Alex Tabarrok is a professor of economics at George Mason University and a research fellow at the Mercatus Center. Alex joins David Beckworth on the podcast to discuss how best to deal with COVID-19 and what lessons we can learn from it moving forward.

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Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to macromusings@mercatus.gmu.edu.

David Beckworth: Alex, welcome back to the show.

Alex Tabarrok: Thanks, David. Wish I could be here under better circumstances.

Beckworth: Yeah, me too. In fact, it wasn't so long ago you were on the show and it seems almost quaint now we were talking about long run growth prospects, picking the fruit from the top of the tree, all the wonderful things that we have in normal times, but now we're together talking about a very serious situation, COVID-19, and its effect on the economy, how best to deal with it.

Beckworth: And you've been very busy writing on this. Lots of interesting ideas, thinking like an economist. Many of us have not been thinking like an economist. Trade-offs, costs, all those wonderful things, and I'm glad to get you on the show to help us frame this whole debate, maybe from a bigger picture perspective.

Beckworth: Some of what I do is I get in the weeds of monetary policy, financial policy. So, it's great to kind of step back, and you're a great guide for today to help us navigate these waters of where we should be, where we want to go. In fact, the outline today is going to be, how did we get here? What are we doing now? And then moving forward, how should we proceed? Before we get into that though, Alex, how are you holding up?

Tabarrok: I'm actually doing fine. I was already teaching online, so that helped me out a little bit. And social distancing is natural to me anyway, so another second bonus. Usually, I go to work to social distance from my family. So far, I'm doing okay, though. Of course, it is distressing everyday to wake up to no good news that is wearing on the soul.

Beckworth: Yes, indeed. And for our listeners, we'll let you know that we're going to have a bonus segment with Alex afterwards. You'll have to find that on the webpage of the show. We'll talk about a few more positive things there; what he's doing for fun, and some of maybe his favorite pop culture choices.

Beckworth: Okay. But on the serious matters. So, one reason I really wanted to get you on the show is that you've actually written about the potential for natural disasters, what you might call televents, things that are unlikely most of the time. And you've written extensively about asteroids hitting earth, and we talked about this last time, but I want to talk about it again.

Beckworth: Because you made the case that we need to prepare for an asteroid hitting earth, and I couldn't help but think of that call for action as we were going through this pandemic crisis. And there's got to be some on this current situation.

Tabarrok: Yeah. So, I think what this crisis shows is that we're not good at reacting and responding to small probability events, which nevertheless are potentially huge disasters. Climate change is one of those. Another one is asteroid strikes, and there are others, which even today, we're not well prepared for them.

I think what this crisis shows is that we're not good at reacting and responding to small probability events, which nevertheless are potentially huge disasters.

Beckworth: Why is that? Why do we have a hard time preparing for these events?

Tabarrok: So, I think that people are good at when you have repeated events, when you have feedback, right? Under those circumstances, where you are both rewarded when you do something right, and you're penalized when you're do something wrong, and when there's a close connection between cause and effect, then we're pretty good at learning and at improving.

Tabarrok: But when you have these one time events where there's very little feedback, maybe even none, then it's much, much more difficult, and you kind of have to rely on social norms in society. Like, even for example, as economists, we know about retirement decisions.

Tabarrok: People are terrible at retirement decisions, and that's typically because it's a onetime event, right? You have to plan for it in advance. You sort of know it's coming, which is an advantage. But you don't get to observe yourself under multiple scenarios, some of which you spend 5% of your savings, you save 5%, others of which you save 15%.

Tabarrok: You don't get to see those two scenarios and respond and change your behavior. So, instead, what you have to rely on is sort of, what does society say is the right amount to save? What did my parents do? What are social norms? And that's just not as strong.

Tabarrok: Because then, when you have to come to something like asteroids, which, in memory, nobody has any response, any memory of that, then of course, it's an even bigger problem.

Beckworth: Right. So, is this an argument for behavioral economics, kind of a nudge in the right direction, some kind of minor paternalism here to help us prepare better for these televents?

