1776 was quite a year for faith in markets. In March, Adam Smith made the case for a light touch on taxes and trade in The Wealth of Nations. His work would become the foundational text for supply side economics. In July, Thomas Jefferson’s Declaration of Independence stated the purpose for the revolution that had begun fifteen months earlier: an unrelenting belief among the colonists that a society organized by the individual wills of a free and independent people best protects the inalienable rights of all. As nations put these ideas into action over the next two centuries, billions escaped extreme poverty and generational increases in prosperity became the norm. But over the same time, progressives have countered that a strong central government must curb self-interested behavior to bring about equality. They sought to exclude entire areas of the economy from free market organization, and to put those areas in the charge of altruistic technical experts. It was no surprise, then, that progressives and other technocrats would apply a top-down approach to combatting the novel coronavirus. Too many health authorities and politicians ignored the signals coming from markets that conflicted with the advice of “the experts”. Had they respected and investigated those signals instead of dismissing them, they could have both effected better policy and lessened the division which would cripple the nation’s response.
As Americans came in early February 2020 to understand that the virus would not be confined to Asia, they sought ways to protect themselves from illness. Following traditions from Asians who have employed masks regularly during cold and flu season, masks and respirators were selling out at big-box stores and online retailers across the nation. The logic behind masks was simple: place as many barriers as possible between your nose and mouth and others’. But between February 27th and March 8th, Americans were discouraged from wearing masks by the Centers for Disease Control and Prevention (CDC), the US Surgeon General , and most publicly by Dr. Anthony Fauci on CBS’ 60 Minutes. Experts interpreted the high demand for masks as a misguided panic rather than an indication that masks might work. These were critical missteps by our public health leaders. Not only did the incorrect advice delay widespread mask wearing, but when the evidence and expert sentiment in favor of masks turned favorable over the summer, millions of Americans would not trust the authorities telling them the opposite advice with the same confidence.
Friday, March 13th may have been the day of peak frenzy in the United States. Italy’slockdown began that Monday. Then, between Thursday and Friday, the NBA and NCAA canceled all activities including March Madness, and Americans no longer could hope that the virus would not significantly disrupt life in the US. Lockdowns began the next week in California and New York, and over the next three weeks, “safer at home” orders and “non-essential” business closures became the preferred policies of local and state governments. The economy faltered and tens of millions lost work. On US stock exchanges, circuit breakers halted trading activity four times between March 12th and March 18th, when only once since their creation in 1987 had the mechanisms ever tripped. But the S&P 500 had already bottomed out by March 23rd, and its subsequent rise dumbfounded health experts, policy makers, and many market prognosticators. How could investors be optimistic amid such grim news about growing COVID-19 cases and the morbid situations unfolding in Western Europe and New York? A close look at new COVID-19 cases in Italy showed a distinct slow down right around March 23rd, one of the earliest indications that the truly scary parts of an outbreak in which cases grow exponentially would be relatively short lived. Perhaps lockdowns would not be necessary at all, or at least they shouldn’t last too long. Markets stumbled in early April when lockdown-resistant governors Gregg Abbott and Ron DeSantis relented and shut down Texas and Florida, but by Monday April 6th, the bulls were running again, spurred by intelligence from Wall Street’s backyard. The 7-day average of COVID-19 hospitalizations in New York City had peaked over the weekend, and while city hospitals creaked and groaned amid the frightening surge of COVID-19 patients, the nightmare scenario of scores of New Yorkers dying in the streets waiting for hospital care was avoided. Indeed, overflow facilities setup by the state and federal government in New York City remained mostly empty. By the end of April, retailers like Wal Mart and Home Depot, deemed “essential” and never shuttered by governments, were reporting strong salesas customers flocked to the stores amid a lack of other options. All of these market signals were flashing by early April and revealed three truths that contradicted the experts on the need for lockdowns: the worst period of COVID-19 outbreaks would be relatively short lived; outbreaks would almost never overwhelm American hospitals in the catastrophic sense behind "flatten the curve" sentiment; and that while COVID-19 was a true threat to the elderly and those with underlying health troubles, the average American understood they hadvery little risk of serious complications from the disease. While widespread business closures were mostly over by the summer, lockdowns persist even today in too many states and cities, where millions of hospitality workers still cannot work and millions of children cannot attend public school. Unfortunately, as many had predicted in March and April, the poor have been most hurt by lockdowns, a reality acknowledged by the World Health Organization in October.
As the weeks of lockdowns turned to months, Americans grew weary, and while many “stay home” orders still existed, Americans largely had lifted their self-imposed social isolation by the late spring. But the news of the success of vaccine trials under Operation Warp Speed started coming in summer, and by Thanksgiving, Americans had reason to recalculate their personal risk preferences now that an effective vaccine was on the way. The federal government provided guidance for the states to execute, and the effort to administer the shots did not begin well. The CDC’s Advisory Committee on Immunization Practices (ACIP) released preliminary guidelines in early December that put essential workers, regardless of age, ahead of the elderly. ACIP acknowledged that equity considerations were part of the reason for the guidance, which would have brought about more death than vaccinating those at most risk of serious illness. ACIP eventually changed the advice amid public outcry and recommended placing the elderly in the same tier as essential workers. All states began vaccinating front-line healthcare workers, but some states, including New York,maintained essential workers ahead of the elderly initially. Florida, among others, strayed from the ACIP guidance and decided on an approach that prioritized residents by age group. The results of the impromptu controlled experiment were striking and came quick. By the end of the first month of distribution, media sources were reporting two stark outcomes: Florida’s seniors were waiting in line overnight hoping to receive the vaccine, while in New York, vaccine providers were throwing away precious doses as not enough essential workerspresented to receive the shot before expiration. Many acted as though the long lines in Florida were a disaster, but it was a predictable and logical end. The turnout indicated demand greatly outstripped supply, and without the ability to pay a high price for the vaccine, how else were the elderly supposed to signal their desire to be vaccinated? New York added seniors to the higher priority tier on January 8th, but precious weeks were missed to administer the vaccine to those who needed and wanted it most, even as the virus surged in the state, which reached its peak 7-day average of new infections on January 11th.
What conclusions should we draw from these failures of politicians and experts? First, we must not excuse the government of its critical responsibility during pandemics, nor should we dismiss the advice of experts. There were success stories from the COVID-19 response. State and federal governments took on risk that markets may not have accepted by stockpiling PPE, which helped many hospitals maintain sufficient supply of critical supplies like N95 respirators. There was the unprecedented success of Operation Warp Speed, in which government risk-taking allowed multiple drug makers to start research immediately, then ramp up manufacturing even before clinical trials were completed. However, the public health would have benefited if our government had acknowledged and investigated market signals, rather than dismissing them at the direction of a relative few experts. Critically, we could have increased mask wearing, avoided lockdowns, and vaccinated more of the elderly earlier. Expert scientific analysis is crucial, but there aren’t enough experts to eliminate the effects of bias in the way millions of anonymous transactions can. Perhaps most believe pandemics are not situations meant for free-market organization. But we must not forget Adam Smith’s observations that there is a “uniform, constant and uninterrupted effort of every man to better his condition,” and that those separate efforts act as an “invisible hand” to promote the general welfare of society. After all, market signals are just the aggregated insight of tens of millions of people trading with the intent to improve their lives. We must trust individuals and families to seek out and find the best course of action the next time an invisible enemy threatens. When market signals flash, let our first thought be, “maybe they’re onto something.” They probably are.