There is discussion in the world now about "fair distribution" of the SARS-CoV-2/COVID-19 vaccine. News in February 2021 focused on how the G7 will address fairness.
A recent post, Vaccination Tribulations (2021) focused on the different reactions to SARS-CoV-2/COVID-19 vaccinations. Some say they will not partake, others are reticent for now, and still others will seemingly go to great lengths to obtain it; lying, cheating, and stealing are apparently not beyond the pale.
The post yields to the debate of what is "fair." One of my law professors had a vein in his temple that would expand visibly whenever a student used the word "fair." He contended that word only refers to "a picnic with farm animals, amusements, and rides." Some considered him to be cynical, but others held him in less esteem. I knew one person who took a second class with that professor, but for the most part, he was relegated to the 1L students coerced into his section.
The fairness debate in Tribulations focused on which Americans get the vaccine and when. There is a patchwork of distribution criteria across the country and these evolve persistently in response to the desire of various groups to accept the vaccine(s) and the supply. As Kyle Duff's dad once said on Southpark: "It's simple economics son. I don't understand it at all, but God I love it."
"Fair." Is it somehow fair that countries are purchasing vaccinations? The National Public Radio (NPR) noted in November 2020 that "Rich countries are rapidly claiming the world's lion's share of future doses of COVID-19 vaccine." The story proceeds to explain there will be delays in vaccination in "low-income countries." The flaw, according to the authors is that "the world has a limited capacity to manufacture any forthcoming COVID-19 vaccines each year." The point is one of supply. The flaw in the article is that no country is "claiming" anything, but they are making purchases.
The "simple economics" is perhaps not that hard to understand. In a nutshell, two elements compete against one another in a micro sense. The supply of a commodity is pit against the demand for it. When demand is greater than supply, that thing is "scarce." For class, I often ask students why a bucket of sand at Pensacola Beach is free for the taking compared to what a bucket of diamonds would cost. I ignore the complexity that is presented by the fact that diamonds are not rare. Their supply has been successfully and artificially suppressed for decades, leading to a rarity effect that itself is interesting.
But, in the face of scarcity or the perception of scarcity, the price of that thing will increase. People will make rational choices regarding how much they are willing to pay for any particular thing. As a thing's price exceeds one person's willingness threshold, that person will no longer be a willing purchaser. As populations of purchasers drop out of the market, demand will collectively decrease. If enough drop out, and demand sufficiently softens, then the price may adjust downward.
The price at which the entire production (supply) sells, is called the "market clearing price" or "equilibrium price." The efficiency of a market may be measured by whether it achieves such market clearing. The world's politicians decided long ago that this "simple economics" cannot be allowed to stand. Through regulation, taxation, production, and more governments have striven to control both the supply and demand sides of the simple equation to overcome the choices individuals might otherwise make. Some governments exert such control through regulation, others through taxation, and still others through public opinion. It is intriguing to watch.
We have seen it in the U.S. supply side with examples such as Wickard v. Filburn, 317 U.S. 111 (1942) in which Roscoe Fillburn elected to violate wheat production quotas imposed by the Secretary of Commerce. In an intriguing opinion, a unanimous Supreme Court concluded that the Commerce Clause does indeed afford Congress the authority to tell you how much crop you may grow on your land, regardless of whether you sell that crop or use it yourself. Thus, it is constitutional in the most free nation on earth for government to regulate supply.
It has likewise been seen in the demand aspect in examples like National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012). There, the Court in a less-than-unanimous decision concluded that the U.S. government has the authority under the constitution, which you "the people" ratified, to legally force you to purchase a product in which it perceives value. This is regardless of whether you perceive value or would demand such a product or service. Thus, through the power you granted to government it may effect demand for products.
While Wickard supported that you could be compelled not to grow petunias in your window boxes, Sebelius supported that you could be forced to purchase petunias from others. All that seemingly matters is whether the government wants you to grow or to purchase, or not.
Suffice it to say that simple economics may not be all that simple. The government, it may be said, has both the capacity and motivation to make it complicated. One might wonder if there is any aspect of your life into which government may not intrude.
NPR concedes as regards COVID that demand impacts production. There is money to be made in vaccine development right now. Countries that have capital (or that are ready, willing, and able to incur debt like the U.S.) were paying pharmaceutical companies last year for vaccines that had not yet made it to market. They were "reserving" by advance-purchasing billions of doses of vaccine. As NPR aptly notes, that action:
"flood(ed) investment into vaccine development and allow(ed) many more candidates to be developed than otherwise would be possible"
Companies were able to literally throw resources at research, development, clinical trials, and more to produce vaccine(s). A company might invest billions in the development of a drug, and yet never make it to market. There is risk in the research and development process. Some say nine of ten developed drugs never receive approval. They could be a money pit. But, not so much when there is government money there at the outset to fund the development. The government, in that instance, is taking the (or at least some of the) risk.
Thus far, that investment effort has led to a fantastic scientific response. Eight vaccines are being administered according to Statista. Eleven are being administered according to the Regulatory Affairs Professional Society (RAPS). More are under development. RAPS says 57 more are in development. That research and development do not occur without money. Before anyone becomes too pious about that, ask yourself how long you would continue to report to work if your paycheck stopped? Remember, Ben Franklin's admonition "Time is money."