Tabarrok: I mean, it would be great if such a thing were possible, but it's clearly the case that our leaders who are in the best position to kind of move society in the right direction, they've also failed to make preparations. It turns out, for example, that George Bush surprisingly was concerned about pandemics and he started the government off on some storing mass and things of that nature and he's creating a plan.

Tabarrok: But once Bush left office, that was kind of forgotten. It fell down the memory hole. It became less important and people focused on other things. The same thing, Schwartzenegger in California. Schwartzenegger in California actually prepared these mobile hospitals.

Tabarrok: But then, Jerry Brown came in and there was a budget crisis and something else and something else and attention fades and these things just fall off the radar because we're not continually reminded on them. We don't have feedback.

Beckworth: Yeah. And what's interesting, I read your article on California and Governor Schwarzenegger and the dollar amounts are relatively low compared to the overall size of the budget, and yet it was easy to forget and to kind of write that off the budget because it didn't seem consequential at the time.

Tabarrok: Yeah. There's no interest group which is pushing for these kinds of preparations and it's very, very easy to say, well, this is a way we can steal a few million dollars and give something to some interest group, which is pushing for something and he wants something now, right?

Tabarrok: Here's an interest group which wants something now, which can get me reelected. I'm going to divert the money from this long-term thing where there's no interest group in support of that. There's no way this is going to help me get reelected unless there is a pandemic, which is unlikely.

Tabarrok: And so, this is an easy way to... The political calculus is all towards the short term. By the way, ironically, we talked about asteroids. Here's another thing; another major disaster, potential disaster, which really worries me a lot, and ironically, it also has to do with corona.

Tabarrok: This is not the corona virus, but this is the sun's corona. And that is, I'm worried about a coronal mass ejection, which is a big solar flare. And if one of these happens, it could easily knock out all of our electronics, including the power grid.

Tabarrok: One of these actually happen in 1859, which was just as the modern era was beginning. And it knocked out the Telegraph system. So, you could imagine that if the Telegraph system was knocked out, if we had one of these events today, we almost had one in 2012. It just missed us.

Tabarrok: But if we had one of these events today, it could mean that there would be no electricity for months or even for years, and really, nobody is preparing for this at all.

Beckworth: Do you have any hope that this crisis will change that; there'll be some attention given to the potential of asteroids, the solar flares, future pandemics?

Tabarrok: Again, you kind of hope, I suppose, but I don't quite see how that political calculus is going to change.

Beckworth: Right. It's not there.

Tabarrok: It's just not there. Yeah. So, I hope we get some attention on this, but I think this is a problem which we need to put some attention on and think about more. Think about the power grid. This is a centralized network, so that if it goes down in one part of the country, the rest of the country is affected as well. All of North America, right? It's all linked. This is what a Nassim Taleb would call a fragile infrastructure, because you knock out one part of it, and it all goes down.

Tabarrok: As opposed to, and maybe this is a beneficial consequence of solar power; if you have solar, like you have Tesla solar panels on your roof, and a lot of people have that, then you have a much more decentralized, a much more robust system because some of it could survive in one of these EMPs, one of these solar flares. Some of it could survive. And we could do something to protect the grid right now, but we're really not.

Beckworth: You know, Alex, a friend of ours, Joshua Hendrickson, wrote a piece for the Mercatus Center. We have this special policy brief series that's come out. You wrote an article for it as well. We'll talk about that in a little bit. But Josh wrote one and his plan of action is to prepare for these things, to invest ahead of time, to spend some funds for it.

Beckworth: And he acknowledges one of the challenges in doing this, and it'd be the case for any of these situations we've just talked about: asteroids, solar flares, is there's going to be some rent seeking. There's going to be maybe some industry that's going to leech off of the funds dedicated to stocking up on mask or gowns or whatever it may be or building a new infrastructure.

Beckworth: But as economists, I guess, one thing that struck me as I've thought about this crisis is there's an optimal amount of everything in this world, including rent seeking. I mean, in order to prepare for these events, maybe we need to tolerate a little bit more of rent seeking than we were used to in the past. I don't know, might becoming too...

Tabarrok: No. Absolutely. The only reason we get some public goods is because they're tied to some rent seeking. I mean, the only reason we have national defense is because there are big national defense firms, who say, "Well, we need this new weapon system." And the Congress people, they want a big base in their districts, so they push for that.

