant and then walking down the street for ice cream afterwards. Only you can weigh the costs and risks of these activities against their benefits for you. You are the only true expert on you. 

And you are not the only “you” in the world. There are billions of “you” with their own individual knowledge interacting in a global division of labor. Only the entrepreneurs at Hanes can decide how to shift from underwear production to mask production. Only school administrators in a small town in Wyoming can decide appropriate policy for their school based upon their local experience with the virus. Only the owner of the local Italian restaurant can judge the potential revenues of limited inside seating and compare it to the costs (including liability) associated with limited inside seating. Only the grandmother with respiratory problems knows if it is safe to wear a mask or go out at all based upon how she values her family.

As Hayek reminded us, “We need decentralization because only thus can we ensure that the knowledge of the particular circumstances of time and place will be promptly used” (p. 524).

We’ve been here before. You are more of an expert than you might think.

Jonathan Newman is Assistant Professor of Economics and Finance at Bryan College and an Associated Scholar of the Mises Institute. He earned his Ph.D. from Auburn University in 2016.

Anthony Gill is a professor of political economy at the University of Washington, Seattle.

The above originally appeared at AIER.org.

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