A bipartisan Congressional group is eager to borrow and spend another $900 billion on a new COVID-19 bill. Yet they appear determined to repeat the most wasteful political stunt of the last “stimulus bill.”

On December 17, The Wall Street Journal reported that “the package includes another round of direct payments to households,” which was recently added back into the mix after “The Trump administration [via Treasury Secretary Mnuchin] … proposed sending $600 checks.”

Borrowing money to send everyone a little check may sound clever to myopic politicians. But it is morally indefensible because it does nothing address to the problem of helping those injured by the pandemic itself or by related state-mandated business restrictions and stay-at-home orders Congress should focus on targeted COVID relief, not scattershot direct payments – the overwhelming bulk of which would go to employed people who were not economically injured by the pandemic.

The feeble economic pretext for wasting debt on random giveaways is a naive caricature of Keynesian economics: “Putting money into peoples’ pockets.” But debt must be serviced by taxpayers, which that means any borrowed money going into some pockets must be forcibly removed from others.

As for the alleged “stimulus to demand,” families do not make serious purchase plans based on ephemeral little windfalls. On the supply side, a random helicopter drop of $600 checks does nothing to encourage anyone to join our shrinking labor force, or to invest time and money in reopening the nation’s many closed business (often to see them closed again, by fiat).

In short, a large chunk of the latest Congressional package is deliberately designed to be wasted, being neither targeted to help unemployed people in need, nor intended to help affected businesses or governments keep paying their bills.

Do not take my word for it. Fortunately, we have available a second opinion from Harvard economist Raj Chetty and three other economists from Harvard and Brown from their critical review of the last stimulus bill, “How did COVID-19 and Stabilization Policies Affect Spending and Employment?”

Curmudgeon that I am, I have questioned some of the ways by which the authors minimize the economic impact of state lockdowns and re-openings. Yet most other findings from this paper are arguably more important and very well-argued.

Among the study’s most fascinating findings are those regarding (1) the futility of expecting traditional demand stimulus to somehow offset the shocks to both supply and demand from a health crisis; (2) novel evidence that hardest-hit economic contraction was in services normally purchased by high-income households in affluent neighborhoods; (3) shocking evidence that the disproportionate impact of school closings was in deeply damaging the learning of low-income students; and (4) scandalous news about the Paycheck Protection Plan’s “staggering taxpayer cost of $377,000 per job saved.”

Turning back to the immediate threat of Congress contemplating a rerun of April’s folly by handing out another round of “stimulus” checks, the Harvard-Brown economists politely wonder why Congress would repeat such a foolhardy mistake twice:

“It may be best to focus on mitigating income losses for those who have lost their jobs… For instance, providing support to workers who have lost their jobs (e.g., via the unemployment benefit system) may be preferable to stimulus payments to all households, irrespective of their employment situation.”

Several doses of Pfizer’s new mRNA COVID vaccine were wasted when pharmacists noted that many of the vials of vaccine, intended to contain five doses, had enough left over vaccine for one or two additional doses. Because the product description on page 3 of the Food and Drug Administration’s Emergency Use Authorization for the vaccine stated that each vial, upon dilution, contains five doses of vaccine, many pharmacists were uncertain if the regulatory agency permitted them to use any residual vaccine in the vial. It is not unusual for manufacturers to add a little extra to the vials in case of spillage by staff administering the vaccine.

Politico reports that at least some academic pharmacists were recommending the excess be discarded, because the EUA made no mention of what to do with any excess vaccine, and described the authorized product as containing five doses per vial.

Upon consulting with the FDA, a spokesperson for the agency told Politico, “Given the public health emergency, FDA is advising that it is acceptable to use every full dose obtainable.” Well, of course.

So now the extra vaccine can be put to good use, immunizing more people. Unfortunately, the already discarded doses cannot be recovered. While the pharmacists’ fear of thwarting federal regulations is certainly understandable, their hesitancy and the resulting loss of valuable vaccine is one side effect of a complex and overbearing pharmaceutical regulatory regime that suppresses independent judgment and initiative.

In a sign of their increasing frustration with global efforts to ensure that all people everywhere will have access to COVID-19 vaccines, a number of developing countries have asked other members of the World Trade Organization to join with them in a sweeping waiver of the intellectual property rights relating to those vaccines. Their request raises anew the recurring debate within the WTO over the right balance between the protection of intellectual property rights and access in poorer countries to urgently needed medicines.

The proposed waiver brings back bad memories for all in the WTO of the long and contentious dispute between developed and developing countries over the compulsory licensing of HIV/AIDS drugs nearly two decades ago. And it does so at a time when the very last thing the WTO needs amidst an existential crisis is yet another acrimonious debate over perceived trade obstacles to public health.

