The coronavirus pandemic is what risk analyst Nassim Taleb would call a black swan, by which he means an unexpected event that sends major shock waves throughout the economy. Black swans are unpredictable in detail, but it is very predictable that they will take place. The September 11, 2001 attacks; 2005 Hurricane Katrina; and 2008 financial crisis were all black swans.

Because they are unexpected, we haven’t done enough to make our economy and society resilient in the face of black swans. Our transportation system, for example, was disrupted in one way or another by all of the above-listed black swans.

In order to thrive in spite of such events, the United States needs a resilient transportation system, one that can keep operating both during and after black-swan events. It must be relatively immune from terrorist attacks, protect its users from infectious diseases, help people flee and recover from natural disasters, and not be disabled by a loss of revenues during recessions and depressions.

The good news is we already have such a system. The bad news is that powerful political forces have been seeking to dismantle it for many years, and have been partially successful at doing so. The system is motor vehicles and highways, and they are quite possibly the most resilient transportation modes ever designed.

Highways are rarely targeted by terrorists because they are so diffuse and there are so many alternate routes if one road is disrupted. Personal automobiles are the safest form of transportation during a pandemic. The fact that 93 to 98 percent of American households have ready access to an automobile makes them the ideal mode for evacuation during natural disasters. And due to its low operating costs the highway system is far less likely to be disrupted by declining revenues during recessions and depressions than airlines, railroads, or transit systems.

Despite these advantages, anti-auto groups have joined with urban planners to reduce the resiliency of our transportation network. They have opposed construction of new roads to keep up with population growth and successfully reduced the capacity of many arterials in what are called road diets, which convert street lanes to exclusive bus or bicycle lanes.

Fortunately, most Americans intuitively understand the benefits of automobiles: 91.5 percent of American households own at least one car and 95.4 percent of American workers live in a household with at least one car (and of those who don’t, 20 percent still manage to drive alone to work, possibly in employer-supplied cars). To make our transportation system more resilient, the most important thing government can do is get out of the way.

That means ending subsidies to all forms of transportation and funding it instead exclusively out of user fees. Ending subsidies to roads would add about a penny per passenger mile to the costs of driving; ending subsidies to urban transit would add $1.01 per passenger mile to the cost of riding transit.

We also need to stop road diets and instead construct new roads (funded, of course, out of user fees) to meet the needs of a growing population. I also suggest that states develop evacuation plans that would include reversing lanes on multi-lane roads so that more people can leave an area threatened by natural disasters such as fires, floods, storms, or volcanos with a minimum amount of congestion.

Without biasing people’s personal choices in favor of one mode or another, these and similar steps can help the United States stay prepared for the next Black Swan, whether it be a natural disaster, pandemic, or some other completely unexpected turn of events. For more information about why motor vehicles and roads are the most resilient form of transportation and how we can reinforce the resiliency of that system, see my recent policy brief on the subject.

“Global pandemic forcing mass shut-down now joins ‘storm surge overtopping New Orleans levees’ and ‘earthquake/​tsunami causing nuclear reactor meltdown’ as ‘unforeseen’ catastrophes that I absolutely sat through insurance conference presentations on circa 2003,” writes our friend Ray Lehmann, a longtime observer of the insurance business.

The fact that this category of risk has been widely grasped for many years is among the reasons why state legislatures should absolutely not be permitted to enact legislation retroactively rewriting insurance contracts to mandate pandemic-related business interruption coverage neither promised nor paid for at the time.

As this White & Williams bulletin recounts, in 2006 the Insurance Services Office “submitted, and state regulators approved, form CP 01 / 40 / 07 / 06, titled ‘Exclusion for Loss Due To Virus Or Bacteria’ that bars first-party property coverage for loss or damage, including business interruption, caused by or resulting from any virus.” That aside, it is common for business-interruption policies to require a trigger of physical damage to property before coverage applies.

