How Would A Libertarian Society Deal With A Pandemic?

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by Tyler Durden
Wednesday, May 20, 2020 - 05:25 PM

Submitted by Alan G. Futerman and Walter E. Block

How would a libertarian limited government deal with a pandemic, such as the one we are now living with COVID-19? By promoting liberty, not by calling for the death of capitalism and the free market as we hear all too often. Economic freedom is most needed precisely when we have to deal with a serious crisis.

If no big government is expected to bail out businesses and private individuals during a disaster, people will engage, during good times, in precautionary activities. For example, they will act more like the proverbial ants, than grasshoppers. The cognoscenti sneer at people who prepare, the preppers, but the latter are far better prepared to protect themselves and their families. Tail hedging is not only advisable for trading, but for all aspects of life.

Bail outs and their effect, moral hazard, create the opposite incentive. If companies knew there would be no subsidies forthcoming, they would pay better attention to their bottom lines. Take, for instance, an airline. Would they operate normally and fill their planes to maximum capacity, or serve fewer customers on each plane with more distancing, while also requiring protective masks? They would do this for the same reason: if a customer gets infected during a flight, the airline could get sued. This would not be justified on libertarian principles, given caveat emptor, but that would be the legal regime under which they would likely have to operate.

If streets were private, would the company that own them allow people to walk without masks? Not likely, and for the same reason. The same considerations would apply to every other business, particularly shops, malls, cinemas, natural or themed parks, or any other services that require physical presence, particularly under crowded circumstances. And customers, at the same time, would feel safer and therefore more intensively attend those places that take more precautions. Airports would not wait for political decrees to shut down flights from areas where the virus is hitting hard: its future cash-flows depend on it.

Medical insurance companies would also be guided by incentives. When there is a bank run not everyone can get their money. The same happens if we all want to access the hospital at the same time. An insurance company, then, can deal with a class of events that usually follows a normal distribution. But a pandemic, with a new virus, has an unknown distribution (which may be asymmetric to the left, fat tailed, etc.). In which direction do incentives lie in such unusual circumstances? To prevent people from taking risks by not ensuring this type of event, or charging extra fees if infected, or heavily investing in R+D to find a cure or treatment? The answer: all of the above. Moreover, insurance companies and private hospitals would likely take on the task of mass testing. Then, prevention (before and during pandemics) would be a key role of such companies, their business depends on it.

Pharmaceutical companies could innovate faster to find new and better treatments and tests, or a cure, without having to comply with stultifying regulations of the sort promulgated by the Food and Drug Administration, while private certification companies would rush these to trial. The market, not difficult to remove bureaucrats, will judge if they fail to provide safety.

Think of a person who wants to leave his house. If medical insurance does not cover his infection, he will think twice. If he can infect someone else, and will be liable for it, he will more seriously consider the risk. If a restaurant is not insured in case someone becomes infected while eating dinner, then it will likely take measures to prevent it. It may close altogether, seat diners far away from one another, or offer only take out meals. Some governments have already mandated such changes of course, but these orders might well have been superfluous. In the free society, responsibility is not only a moral ideal, but has concrete consequences insofar as one’s pocket is concerned. It is the people themselves who have now taken precautions before governments mandated them.

The bottom line is that a libertarian society would not operate as a chaotic jungle where everyone does as he pleases on other people’s property. It would rather function as a system where incentives are aligned with behavior so as to reduce costs as identified through the price mechanism.

In today’s world, governments own public transportation, roads, public services, etc. How can they know what is the optimum amount of social distancing or how long businesses can be in quarantine until the economy completely collapses? They cannot, they lack the knowledge. Moreover, in the absence of tax postponements, companies are more focused in paying taxes instead of working as fast as possible to changing their business practices. With big bailout government, they are more focused in asking for subsidies than in innovating.

A free market would not be able to solve the crisis automatically, but it would have the mechanism to identify mistakes through losses and correct them as fast as possible. Moreover, a localist approach to society assures that different business models and prevention measures can compete and be compared. This would take us to better solutions, faster. A centralized response, on the other hand, renders us blind to alternatives, concentrating ignorance. And time, these days, cost lives.

What we need is not more government intervention, but more freedom. Liberty, by itself, will not cure COVID-19, but is surely the system that will allow us to get there, or prevent a crisis such as this one happens again, when a new pandemic occurs.