As discussed in my new Cato Free Trade Bulletin (published today), India and South Africa have asked the members of the WTO to waive protections in WTO rules for patents, copyrights, industrial designs, and undisclosed information (trade secrets) in relation to the “prevention, containment or treatment of COVID-19…until widespread vaccination is in place globally, and the majority of the world’s population has developed immunity….”

They and other developing countries want to give all WTO members the complete freedom to refuse to grant or enforce patents and other intellectual property rights relating to COVID-19 vaccines, drugs, diagnostics, and other technologies for the duration of the pandemic.

So far, the members of the WTO have failed to muster the required consensus to move forward with the proposed waiver. The European Union, the United States, and other developed countries have opposed the waiver request. They say there is no evidence to prove that intellectual property rights are a genuine barrier to access to COVID-19 related medicines and technologies.

The pharmaceutical industry agrees with these developed countries, pointing to the role of IP rights as incentives to innovations such as new medicines. Civil society activists disagree, saying that the anticipated COVID-19 vaccines should be treated as global public goods. Usually, such concerns in developing countries are addressed through compulsory licensing, which authorizes local manufacturers to make patented products or use patented processes even though they do not have the permission of the patent holders. Drug makers do not like compulsory licensing, but the option of compulsory licensing is part of the bargain that has been struck by WTO members in balancing IP rights against public access to essential medicines.

What is missing from the waiver request is a clear explanation by those who seek the waiver of why they believe the right to compulsory licensing they already possess under WTO IP rules will prove insufficient to ensuring access to COVID-19 vaccines.

In their waiver request, India and South Africa stated that “many countries especially developing countries may face institutional and legal difficulties when using flexibilities available” under the existing WTO rules. They also said that a “particular concern for countries with insufficient or no manufacturing capacity” is that the rule that allows countries that produce generic medicines under compulsory license to export all of those generic medicines to least-developed countries that lack their own manufacturing capabilities will lead to a “lengthy and cumbersome process….”

But India and South Africa did not offer any further explanation or provide any evidence to support these general assertions.

Before such a sweeping waiver of IP rights is taken up, it should first be demonstrated that the option of compulsory licensing and other flexibilities under the current trade rules will not suffice. At this point, the developed countries that have opposed the waiver are correct. There is no evidence of the need for such a waiver.

For this reason, at this point, the proposed waiver is unnecessary. Action by the WTO should be contemplated only if, and when, the current flexibilities in WTO rules prove to be inadequate. Should that happen, any such action should be no broader than necessary to meet the urgent global medical need.

This waiver proposal exists only because of legitimate concerns by developing countries that multilateral endeavors to make certain that all people everywhere have early access to the upcoming COVID-19 vaccines are proceeding at a slow pace and with uncertain success. The answer to these real concerns is, however, not another impassioned and prolonged multilateral impasse inside the WTO. It is instead a redoubling of cooperative international efforts to reach solutions in those efforts outside the WTO.

The right balance in the WTO trade rules on intellectual property is a balance that provides all countries with sufficient flexibility to protect intellectual property rights while also promoting access to life-saving medicines. For COVID-19 medicines, there is no proof at this time that this right balance does not currently exist. Maintaining this balance must remain the aim of the WTO, and it must be the aim of every endeavor of multilateral cooperation in the fight to end this pandemic.

Congress is debating another aid package for the states and private sector. Further aid for the states is a bad idea. Aid for small businesses makes more sense, but a better approach would be for state governments to end mandated shutdowns which are starving businesses of revenues.

Many economists are saying that more federal aid is needed to boost GDP. But, as noted here, GDP shot up in the third quarter even as government spending fell.

Canada’s experience in the 1990s also does not support the Keynesian idea that higher government spending boosts growth. Canada cut spending in the mid-1990s and its economy boomed.

Canada had a sharp recession in 1991, worse than the U.S. downturn at the time. Keynesians would say that Canada should have boosted spending in subsequent years to stimulate recovery. But Canadian policymakers worried that deficits were high and government debt was rising. The federal and provincial governments changed course and started cutting spending.

What was the result? The chart shows annual real GDP growth and the annual real change in total federal-provincial-local program spending. By program spending, I mean total non-interest government spending.

