The Libertarian Solution – EconLib

Richard Hanania Tyler Cowen recently suggested that we might be better off with a liberal response to Covid. Tyler replied:

Tyler: I am more sympathetic to the libertarian solution than most people. But I think in this case, it is not time consistent. So the problem is simply how do you deal with legal liability? Now the FDA process, for all its flaws, empowers manufacturers to bring things to market in a manner consistent with corporate law and their other fiduciary responsibilities. So no FDA means everything is fair game in the court system. This is much worse than the FDA. This is a major limitation. But also, the government will not allow them to keep the prices high.

Government confiscates ex-post assets. We know this, so you need to reward them up front, even if in principle you think a higher price would be a better incentive. I would also point out that when there is an externality through infection, you don’t want the cost of a vaccine to be too high.

I have two thoughts about this response:

1. From one perspective, Tyler is actually showing the benefits of a libertarian approach to Covid. It would be better if the government could not control the price of vaccines. It would be better if vaccine sellers could insist that customers sign contracts promising not to sue if they have bad side effects, and if those waivers were legally enforceable.

2. Given that we don’t live under this kind of libertarian regime, there could be a case for subsidizing vaccine development or providing the FDA stamp of approval to reduce the risk of litigation.

Similar examples occur in many contexts. In an unregulated free market banking system with NGDP targeting, it probably does not make sense for banks to have minimum capital requirements. But in a regime where the FDIC creates moral hazard and Fed policy creates cycles of NGDP growth, there may be an argument for regulation that makes the banking system somewhat safer. (Whether these regulations work in practice is another question, but it is at least possible that some regulations are beneficial in offsetting the negative effects of other regulations.)

Rest assured. The interview also includes an interesting discussion of why Tyler believes the (marginally) developing world needs to be more awake.

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