The Covid-19 epidemic is creating a painful dilemma for policymakers. On the one hand, we need to practice social distancing to keep people healthy and to prevent our hospitals from being overwhelmed. Unfortunately, this strategy is causing a severe economic contraction as people avoid contact with others.
An ideal response to this dilemma would have three basic components. First, we would implement a hard, nation-wide lockdown to slow the spread of Covid-19. This would “flatten the curve” and save lives by preventing hospitals from being inundated with patients in the next few weeks. It would also buy time to put in place the testing, prevention, and surveillance measures we will need to start cautiously re-opening our economy. Putting these measures in place should be the second element of our strategy. Finally, as Paul Romer and Alan Garber argue, we need a major effort to increase our capacity to test for Covid-19, and to produce masks, gloves, and other forms of personal protective equipment (PPE) by an order of magnitude or more. The ability to do mass testing and to provide masks and other PPE to most Americans will substantially reduce the risk that the epidemic drags on for many months and leads to an economic catastrophe. (For further discussions, see here, here, and here.)
In this essay I explain why it is important to massively increase our ability to produce Covid-19 tests and PPE. I also discuss how this can be done, considering the apparent reluctance of the Trump administration to lead this effort. I make four basic points.
First, the ability to test millions of people daily for Covid-19 and to produce PPE for millions of Americans will require a large up-front capital investment by manufacturers that may turn out to be unneeded, but this investment is socially justified to lessen the risk of a severe and protracted economic shutdown.
Second, without firm contractual commitments from the government, businesses will not invest at the scale required to ensure that we can avoid a disaster. Several factors will deter adequate investment by industry; the most important is probably the risk that the epidemic will abate and they will not be able to recover their investment costs. The government can overcome this problem by agreeing to pay companies for tests and PPE even if the epidemic abates, by subsidizing investment in the capacity to produce tests and PPE, etc. The critical point is that the government needs to make binding commitments NOW, it cannot wait to see if the epidemic can be brought under control using other means. Valuable time has already been lost.
Third, the powers that the President has under the Defense Production Act to directly control the use of resources are not particularly useful if our goal is to spur investment in the capacity to produce tests and PPE. We need to give firms incentives to invest in new capacity using contracts, competitions, and similar tools.
Fourth, an ambitious effort to expand production of tests and PPE will inevitably lead to genuine contracting failures and to situations that create the perception of failure. Trump is clearly anxious to avoid setting ambitious goals and taking actions that might later be used to criticize him. In response, Congressional Democrats want to force Trump to exercise his powers under the Defense Production Act.
This is a mistake. Trump would likely veto any bill that tried to force him to act, and, in any event, it is very difficult for Congress to force a reluctant President to act. Fortunately, there is no need for contracting efforts to be directed by the President. Rather than trying to force a reluctant Trump to exercise his contracting powers under the DPA, Congress should either delegate the power to an agency, or it should create incentives itself, directly. I will sketch out how this can be done. The same point applies to efforts to organize mass testing, the distribution of equipment, and other activities where direct commands are an effective means of achieving our goals: Congress should accept that Trump is unwilling (and arguably unable) to lead these efforts and try to work around him in ways that he can accept.
Mass testing and distribution of PPE mitigate the risk of economic disaster