Tabarrok: So, if there was some way of tying pandemic preparation to something which involves rent seeking, where somebody can get some rents, that would be great. I mean, this is like what Walter Williams said, this is to do with private markets. But he said, "I sure hope that some drug company is going to get rich if I get sick because that's the only way I have a chance of surviving."

Tabarrok: So, yes, we really need to hope that there's some way which some politicians and some firms can get rich by promoting pandemic preparation, and more generally, preparation for these low probability small events. I mean, on climate change, I think there's some movement towards that because we are starting to get the technologies which compete against coal.

Tabarrok: And so, there are firms which are now producing technologies, which would do great if they're subsidized a little bit, solar firms and things like that. So, there's a natural class who are in favor of these things. And if we could do the same thing for solar flares and pandemics and asteroids, that would be great.

Tabarrok: I'm not sure we're going to do that, but they're going a little bit further afield. Some societies are better at doing this than others. I was in Switzerland a few years ago, and every small town in Switzerland has these beautiful little fountains all over the town. They're like little fountains and wells and things like that all over the town, and they're not actually for decoration.

Tabarrok: They're beautiful, but they're not for decoration. These are fountains which are connected passively to a mountain springs, so that in the event of a disaster, these fountains will continue to work, even if the rest of the society goes down. So, you're not relying upon pumps, you're not relying on electricity.

Tabarrok: But each of these little towns has its own source of water, which is going to survive just about anything. And so, the Swiss really, for some reasons, I don't know why, they have this kind of mentality. They also have lots of bunkers in case of a nuclear war. They're really well well-prepared.

Tabarrok: Now, what accounts for that and how we could get some of that in our own society, I don't know. Of course, the United States is very much a high time preference, right? We want things now, not about future generations. What about my generation? I'm talking about my generation.

Beckworth: If I had to guess, I'd also say, Switzerland's a small country surrounded by many other countries, been through lots of wars in the continent of Europe, and they've experienced it. So, going back to that feedback point you made earlier, they've seen firsthand armies roll through, and they want to be prepared for worst case scenarios.

Tabarrok: That's right.

Beckworth: Yeah. So, it might be harder to bring it to the U.S. Like you mentioned, we don't take things as seriously in the future as some other places do. Now, just to recap, so some of the these televents that may occur that we should be thinking about, pandemics obviously. We're in the midst of one now. But asteroids, you mentioned solar flares. Is there anything else? If some budding politician is listening or someone out there who wants to solve the world's problems, are there any other major natural disaster televents we should worry about?

Tabarrok: So I think climate change is one of them, not the usual kind of stuff you get about temperature rising, blah-blah-blah. I think we can handle most of that. But, it's the Weitzman kind of problem of some tail risk, which we don't actually understand. Like, the permafrost becoming no longer frosty and releasing a huge amount of methane into the atmosphere right away or very quickly. So, I think... What I learned from the financial crisis actually, was that these... Many of these systems are in fact fragile, and you get one part of the system going down and that can have all these ripple effects. So I worry about those kinds of things a lot more. And it's not climate change, the mean forecast, which I worry about, but the unknown unknowns. And given that we're pumping so much more carbon dioxide into the atmosphere in a way which we have not seen for tens of thousands of years, it is really worrying to think that we're relying on nature having a stable equilibrium, right?

Tabarrok: We're only going to be pushed away a little bit. And yet, we are just pushing nature so hard away from the equilibrium where it's been for thousands of years, that I could easily see us, that we're in a local minimum and we push and we hit a tipping point and then nature just takes off and rolls away towards a much worse global or another local minimum, but much further away. So, these kinds of things where there are tipping points, I worry about quite a bit.

Beckworth: Okay. Well on that pleasant, happy note, I will move on to the next set of questions I wanted to cover with you. And that is, why has it been so hard in the United States to get our response to the pandemic up and running? So, we've seen failure in getting tests out, we've seen failure in even the ability to get loans to small businesses, it's been a struggle. It just hasn't been a very fluid efficient process. What is your take on what's going on in the US?