See, the expense of developing a drug or vaccine is largely an investment in human capital. To sell a product, someone must pay engineers or scientists to design it. There must be planning, refining, testing, and more. From the blueprints or formula, people must manufacture components or grow elements, load and transport them, combine them, test them, and deliver the product to market. There, more humans are engaged in the sale, financing, and delivery of that product. Many hands are in the process from start to finish, and none of them labor for free.
"Money makes the world go round," according to the song from Cabaret. Or, if you prefer, Cindi Lauper noted "Money Changes Everything." Those Lauper lyrics also lament the naivete that "Ah honey, how could you do it? We swore each other everlasting love." Love is a grand thing, but you cannot eat it. Conceding the attraction of love, Lauper says "but everybody's only looking out for themselves." Before you lament that "greed" too much, ask yourself again if you would keep working if they quit paying you?
So, why have countries reserved, and paid for, "enough potential doses of different types of vaccines to immunize their entire populations several times?" That is relatively simple. There is some potential for any particular vaccine to be ineffective, to cause side effects, or to elude scientific approval from agencies such as the United States Food and Drug Administration. If a vaccine approval effort fails, then the investment that went into it is lost (think of the Edsel). If a vaccine fails, all the doses of it reserved or paid for are worthless. So, bets are being hedged, and doses are being reserved in multiple potentials. As an investor (tax dollars are being used to procure the vaccine, and you as a taxpayer are therefore an investor), do you want the government to bet on one option only with the associated risk that it might fail? Of course not.
Is this to the detriment of poorer nations? No. That is preposterous. If there were no investment in vaccines, there would perhaps be no vaccines at all. Or, the development would proceed not with "money in pocket" from those massive pre-sells or reservations, but with whatever resources some researcher or manufacturer is willing to risk. If the risk is underwritten by pre-sales, a developer is not taking all that risk of failure personally and is more likely to invest and to strive for the development of a product.
Absent those pre-sales, all the risk is on that one company. With the knowledge that only about 14% of new drugs eventually win FDA approval, that risk is problematic. The approval rate is low, the investment cost in research and development is high. How much of your wealth would you gamble? The natural risk-aversion would slow or preclude vaccine development. That is, the research and development would likely proceed less rapidly. That is, less rapidly not for "poor countries," but for everyone.
It is truly that simple: "Money changes everything." The lamentations regarding more rapid delivery now to those who paid for the research is troubling. Those who lament that some countries have invested so heavily, who lament the rapid deployment in some places, essentially lament that the market was not left to its own cautions, financial limits, and extreme risks. They lament that we did not all wait longer. They seemingly see an egalitarian benefit in us all being equally delayed in achieving safety, piece of mind, and economic recovery.
These critics see a validity in the lowest common denominator path to equality (everyone waits equally as long and we get vaccines in more like 3-4 years, but it is egalitarian and "fair"). Before doubting the 3-4 year guess, note that historically vaccine development has been 10-15 years. These critics ignore the reality of long-term development and various failures. They lament that the opposite outcome here is a success because those who invested in the success, drove the market to success, are first to enjoy that success.
The fact is that the world has not had to wait years for a vaccine, but has seen multiple vaccines in under one year (when the supposedly greatest scientific minds said it could not be done). This rapid research, development, and deployment will benefit those who funded it. But, in the end, massive populations of people who did not fund it will similarly enjoy a somewhat delayed (more than a year), yet far more rapid (way less than 3-4 years) deployment of relief. No one will likely wait the years that deployment would otherwise have required. That there was investment on a huge scale will be to the benefit of all, even if some wait a few additional months. Because no spectacular failures have yet occurred, it appears that the overall result of this greedy investment in good is an active supply of vaccine that continues to rapidly expand.
As those 57 "in development" vaccines come to market, the supply of vaccines will only increase further. As people around the world receive inoculations of the 11 current vaccines (and more to come), and then no longer personally seek an injection, demand will decrease. Either increased supply or decreased demand would alone result in a lower equilibrium price. The combination from both will simply decrease that price more rapidly in conjunction than either might be expected to alone. And as demand falls and supply increases, every population in the world who wishes it will receive the vaccines. It is likely that many will receive it for zero investment, at zero cost, with zero effort. For having waited a few additional months, large populations will receive this scientific wonder for nothing. And, in that, no pundit I have found finds anything "unfair."
Over time, the vaccine price may diminish sufficiently that some companies currently developing a vaccine may elect to abandon their efforts. They may conclude that further investment is not rational in light of the resulting price they might expect. Economic theory, absent the governmental influence of investment (pre-purchase or reserving), will drive their decisions regarding further research and production. Short of this pre-sale process, some of the current 11 might not have ever come to market, and some of the current 57 in development might cease efforts. Short of the investment, the supply side we expect to benefit from might not expand nearly as rapidly.
It is troubling that anyone is lamenting the rapid development and deployment of vaccines in under 12 months. Not only is the process "fair," it is a dramatic benefit to everyone in the world. We should be pleased that this "rising tide (of vaccine) is raising all boats, large and small." The process will lead to re-invigorated economies, greater social interaction, and societal progress. Relief is here years ahead of probability and scientific prognostication due to the investment and pre-purchases that some now actually lament. Their criticism is illogical, unfounded, and troubling. "It's simple economics" alright, and it is not that hard to understand at all.
