March 23, 2020 9:41AM

Government Policy and the COVID-19 Pandemic

By Jeffrey Miron and Erin Partin

What actions, if any, should governments take in response to the COVID-19 (C‑19) pandemic?

Control of infectious diseases might seem to be a textbook case where private actions will not produce good outcomes for society overall. While individuals surely face incentives to avoid getting sick themselves (which helps limit spread of the disease), they might focus mainly on the private costs and benefits of going to work or attending a large gathering when sick. Likewise, while businesses and other private organizations have good reasons to adopt work from home and other social distancing measures that might limit spread, they will not necessarily account for the negative spillovers of staying open and thus “social distance” too little.

Absent government, therefore, individuals and private groups might “free ride,” avoiding costly efforts to reduce disease transmission in the hope that others’ actions will contain the disease. Yet if most private actors behave this way, the disease will spread widely.

The policy implication of this perspective thus appears to be that governments should intervene to control the disease. This can make everyone better off because, if most people comply with the government’s policies, the public health benefits more than offset the costs of compliance.

This perspective on the C‑19 pandemic captures a key element of reality. Some people do ignore the negative impact on their actions on others, such as by coming to work with a cold or neglecting to get a flu shot.

The standard perspective, however, is not the whole story.

Many people stay home when sick. A substantial fraction of the population gets the flu shot every year. Some of this is personal interest, but some is public spiritedness. More broadly, altruistic behavior, such as giving to charity, is widespread, including cases where any direct benefit to the giver is minor or non‐​existent (donations by Americans to tsunami victims). People are not purely self‐​interested creatures; they cooperate and work for the common good routinely.

And C‑19 illustrates well that, faced with a disease outbreak, private actors will undertake substantial voluntary efforts to control that disease. Amazon has told its employees to work from home if possible, most US sports leagues have suspended operations, universities have sent students home and shifted to online instruction, and grocery stores have implemented special “senior hours” to reduce potential exposure for vulnerable individuals. More examples are here, here, here, here, and here.

Thus the claim that only government can control C‑19 is not compelling a priori; private responses might mediate the worst effects so long as government does not get in the way. Government efforts might even generate perverse consequences, such as those resulting from hastily imposed travel restrictions in the US and other countries.

That said, what if certain government actions can slow an infectious disease better than private actions on their own. Does this mean that governments should act?

Not necessarily. The benefits from intervention are only one side of the equation; policy decisions must ask whether interventions generate greater costs than benefits. That is, could the treatment be worse than the disease?

The C‑19 interventions being implemented or contemplated so far may have a broad range of costs. Government‐​mandated closure of “non‐​essential” industries, locking down entire cities or states, travel and border restrictions, and other social distancing dictates will likely have a large negative impact on economic activity; recent estimates suggest GDP will decline 24% in the second quarter of 2020 alone (the decline in worst quarter of Great Recession was 8.4%).

Closing schools reduces learning, interferes with parent work schedules, and cuts off food to students reliant on school meals. Bailouts create huge opportunities for crony capitalism. Similarly, giant stimulus deals will contain handouts to key industries that have limited connection to virus protection and become an excuse for bad policies that would not otherwise pass, including, guaranteed paid sick leave, and hotel and hospitality industry bailouts. And much of the crony capitalism will not end when the virus stops. Look no further than present‐​day subsidies for mohair and other farm products.

Beyond the risk of a terrible recession, expanded crony capitalism, significant government debts, and other long‐​term harm to economic activity, some anti‐​coronavirus measures run roughshod over normal concerns about civil liberties and the rule of law. If mayors, governors, and presidents have the power to close entire industries, cities or states, without so much as a discussion in the relevant legislatures, what power do these elected officials not have?

Already, Ohio is shutting down abortion clinics, claiming they are non‐​essential, and federal and state governments are ordering a moratorium on utility shutoffs and encouraging mortgage lenders and student loan providers to halt or defer collections. Perhaps most frighteningly, the Justice Department is proposing new rules that would permit indefinite detention in emergencies. It is dangerous to give government more power than one would grant one’s worst enemy.

And across all these areas, new policies can set bad precedents that legitimize even less convincing future interventions and concentrate power.

Transferring 50 billion to the airlines is insane; consider instead subsidizing the purchase or production of ventilators. At the federal level, awarding block grants to states for public health expenditures might be warranted, but loans for everyone? Surely not. Mandating the closure of private businesses? Unacceptable.

Federal assistance to speed up testing may be justified. Extensive, rapid testing is important because it allows public health authorities to monitor the location and pace of the virus, thereby focusing their efforts in a well‐​targeted way. In particular, if authorities can identify specific patients with the virus, they can isolate those patients and their close contacts, slowing disease spread without imposing broad restrictions on society at large.

These concerns about the costs of interventions suggest rules of thumb for which interventions might make sense. Ideal measures apply existing policies that have a track record of effectiveness, rather making up new things on the fly.

Ideal measures are voluntary, not coercive. Ideal measures are local or state rather than federal. And ideal measures address the crucial problems directly rather than shutting things down widely. Viewed in this light, certain government actions are likely sensible, such as state and local public health efforts to test, quarantine, and isolate infected patients and close contacts.

Repeal of existing bad regulation is, of course, a no brainer. But other policies seem draconian and fraught with potential for excess, including shut‐​downs, massive pork‐​laden spending bills, and suspensions of normal judicial procedures.

The COVID-19 outbreak is serious and scary. But it should not become an excuse to ignore costs relative to benefits when thinking about government policy.