Why Has the U.S. Struggled to Respond to COVID-19?

Tabarrok: I mean, I think this is just behavior as normal. We have... All bureaucracies tend to be slow, they tend to be safety oriented, they tend to be rule bound legalistic, and this is what happens when you have a law legalistic base, rule-based society, and then you... And then it's met with unprecedented crisis. This is kind of normal, I think.

Beckworth: Okay. So maybe it's a sign that we have a functioning society then. It's a good thing in normal times, but just when we have these shocks, it's hard to adapt quickly. I guess one of the areas I was going with this though, is the FDA, CDC, some of the regulatory roadblocks on quickly adapting and allowing masks and these tests to be made, it seems to have slowed down the process. But, you're saying that's to be expected?

Tabarrok: Well, I say that's normal. I'm not saying it's to be expected or even to be lauded. But, the FDA... Well, let's start with the CDC.

Beckworth: Okay.

Tabarrok: Because the CDC, they were the original ones to drop the ball. And the whole point of the CDC is to prepare for pandemics, so I really put a lot of blame on them. Because, they completely messed up the first test. And then the FDA compounded that error by not allowing private labs and state labs to come up with their own tests. So, we absolutely lost weeks of testing time. And what shocks and dispirits me more than anything, is that all of this was pretty obvious. We had weeks and weeks of advanced warning from China. I mean, China shut down their entire economy, exactly like our economy has shut down now. And they did it weeks and weeks, months, before we did. So, we knew. I mean, as an economist, I'm not an epidemiologist, but I knew this was coming. How did I know? Well, just by looking at what China did. You don't have to look at what they said, you just have to look at what they did, to know that this was an incredibly serious event. Because the Chinese are not going to shut down their own economy for nothing.

The whole point of the CDC is to prepare for pandemics, so I really put a lot of blame on them. Because, they completely messed up the first test. And then the FDA compounded that error by not allowing private labs and state labs to come up with their own tests.

Tabarrok: They're not stupid. So, this was all very obvious, the day was coming for us. And there's no reason why the Chinese were going to be much more susceptible to pandemics than us. So the situation that we are in now was totally predictable early on in January, if not before.

Beckworth: Yeah. I remember having conversations with people who were dismissing it as some kind of media driven event. I said, "Look, communists care about profits too in China. For them to shut down their economy, that's huge. They have to do everything they can to keep people happy, to keep them fed, give them jobs. For them to take this drastic step, tells you something very serious is happening."

Tabarrok: Absolutely.

Beckworth: Yeah. Well, this also speaks to the idea of state capacity. So, do we have the ability to respond? And just going back to... You mentioned, The Swiss, fascinating article, I think I saw you linked to it on Twitter, but... Or maybe it was someone else. But, there was a piece written about how their government has been able to quickly get loans, kind of these relief aid loans, bridge loans to these companies, small businesses. And we're still struggling to make sure we get it to the banks, to the right folks, it's not used up by small set of institutions. And they almost did it flawlessly. And all of these issues come back to this idea, in my mind at least, the state capacity. And I'm wondering if you could maybe explain what state capacity is and then maybe apply to the different contexts. You've been to India, you've seen the idea applied there, so maybe you can share with us what you saw.

Tabarrok: Yeah. I think it's sort of hard to define state capacities, but you know it when you see it, is one of these things. It's the ability of the government to actually get things done, right? And the United States has traditionally been seen as a relatively high capacity state. Because, it can collect a lot of taxes, it can project its power around the entire globe, right?

Tabarrok: In fact, there's no other country in the world which can project as much power, thousands of miles away in the China Sea and so forth, than does the United States. Now, what we're seeing is that we had less state capacity than we thought, right? What we're seeing, I think is that, when push comes to shove, competency matters. And that there was a lot of rot in the system. This obviously... Trump is not helping, but it goes beyond Trump, it precedes Trump. Trump is, and the people who have... Who are surrounding him, I think are particularly incompetent. But, the rot is much deeper than that. And so, the times when you need it, if you have low state capacity, then a society is in real trouble when it meets these existential threats.

What we're seeing is that we had less state capacity than we thought, right? What we're seeing, I think is that, when push comes to shove, competency matters. And that there was a lot of rot in the system.