Bills filed in the New Jersey, Massachusetts, Ohio, and New York legislatures would overthrow these exclusions after the fact in whole or part. The president of the Ohio Insurance Institute told Insurance Journal the passage of such a bill “would likely wipe out a number of Ohio insurance companies,” leaving them unable to pay for unrelated perils they did promise and intend to cover, such as damage from tornadoes, house fires and auto crashes. (The Ohio bill includes a further contrivance that would require insurers as a group to cover the payouts, even those that themselves never wrote any kind of business-interruption coverage.)

Whatever insurers succeed in making it through will also need to jack up premiums in the future to cover the risk that the reliability of contract law will unpredictably be yanked out from under them again down the road. And even though the federal courts have been sadly lax in enforcing it, such laws would also violate the clear directive of the U.S. Constitution’s Contracts Clause: “No State shall… pass any… Law impairing the Obligation of Contracts.”

In the last 10 days, President Trump has repeatedly invoked “P”—that’s his name for the Defense Production Act; everyone else calls it “DPA”—for critical supplies in the fight against COVID-19, the illness caused by the coronavirus.

First Trump issued a DPA order to General Motors to produce ventilators and appeared to threaten to do the same to Ford. Then, he made a similar order to GE Healthcare, Medtronic, ResMed, Phillips and two other firms that actually manufacture ventilators. Finally he “hit” 3M with “‘P Act’ all the way” for protective masks.

Trump isn’t alone in wanting to flex the powers of the DPA in the coronavirus crisis. Several other politicians and talking heads have called for the act to be used not just for ventilators and masks, but also for gloves, medical gowns and testing swabs.

One member of the Trump administration, Peter Navarro, is giddy the president is doing this. Navarro ordinarily helps run the administration’s protectionist trade policies, but he’s now also overseeing “its wartime powers forcing private businesses into the fight against the coronavirus pandemic.” He told the Wall Street Journal:

“Over the last several days, we ran into roadblocks with GM,” Mr. Navarro added. “We cannot afford to lose a single day, particularly over the next 30 to 60 days. So President Trump invoked the Defense Production Act as a way of enhancing and accelerating this mobilization. I salute him for doing so. It’s going to make my job so much easier.”

It’s encouraging that, after largely dismissing the virus for two months, the Trump administration is finally willing to get involved. But there’s no reason to think that invoking the DPA—er, “P”—will produce any more ventilators, masks, gloves, gowns, swabs, etc. any faster than would have been produced otherwise.

The DPA was enacted in September 1950 after the United States was caught ill-equipped by the start of the Korean War. The post–World War II U.S. economy was humming along and government officials didn’t want to bid against American consumers for output for the military. So lawmakers gave the federal government three powers: (1) it can order producers to accept and prioritize the federal government’s demands ahead of others (for both finished goods and in the supply chain), (2) it can provide producers with capital to initiate and expand production, and (3) it can take action against price gouging and hoarding.

A flood of dollars under the second power might be helpful in producing ventilators, but it’s the first power that the Trump administration cited in its order to GM. According to the White House, “The Secretary [of Health and Human Services] shall use any and all authority available under the Act to require General Motors Company to accept, perform, and prioritize contracts or orders for the number of ventilators that the Secretary determines to be appropriate.”

But GM—despite not being a ventilators manufacturer—already was aggressively moving to start production. The automaker had become a subcontractor for a Seattle-area ventilator-maker called Ventec that ordinarily produces about 250 units a month. With GM’s help in both mass manufacturing and sourcing supplies, Ventec is scaling up its own plant’s output to what it hopes will be 2,000 a month. Meanwhile, GM is assembling a second production line at an electronics plant in Kokomo, IN that has a clean room and other facilities that will be needed for ventilator manufacture. The expectation is that the plant will produce 10,000 units a month by summer.

Unlike the Korean War problems that led to the DPA, there’s little concerns that, amidst the stalling U.S. economy, GM is diverting attention and materials away from ventilators to automobiles. The automaker has been idling production and is eager for work and revenue.

Similar partnerships have been forged between Medtronic and Tesla for Tesla’s “gigafactory 2” in Buffalo, and between GE Healthcare, Ford, and a tiny ventilator maker called Airon for Ford’s Rawsonville plant in Ypsilanti, MI. Those arrangements were also hashed out before Trump’s orders.

