I am reading many people claim something like “production and distribution of the vaccine is the constraint, not FDA approval.”

There are multiple mistakes in such a view, and here I wish to focus on the logic of constraints rather than debate the FDA issue.

First, there are vaccines available right now, and it helps some people (and their contacts) to have those distributed sooner rather than later.

Second, easing the FDA constraint encourages the suppliers and distributors to hurry to a greater degree.  Just imagine if the FDA were to take a few months longer to approve.  The more general point is that citing “x is right now the main constraint right now” does not mean “the elasticity of x is zero.”

“Sure” wrote in the comments:

On the economics side, I am not convinced that production has ramped up as full and as fast as possible. After all there is some risk premium for expanding plants, running constant shifts, etc. and the danger of delayed approval, particularly if you are in some (mostly negligible) way to the other vaccines may not warrant the investment.

After all, approvals appear to move stocks. Do we really think the market is that dumb? If approval has an impact on market value, why exactly would it not also have an impact on the cost of borrowing, expanding, etc.? Surely somebody believes that approval will result in something different will happen than was happening the day before.

Third, “FDA vaccine approval” is a complementary good for the final vaccine service, strongly complementary in fact.  If the other complementary infrastructure goods have price/quality combinations that are “too disadvantageous,” the theory of the second best implies that approval processes should be speedier and more lax than you otherwise might have thought.  This is just the converse of the classic result that multiple medieval princes imposing multiple tolls on a river create negative externalities for both river users and each other.  Lower those tolls wherever you can.

Fourth, let’s say there were three constraints, each absolutely binding at the current margin.  Speeding FDA approval, taken alone, would have absolutely no effect.  We then ought to be obsessed with identifying and remedying the other two constraints (along with approval)!

But we are not.  Instead we keep on citing those (supposed) constraints in defeatist fashion.  This absence of obsession with easing constraints is in fact one of the biggest reasons for thinking we can do better.  We need to throw more money and talent at these problems, and we are not working hard enough on how to do that.  We are just citing the constraints back and forth to each other and pleading helplessness.

As a final note, I recall that my recently deceased colleague Walter E. Williams was especially good on these issues.  I recall him once saying he wanted to hire a helicopter to drop a cow into the campus central quad, just to show people that supply has positive elasticity.  “I’m going to call them up and say “Williams wants a cow!””

Moo.

The post Fallacies about constraints appeared first on Marginal REVOLUTION.

Fallacies about constraints

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