Beckworth: As I'm sitting here listening to this, Alex, I think of the safe asset issue, which is altogether different one, but it's related. This demand for safe stores of value, people come to the US, they go to Germany, UK, and it strikes me that the ability to produce safe assets is tied closely to state capacity. If you don't have great state capacity, you're not going to be able... You're not going to be considered a place that produces safe assets. So, the fact that we're seeing a little less state capacity should give us pause given all the debt we are putting out. Although with that said, the markets still seem pretty competent, they still have the 10 year treasury yield about half a percentage point. But-

Tabarrok: Yeah. The United States has some very big advantages. For one, we're actually one of the countries which is less tied to the global system. We actually don't need globalization. Our market is big enough. Our natural resources are strong enough, especially if you include Mexico and Canada within our orbit. So, I think people looking around... And if country is in real trouble, it's China. China needs us much more than we need China. China is only gotten rich by exporting to the developed world. And so, this new world, which we are heading towards, China is in deep trouble. Because, it relies on a globalized world and it has very few of these other advantages. I mean, it has an aging population, is another problem. So actually, I think United States and North America more generally, are in a pretty good position in a sense. Though that's not so much due to our state capacity as due to the... Our fortunate geography and history.

Beckworth: Okay. So, we have a few things going for us beyond just pure state capacity, so... You mentioned-

Tabarrok: Yeah. We'll do relatively okay.

Beckworth: You mentioned President Trump and some of the challenges he's created... I've been reading some articles, Chad Brown at the Peterson Institute for International Economics, has written some wonderful pieces on how trade policy has complicated matters. I want to highlight some of the things that have happened because of the trade war, which was going on before this crisis unfolded. And I want to just read an excerpt here from a political piece where they highlight Chad Brown's work, and they say, "Trump's latest invocation of the defense production act to stop 'unscrupulous' exports of N95 masks, surgical mask and other personal protective equipment could backfire on the United States even though the US is in good company, 68 other countries have also restricted some medical goods exports since the year began.

Beckworth: However, depending on how strictly the Trump administration interprets those words, the new order could actually hurt the US. Cutting up U.S. exports of medical supplies would be one of the most shortsighted policies imaginable," said Chad Brown, a senior fellow at the Peterson Institute for International Economics. "The shortages popping up in America right now, mean our needs can only be filled by imports produced in other countries that currently have a surplus, as we're seeing with imports from China." So he goes on to say, "Look, this war, in addition to making it harder to get things because of tariffs and the Trump administration actually has large tariffs on some of these goods, it also can lead to behavior from other countries who don't look at us favorably, if we impose restrictions. If we're not letting our goods go out, then maybe India doesn't want to send their pharmaceuticals back to the United States. So, it's a complicated game you play when you start a trade war. Trade Wars are not easy to win. And during a pandemic, probably the worst time to play them."

Tabarrok: Yeah. I mean, it's an absolute disaster. It's very natural in these situations to say, "Well, we need to keep everything at home." Right? The kind of home feeling, right? A home bias. But, I have called this, sicken thy neighbor trade policy, because it's quite like, beggar thy neighbor trade policy, which is where you put up some tariffs so that goods can't come in, thinking that, well, this is going to support our domestic manufacturers. But then when other countries respond by also putting up tariffs, then your manufacturers aren't exporting and both countries are actually worse off. So, you're in a prisoner's dilemma. And we're very much in that prisoner's dilemma right now. So Trump, for example, pressured 3M using the defense production act, not to send masks to Canada. But it turns out, that Canada has a timber plant, a plant which manufacturers some of the ingredients which go into surgical masks, not the N95, but surgical masks.

Tabarrok: And... So, Canada also has a vital ingredient which we need. And this is true all over the world. There are these supply chains. And once you start putting... When one country puts on an export prohibition, says, "No, we're not going to send our medical goods abroad." And other countries respond, you're both worse off. You both end up not being able to produce anything. If you have two countries and they're producing ventilators and country A has one key part and country B has another key part and they both say, "Well, I'm not going to export." Then neither country has the parts to produce the ventilator. And so I think, one of the very worrying things is that we are putting all... On, these export bans, and disrupting the global trade system at a time when we actually need it the most.