As for 3M, the firm had already doubled mask production and expects to push even higher, making as many as 2 billion masks worldwide this year. The global manufacturer is also shipping some of its overseas output to the United States to help with domestic shortages.

Whether motivated by market forces or humanitarian considerations (or perhaps some of both), these manufacturers and their lengthy supply chains were already “enhancing and accelerating” the production of life-saving and life-protecting equipment. So why the Trump DPA orders?

In 3M’s case, the administration apparently was angry to learn that the firm sent a small percentage of its U.S. mask output to other countries in the Americas. Helping health care workers battle the disease in such places as Canada and Haiti doesn’t put America first, it seems. But as 3M pointed out, setting off a trade war over medical equipment isn’t a wise move when COVID infections and deaths are at the beginning of a spike and the world is facing a general supply shock.

As for GM, the administration is frustrated that it will take time for Kokomo to reach full production. However, given the need to secure inputs, create production lines and train workers, get them up to speed, and quality-test the output, this shouldn’t be a revelation for an administration that prides itself on its business savvy. Marginal cost rises as demand shifts outward, and it really rises when that demand really shifts. Or, in layman’s terms, it hard to go from full-stop to full-speed.

And that may be the real explanation for the orders. The Trump administration ignored or dismissed the threat of COVID-19 until just a couple of weeks ago, and bungled the one major action it did take. Now, the White House is hoping the orders will make up for wasting two months when it could have been preparing for the disease—or, at least, distract public attention from that failure and shift blame to corporations.

That is, “P” isn’t about life support for COVID victims. It’s life support for a troubled presidency in an election year.

Among the many lessons of the COVID-19 pandemic is how cumbersome one-size-fits-all regulations, administered by an impersonal bureaucracy, hamper a rapid and flexible response to an evolving public health emergency. The U.S. Navy Medical Corps provides us with the most recent example.

On March 30, the naval hospital ship U.S.N.S. Comfort arrived in New York harbor, with 1,000 hospital beds and 1.200 staff, ready to assist in the management of the epidemic which has taken a heavy toll on New York metropolitan area inhabitants. Yet, as of April 3, only 20 patients were being treated on the hospital ship. Three days earlier, the 1,000 bed U.S.N.S. Mercy arrived in Los Angeles, and as of April 2 treated 15 patients.

Both hospital ships were intended to take on and treat patients who are not infected with COVID-19, which serves the dual purpose of sheltering such patients from contagious COVID-19 patients in metro area hospitals while freeing up space in those hospitals for more COVID-19 patients.

But why are there so few patients aboard these hospital ships, considering the ships’ patient capacity and the size of the metropolitan areas they are serving? The answer lies in military protocols and bureaucratic rules that stand in the way.

Patients are not allowed to be directly admitted to the hospital ships and ambulances are not permitted to take them there. They must first be taken to a civilian hospital for evaluation and be tested for the virus before being transferred to the ship. Of course, this requirement does nothing to unburden crowded emergency rooms and their overworked staff.

In addition, the New York Times reports there is a list of 49 medical conditions for which patients must be screened that would preclude their admission to the hospital ship. Because of the large number of New York area residents in self-quarantine, admissions due to automobile accidents, other forms of trauma, and other non-COVID-19 conditions have dropped considerably. One hospital system administrator suggested it would be easier and more helpful to send COVID-19 patients to the hospital ship. Alas, that is prohibited. As I have written here, creating designated COVID-19 centers is one good way for hospitals to engage in social distancing.

This is not the first time regulatory inflexibility has stood in the way of naval hospital ships providing help in time of civilian disasters. Residents of Puerto Rico experienced similar difficulties when the Comfort arrived in San Juan, P.R. in 2017 to assist victims of Hurricane Maria.