Here is my interpretation of the chart:

• 1992 to 1997: Decelerating, then falling, government spending coincided with a strong rebound in economic growth. Government program spending fell four years in a row (1994 to 1997) while GDP growth averaged a robust 3.3 percent annual rate during the period. Total government spending including interest fell from a peak of 52.5 percent of GDP in 1992 to 43.5 percent by 1997 (Table 52).
• 1998 to 2008: Steady GDP growth slightly outpaced growth in program spending in this period. Total government spending fell to 38.8 percent of GDP by 2008.
• 2009: Canada is dragged into recession by the U.S. crash, and then like the United States passed a stimulus spending package.
• 2010 to 2019: From 2010 to 2014, Canadian governments revert to a more frugal spending path and GDP grows fairly strongly. Justin Trudeau takes office in 2015 and shifts the federal government toward higher spending. Total government spending was back up to 41.2 percent by 2019.

Federal and provincial governments have followed somewhat different paths over the years, and there are other nuances not addressed here. The important lesson for U.S. federal policymakers is that the Canadian federal government in the 1990s cut spending on defense, unemployment insurance, aid to provinces, business subsidies, and much else while pursuing microeconomic reforms such as privatization, as discussed here. The federal government ran surpluses every year from 1998 to 2008.

As the U.S. economy pulls out of recession, we have huge federal deficits and rising debt, as Canada did in the early 1990s. We should follow the same reform approach: slash spending and pursue microeconomic reforms such as privatization and deregulation.

Notes:

For the chart, government spending and interest payments are from Table 34. I deflated spending by the GDP price index, which is from Table 36–10-0223–01. Real GDP growth is from the OECD here.

Details on Canada’s economic reforms of the 1990s are here.

The Fraser Institute has a wealth of information on Canadian government spending here. I appreciate Milagros Palacios of Fraser helping with the chart data.

My colleague Michael Cannon had an excellent blog the other day on the subject of the distribution of vaccines. He rightly concluded,

Once governments have purchased vaccines, it’s not clear libertarian principles have anything useful to say about how they should distribute them. The question of how then to maximize social welfare—or alternatively, to reduce violent assaults—is an empirical one. It’s a fascinating question. But I’m not sure anyone knows the answer.

Too true. Libertarian principles indeed do not get us very far, especially in a situation where governments have made advanced commitments to buy vaccines. But, as Michael’s piece skillfully shows, we can, in principle, use economic logic to inform our answers.

The task at hand is to minimize the overall economic welfare costs of the pandemic—that means reducing the combined costs of lost lives, yes, but added to the costs of bad health, lost GDP, and, indeed, lost economic welfare from curtailed liberties or pandemic-induced constraints on our activities. When the problem is set up in this way, one can see that a lot of the conversation so far has been inadequate.

As John Cochrane notes, a lot of the recommendations for distribution have simply implied that, after vaccinating healthcare workers, we should work down a list of demographic groups, starting with inoculating those with the highest death risks from COVID-19 and ending with those with the lowest. If it turns out the vaccine only reduces the symptoms of COVID-19 but doesn’t reduce our ability to transmit it much, that might be a reasonable position. But if the vaccine itself helps stop the spread of the disease among the vaccinated, then this is not necessarily the best way to go.

In fact, one modeling paper by biostatisticians at the University of Washington has found that if the efficacy of the vaccines are high (as seems true) and we have enough to inoculate, say, 40–50 percent of the population fairly quickly, then it is optimal to prioritize vaccinating the “high transmitters” first , i.e. people most likely to spread the disease through their activities (proxied for as the under-50s.) That’s because if the vaccine is effective in stopping the spread, and you inoculate those most likely to spread it, you protect those individuals and those they would otherwise have transmitted the virus to. In addition, it seems likely we would see significant overlap between those most likely to spread the disease and the gains for formal market economic activity too. So, provided these assumptions hold, you might get a much bigger bang for your shot from vaccinating younger groups first.

The CDC appear to have thought about this a bit, in including “essential workers” as a priority group for inoculation, but nobody seems to be willing to countenance the logical implications more broadly. Should college students, bar dwellers, and business travelers, for example, be prioritized in order to reduce the spread of the disease? That University of Washington model reckons we could see 30 percent fewer deaths if we optimize the vaccination distribution to minimize deaths. That, of course, is dependent on an efficient operation to actually do this. (Note: if the vaccine has much lower availability, or we can roll it out to everyone quickly, then prioritizing those most at risk is instead the correct approach).

Yet in truth, the remorseless logic of how networks operate has significant implications beyond choosing demographic blocks to prioritize. So far, people have talked about these groups as if their distribution geographically doesn’t matter. But if, say, the elderly are thinly spread throughout a certain state, then working down a list of vulnerable groups may not do much to reduce transmission of the disease, or indeed facilitate the removal of much in the way of economic restrictions, given the risks associated with the virus still spreading far and wide to the semi-vulnerable.