Tabarrok: Because if anything is a global problem, it is a pandemic. That's practically the definition of the problem. We are all susceptible to this virus, it is a human problem. And we need to attack it all together. If we don't hang together, we shall surely hang apart. And I think that's what's going on. And this is especially true given that this virus has attacked us at different times. So, early on in the crisis, Germany was shipping ventilators to China when China needed them the most. Well now when China has got at least partial control, it's now Germany which needs ventilators from China, and China is shipping them to Germany. So, we can actually take advantage of fact that some countries were hit first if we allow the global market system to do its job.

Beckworth: Okay. Alex, before we wrap up this section on why we've been slow to get our response up and running, we've touched on a few things, any insights from India? Because India is a place with limited state capacity. You've been there, you've seen firsthand how things work.

Tabarrok: Yeah, I'm very worried about India. It has a huge number of problems. It has a very poor public health system. A low state capacity. It's already suffering under lots of comorbidities. So it has very high pollution, has a lot of both air pollution and water pollution. A lot of health problems, a lot of respiratory problems already. So, if the virus gets out in India, it's going to be very hard to control. Now Modi put on a lockdown and he did so relatively early given the number of cases in India, which I think was good, but the Indian government really can't enforce that lockdown very easily. What you see is, in some places, the police are beating people up. In other places they've totally given up. So it's a very poorly enforced lockdown, both too much and too little in some ways. But the virus doesn't care about that. The virus just spreads. So I think it's going to be hard to contain.

Tabarrok: Here in the United States we talk a lot about social distancing. In much of India, that's simply impossible. They have so many people in such small spaces. So you take some place like the Dharavi, which is the biggest slum in Mumbai. In Dharavi, the average amount of space people have is something like 48 square foot per person, just about everybody is living together with probably two or three generations in a family. They do not have pipe water, they do not have a soap. They don't have ... there's no easy place to wash your hands with soap except maybe there's a communal tap if you're lucky. So this virus in a place like the Dharavi is just massively, massively frightening.

Tabarrok: They are acting quickly. The government is acting quickly to try and contain it as much as possible. I'm trying to do some work on this, but I'm very fearful about India, so we're keeping our fingers crossed. Maybe the weather will help, we'll see. But India is bad, not just for Indians, but if it gets out in Indian and can't be stopped, then that's a reservoir, which means that it's going to take much, much longer for the rest of the world to recover as well.

Beckworth: Yeah. Very sobering thoughts about India, and India, if I understand correctly, is a big source of our pharmaceuticals too, isn't that right?

Tabarrok: Yes. So the generic pharmaceuticals, some of the biggest manufacturers of generic pharmaceuticals are in India. So this is another reason to maintain the global supply system because we're going to need them as well as they're going to need us.

Some of the biggest manufacturers of generic pharmaceuticals are in India. So this is another reason to maintain the global supply system because we're going to need them as well as they're going to need us.

Beckworth: Yeah, absolutely. Okay, so we've discussed why we got off to a slow start and now we need look forward and see what is the best steps forward. There has been lots of discussion, different proposals, different ideas, and something that you've been promoting actively is the idea of mass testing to fix the labor markets. You've written a post on this. Could you explain to our listeners what your idea is?

Mass Testing and Immunity Passes

Tabarrok: Yeah, so I think the first thing to do is we do need to suppress, so we need to get control of the situation in places like New York, we need to see declining death rates, we need to get the virus under control. That's what the lockdown is for. It is in order to reduce what they call R, the infection rate, you want to reduce that below one so that the virus has no place to go, has fewer hosts. You can create sort of a herd immunity if when people are immune, the virus has no place to go because people have been vaccinated. You can also reduce R by hiding. That's kind of what we're doing right now. The lockdown is about hiding from the virus so that the virus has no hosts to replicate.

Tabarrok: Once suppression works, okay, hopefully we can get it to work, then I think we can think about going back to work. The way to do that is with a massive test trace and isolate kind of system. So outbreaks are surely going to arise after suppression. But then you want to take your testing capacity, which you have built up during the lockdown period and apply it very quickly along with tracing everyone's contacts and isolating those people who test positive.