In recent days, federal and state authorities have waived a great many onerous regulations that stand in the way of a rapid response to this emergency. Clearly, the military medical system is also guilty of bureaucratic inertia. Its leaders must demonstrate the willingness to be flexible that many federal and state policymakers are now showing. And when this crisis passes, the regulatory regime must not return to the status quo ante.

The trade balance is calculated as the difference between the value of U.S. exports and the value of U.S. imports. The United States “runs a trade deficit” when Americans purchase more goods and services from foreigners than foreigners purchase from Americans.

To be more precise, the trade deficit is the amount by which the total value of purchases of U.S. consumers, businesses, and governments from foreign suppliers exceeds the total value of purchases of foreign consumers, businesses, and governments from U.S. suppliers.

The trade deficit gets a lot of negative attention. It’s got a bad reputation—probably because it’s called a “deficit.” Sounds like something that needs fixing. But the truth is that the trade deficit has a lot going for it. It’s just, well, misunderstood.

Over the years, my colleagues and I have written extensively about the real meaning of the trade deficit; that it is not a reflection of trade policy; that it is to be expected for a country whose government issues the world’s primary reserve currency; and that the dollars that go abroad to purchase imports find their way back into the U.S. economy in the form of investment in equities, real estate, factories, other structures, equipment, and corporate and government debt; and that the only portion of that capital inflow from foreigners that current and future taxpayers need to repay is the principal and interest on government debt (which implicates fiscally irresponsible government, not trade).

President Trump, Commerce Secretary Wilbur Ross, White House adviser Peter Navarro, and others in the administration don’t seem to get this. They see trade a zero sum game, with exports as Team America’s points, imports as the foreign team’s points, and the trade account as the scoreboard. The deficit on that scoreboard (the trade deficit) means that Team America is losing at trade and it’s losing because the foreign team—much like the Houston Astros—cheats.

The misguided objective of trade policy for the past three years has been to minimize imports and maximize exports. And the tools deployed in pursuit of these objectives—sweeping tariffs, withdrawal from a major trans-pacific trade agreement, wanton subversion of the international rule of trade law, and compelling partners into renegotiations of trade agreements under the barrel of a gun—have failed to eliminate (or even reduce) that trade deficit. In fact, between 2016 and 2019, the goods deficit increased from $735 billion to $853 billion. That said, the administration is likely to make progress toward that goal this year because U.S. trade deficits decline during economic contractions. 

But there’s a better way to think of the meaning of the trade deficit. Milton Friedman liked to point out that exports are things we produce but don’t get to consume, while imports are things we consume without having to produce. Yet, when Americans get more stuff from foreigners than foreigners get from Americans, it’s called a “deficit.” Go figure!

If you happen to use toilet paper, the following example may resonate.

In 2019, U.S. producers exported over 72 million kilograms (about 802 million rolls) of the supple utensil to be deployed by people in other countries. WHAT? HOW COULD THEY? DON’T THEY KNOW HOW MUCH WE LOVE TP IN AMERICA? Indeed, we do (no pun)!

According to Sta​tista​.com, the United States leads the world in toilet paper consumption, averaging 141 rolls of the fluffy stuff per person per year. So, the precious supply that U.S. producers exported last year could have sated the derrieres of some 5.7 million Americans. Juxtapose that stat against the wrestling matches you’ve witnessed in your grocer’s paper products aisle.

But here’s the thing. In 2019, not only was toilet paper shipped abroad. It was also imported—and in vastly more significant sums. Volumes of over 194 million kilograms or nearly 2.2 billion rolls were imported last year, satisfying the demands of approximately 15.6 million Americans. In other words, international trade in 2019 produced a net surplus of about 1.4 billion rolls of toilet paper (2.2 billion rolls imported minus 0.8 billion rolls exported) for people in the United States. Trade helped meet the toilet tissue demands of a net 10 million Americans. That’s 10 million fewer people poised to rumble in the aisles of Target and Walmart.

Unfortunately, the trade statistics aren’t recorded in a way that illustrates the facts that Milton Friedman shared with us. They record the dollars that changed hands, not the number of rolls put to good use. But at the end of the day (and, throughout the day), we know which paper ultimately serves the purpose we demand. 