As Tyler Cowen explains, it might be better to concentrate on administering the vaccine first in a geographically targeted way–say a major city within a state–rather than inoculating groups by age spread right across it. That way we could at least achieve localized herd immunity more quickly, allowing a near-full economic normalization at least in certain places. We therefore potentially reduce the economic welfare costs of the pandemic along the path to the eventual goal of full national herd immunity.

In short, even if we assume the government will decide how to distribute most vaccines, with those prioritized having neither the ability to give or sell that right to anyone else, allocating scarce vaccinations to those personally at risk from the disease could produce sub-optimal societal outcomes. Remember, as Michael made clear, in a world where trade-offs exist, we should be trying to minimize the overall costs of the pandemic, not just reduce the highest death risks for individuals.

Last month I complained that the Food and Drug Administration requiring a prescription for the first-ever at-home COVID self-test defeated the purpose of at-home testing.

At-home testing is supposed to be about cost and convenience. Yet requiring a health care practitioner to determine you are symptomatic in order to prescribe the test completely undermines that goal. In fact, because of the concern that roughly 40 percent of people infected with COVID may be asymptomatic and unknowingly spreading the virus, it makes sense to encourage even those without symptoms to purchase and perform the at-home test, in order to more accurately determine who needs to be quarantined.

Yesterday, news headlines shouted the FDA approved the “first at-home coronavirus test kit that does not require a prescription.” There’s just one catch: according to the December 9 FDA press release, consumers may collect their own specimens at home using the test kit they purchase, and then send it in to the commercial testing lab Labcorp, which will run the test on the sample and issue a report.

Therefore, the press reports are misleading. This not an at-home test kit. It is an at-home specimen sampling kit. Consumers must send it in to a commercial lab to run the test. This again undermines the goal of testing as many people as possible—symptomatic and asymptomatic—by making it quicker, more convenient, and less costly.

It is also interesting to note that both of the FDA-approved test kits require intermediaries, who receive financial compensation from some source, for people to find out if they carry the virus.

As Michael F. Cannon and I point out in our paper, this kind of thing happens when government officials—instead of you—get to decide what tests and therapeutics you may take.

News stories are describing an exodus from high-tax and mismanaged big cities to lower-tax places with better governments. The health crisis and draconian shutdowns in places such as New York City and San Francisco are prompting people to reassess their lives and move their families and businesses to more hospitable climes.

The Wall Street Journal reports that Elon Musk is moving from California to Texas. The article notes:

Since Covid-19 struck, executives and employees have fled the San Francisco Bay Area for cheaper locales since remote working conditions have become the norm for many people. Last week, Hewlett Packard Enterprise, whose origins trace back to the founding of Silicon Valley, said it planned to shift its headquarters to Texas. The departures have led many tech leaders and industry watchers to question whether the geographic region is losing its position as the nation’s leading technology hub. Palantir Technologies Inc., founded in the Bay Area in 2003, moved its headquarters to Denver this year.

Another news piece in the Journal focuses on the influx of people and jobs to Austin:

The pandemic and the prospect of working remotely have spawned an exodus from New York and San Francisco to sunnier, more-affordable cities. Few have benefited more than Austin. Texas’ capital is attracting more corporate jobs and remote workers than ever before, lured by lower costs and lower taxes.

Palantir co-founder and venture capitalist Joe Lonsdale is moving from Silicon Valley to Austin, noting that in California, “bad policies discourage business and innovation, stifle opportunity and make life in major cities ugly and unpleasant.” Meanwhile, Bloomberg reports that Goldman Sachs is “exploring tax advantages” of moving a major division from New York City to Florida.

The chart shows interstate migration and taxes. The vertical axis is the ratio of in-migration to out-migration for households earning more than $200,000 per year, based on IRS data for 2018. The horizontal axis is state and local sales, property, and individual income taxes as a percent of personal income, based on TPC data. Each dot is a state, and the red line shows the fitted relationship from a statistically significant regression.

Interstate migration of high-earning households is correlated with tax levels. Nearly all the states with high net in-migration ratios have lower taxes. The three outliers in the top right are Hawaii, Maine, and Vermont. The outlier in the far bottom left with low taxes and net out-migration is Alaska. The big migration winner at the top is Idaho. Nearly three high earners move into Idaho for each one moving out.

The migration ratios for each state are reported in the table here. The chart shows pre-crisis data, and events this year have likely strengthened these trends.

Policymakers in states with high taxes and big government need to wake up to the new realities of mobile businesses and mobile lifestyles. They should cut bloated spending and create simple, low-rate tax codes. They should reduce regulations that dissuade entrepreneurship and squelch personal freedom. They should pursue zoning reforms to reduce housing prices, and they should inject competition into public schooling to improve quality.

Some states have been losing people for years. They need to learn that big governments are not better governments. The time for downsizing is now.

These issues are explored further in this study.