Russ, your analysis conforms to the standard market-oriented perspective and you lay out the generic case very well. Unfortunately the part missing from the standard perspective is time. Markets, when properly regulated to avoid all the ills Adam Smith knew would inevitably arise if producers weren’t constrained from certain consumer-hostile actions, can indeed output to demand by means of using money as the primary signaling mechanism.

Unfortunately, in a situation in which the luxury of time is largely absent, markets fail. We see market failure all around us, all the time. For example, only two pharma companies currently account for nearly all the world’s supply of vaccines because there simply isn’t any money in the business. Yet vaccines are essential. Likewise we haven’t had a truly new antibiotic in 40 years because, once again, there simply isn’t much money in the business. Yet without effective antibiotics, we’re all at risk. If this kind of market failure can occur when there is plenty of time available, we can see that failure is even more likely when time is at a premium.

To illustrate the problem, imagine a building collapses. Hundreds of people are trapped in the rubble. Due to persistent neglect, the emergency services have only one machine that can lift heavy objects and move them aside. Meanwhile, across the street, a construction crew has two such machines that are now idle. Only a very naive economist would argue that we should ignore the two idle machines in favor of waiting for price signals to spur production of additional machines that may at some distant date be acquired by the local emergency services.

Furthermore, as price-gouging is being carried out largely by intermediaries, the price signal isn’t reaching the manufacturers. So the entire standard price-demand argument collapses.

The real issue here is government failure. Many governments have been for many years so eager to create “incentives” for large corporations and wealthy individuals that they’ve systematically under-funded (or neglected entirely) their health services infrastructure. Today’s empty claims of “flattening the curve” are merely politician-speak for “we want to distract people with virtue-signaling so they don’t realize we’re actually responsible for the shortages of personnel and supplies.” It’s illustrative to look at the Netherlands and Sweden, both of which refused to be stampeded into panic-induced lockdowns and yet whose health services have not been overwhelmed because these countries have always had a strong commitment to adequate funding. They had plenty of personnel and equipment ready to go. Elsewhere, the scramble for supplies has revealed the inadequacy of government policy, but the ordinary person doesn’t understand this because their attention is directed at superficial matters. No market-oriented signals can fix systemic failures of governance, nor the ease with which ordinary people can be distracted from ever understanding the fundamental issues at play.

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