Disasters usually prompt calls for a top-down response led by the Commander in Chief and guided by the supposedly higher expertise in Washington. Many people know that there are constitutional limits on federal power but nonetheless think that centralized command-and-control makes for an efficient disaster response.

Regarding the Covid-19 crisis, Bloomberg columnist Noah Smith said that an “Abdication of leadership by the federal government left the job of shutdowns to state and local governments.”

But there was no “abdication.” State, local, and private leadership is usually the best approach for nonmilitary emergencies. Walter Olson notes about the current crisis: “In America’s constitutional design, while federal law is supreme, the national government is confined to enumerated powers. It has no general authority to dictate to state governments. Many of the powers government holds, in particular the ‘police power’ invoked to counter epidemics, are exercised by state governments and the cities to which states delegate power.”

Smith suggests that such federalism is not practical in the modern world: “One possibility is that the U.S. is burdened with outdated 18th-century institutions. Federalism leaves many powers to the states, making it hard for the central government to coordinate a pandemic response even when leadership is strong and competent.”

But Olson argues that a decentralized response is not outdated. Indeed, it makes more sense because the states have better knowledge of local resources, local hazards, and local priorities, as well as greater flexibility to respond quickly and effectively. Also, by trying to “coordinate” during disasters, I have argued that the federal government usually slows the response by adding layers of rules.

Smith concludes: “The crucial question is whether and how the decline in U.S. effectiveness might be reversed. Restoring the prestige of the civil service, centralizing functions such as responding to pandemics and electing competent and focused leaders are certainly all important steps.”

Alas, that is the naïve Progressive view that Washington knows best. We’ve had a century of federal failures since the Progressive era, including many failures in preparing for and responding to disasters. Where were the “competent and focused” federal leaders during Hurricane Katrina?

I examined the structural causes of federal failure in this study. Numerous centrist scholars have also probed the causes of chronic federal failure, including Peter Schuck and Paul Light.

In this study, I discussed the history of policies toward disasters, the role of federalism, and the failed federal response to Hurricane Katrina. The study also discusses the often-superb responses of private businesses and charities to disasters, including after the Great Chicago Fire of 1871, the San Francisco Earthquake of 1906, the Great Easter Flood of 1913, and Hurricane Katrina of 2005.

In the current crisis, we are seeing some brilliant efforts at the nation’s hospitals, medical research facilities, businesses, and other institutions that will no doubt get us through one of the largest disasters ever.

I’ve got a piece up today at Real Clear Markets that responds to RCM editor John Tamny’s Wednesday piece at the site, which used my earlier writings to go after Wally Olson’s op‐​ed in Tuesday’s Wall Street Journal. Wally had argued there, correctly, that President Trump had no power to “order the nation back to work.” Granting that he was not arguing on the basis of any constitutional expertise, John thought Wally’s argument seemed to imply that state governors had something akin to absolute power to order the lockdowns and economic closures that so many have recently ordered. Since John had cited my work toward that end, I thought it useful to sort the issues out a little more fully.

In essence, as Wally had argued, the governors are acting under their general police power, their power to protect the rights, health, and safety of their citizens. That enables them, in extraordinary circumstances like a pandemic, to issue orders that otherwise would be unconstitutional; and judges, lacking expertise, are generally reluctant to second‐​guess such actions. Presidents, by contrast, have no such power; in domestic affairs, their power comes mainly from statutes Congress has enacted pursuant to its enumerated powers.

In the present context, have governors over‐​reacted, as John’s piece more than suggests? As I wrote toward the end:

… the tendency of government officials is to err on the side of safety, as we’re seeing. That’s why leaving more decisions about handling risk to individuals, as John suggests, has merit. After all, the “essential” businesses that have been left to run have generally adjusted to the risk at hand without the heavy hand of government coming down upon them. There’s doubtless much more room for expanding that category of businesses than we see now. (emphasis added)

This shutdown cannot go on much longer, because it too costs lives. Let’s think about bringing more businesses back to life.