Tabarrok: So I think it's kind of like a forest fire, right? Once you get the forest fire under control, then you look for lightning strikes and wherever the lightning strike is, you apply massive resources very quickly in order to suppress. So that's what we're going to have to do. We're going to suppress the forest fire and then we're going to have to keep testing and isolating to stop these outbreaks. All the while building up our testing capacity because the more tests that we can do, the more we can get back to work. So if we can test people, moving towards testing people even every day, then we can get back to work along with using what I call indifferent safety protocols. So that's kind of the next step is massive testing along with these kind of safety protocols.

If we can test people, moving towards testing people even every day, then we can get back to work along with using what I call indifferent safety protocols.

Beckworth: Now part of those protocols include immunity passes. Is that right?

Tabarrok: That could be one of them. So people who have been infected and who survive, they will have antibodies against the virus and we think that they will be relatively immune, at least for some period of time. So they might be certified. This worker is immune. Those workers are going to be very valuable, not just sort of on the front lines against the virus, but they're going to be valuable coworkers because if somebody is immune, they're also not shedding the virus. So they are safe to work with. You can give them a high five, not that I suggest you actually do that. But you're less worried about being in the same room with somebody who has recovered. So we kind of get a multiplier effect there.

Tabarrok: So immunity passes, mask wearing. I think there's also things we can do like in different factories and things like that. So factories, some of which are running now for essential goods we can see what is working there. So one of the things people do is they go to multiple shifts and you have one, two or three shifts, and the shifts never meet one another. Okay? So you have a shift, then you have a disinfection period where the factory is wiped down. Then the second shift comes in, right? So the first shift and the second shift, you don't meet one another. So that kind of thing I think will help us to contain the virus going forward until we get to a vaccination, I hope.

Beckworth: One of the other interesting things you've written about and your colleague Robin Hanson has written about is, this idea of variolation? Is that how you say it?

Tabarrok: That's right, right.

Beckworth: And there's like a Hotel Corona in Tel Aviv. So tell us about this idea and how it could help out as well.

Vaccination, Variolation, and Other Public Health Solutions

Tabarrok: So variolation is one of the original sort of types of vaccinations. It's vaccination using a very low dose. The idea is that if you get a very low dose, your body has a longer period to build up immunity, and therefore, hopefully you're less likely to get sick if you start out with a low dose under controlled conditions. Now, what Robbins suggests is that a lot of people do this. A lot of people get this variolation and then you build up herd immunity because if lots of people are immune, then again, the virus has no place to go and so it naturally fades out.

Tabarrok: I'm not sure if we're going to do that, but I do think that there could be a reason to do variolation for smaller groups. For example, the US military, I'm sure they're already thinking about this, but maybe in the military let's face it, they're they are already volunteering to take on risk, but if we want to keep our aircraft carriers going, right? Then maybe you have a volunteer group who are deliberately infected volunteers, they're deliberately infected with very low doses, they become immune and they're going to become the core of leading our central military capability. That could be expanded to kind of like a Health Corps, perhaps, who are also immune.

Beckworth: Now, how is that different than normal vaccination? Because, pardon my ignorance here, but normal vaccination includes like a very weak or almost dead form of the virus itself, right? And then-

Tabarrok: Right. So typically dead. The best of the vaccinations are with just part of a dead virus, or even a live one, it's just part of the virus. So you introduce the immune system to ... you kind of give it a peak, you give it a peak. Yeah. A sneak peek. Exactly. A sneak peek at what the surface of these viruses look like and therefore then the immune system sort of kicks up and says, "Oh, this is what I need to grab onto this and to neutralize this."

Tabarrok: Now I should say, I'm speaking as an economist, I'm giving you my best interpretation. Okay, so let's put all that in quotes, but-

Beckworth: But variolation is a stronger form of that then?

Tabarrok: Correct. Correct. That's what we did before we could design just pieces, right? I see. So that's what we did in the 18th and 19th century, you would take kind of sometimes literally the scab if somebody who had had it and kind of push it into a cut that somebody had.

Beckworth: What was fascinating is, and I saw this on Twitter, there's this Hotel Corona I mentioned earlier, and Tel Aviv, they showed a video footage a lot of young, it looked like more like young adults hanging out, having a good time at this place, this chilling with their exposure to the virus.

Tabarrok: Right. So this is why I've said we might need some form of this because that is under uncontrolled conditions and maybe these people, "Oh, I've had enough of the hotel, I'm going home." That's very bad. So I would want ... if we have these immunity certificates or immunity passes, I think they're going to be quite desirable, and workers may want to get them. So they might want to go to Hotel Corona, but that's not good.

Tabarrok: So instead, we might offer them, here's Hotel Controlled Corona where I will give you this very low dose, but you have got to stay here. You've got to stay here for two weeks until you no longer show the virus in your system any longer. That's why this might be first done by the military because they're much more capable of ... in fact, keep someone in holding them for two weeks under a controlled quarantined situation than anybody else's.

We might offer them, here's Hotel Controlled Corona where I will give you this very low dose, but you have got to stay here. You've got to stay here for two weeks until you no longer show the virus in your system any longer.

Beckworth: Yeah. Now something you've mentioned along these lines, in order to do this, to do this mass testing, to do these approaches, to try to get the economy up and running again, get people working again, is to have the funding for that and the CARES Act, the huge bill passed by Congress over $2 trillion. You've noted that much of the funding in the health portion goes towards hospitals and very little if any goes towards vaccination developments and testing. Is that right?

Tabarrok: Right. This is completely insane. I mean, we have this $2.2 trillion bill and none of it is specifically reserved for, you know, here's even a $1 billion, here's $1 billion for vaccination to do something like that. There's no funding, which is set aside for that. The best that we do, I mean it's kind of crazy is, we have directed the Medicare and Medicaid facilities to create a new code. Okay? So, I mean, it's so laughable. In a horrible way. But there's now a code so that hospitals can be paid for-

Beckworth: Priorities.

Tabarrok: Yeah. Priorities. Yeah. You just contrast this with Bill Gates. So what is Bill Gates doing? Well, Bill Gates has realized that we don't know what vaccine approach is actually going to work. It turns out he thinks that there's kind of seven different approaches, which might work, he doesn't know which one is going to work. But these seven different types of vaccines, they each require a different type of factory, a different type of setup to grow the media in which you need to grow the vaccine. Some of them use eggs and some of them use vats. There's different, depending upon which vaccine is most successful first, you need a different factory to produce this thing at scale.

Tabarrok: So what Bill Gates has said is, "I'm going to build all seven." Okay? "I'm going to build all seven factories. Six of them are going to be wasted. One of them is going to be a success and we're going to use that factory to actually produce the vaccine once we have it." So that's like forward thinking, this is what the government should be doing. Yet, we're relying on a billionaire to do this and thank God he's doing it. But it's really kind of frightening when we have such a low state capacity, even though they've got plenty of money.

Beckworth: Right. Well, I'll tell you what I thought when I saw this, that Bill Gates is willing to lose a lot of money. Make just one of the factories come out with the right vaccine is, "Man, aren't we glad we have billionaires?" There was a wave of discussion in, I don't know the past year or so, where people were saying, "Billionaires are a failure of policy," and right now I hope these folks reconsider that. They've been our heroes here. At least Bill Gates has been, stepping forth to put his own money on the line. He's going to lose money. There's no doubt he's going to lose money, but he's willing to invest it in our future. So what a hero.

Tabarrok: Yeah, absolutely. Yeah. Just thinking, what a thinker.

Beckworth: Yeah, right. He was one of the few warning us ahead of time too, that this was coming. Also, speaking of villains, so billionaires were a villain, big tech is often the villain. But this great New York Times piece was talking about how Google searches is helping us discover where the hot zones are. So they looked up number of searches for losing sense of smell, I believe it was losing sense of smell. There's this great scatter plot they show in terms of the States, almost a straight line between the positive cases per 1000 and the number of searches for loss of smell per 100, and you can use this data analytics to help us locate where these hotspots are. If we want to go apply the mass testing that you suggested earlier, I mean, again, the villain may turn out to be the hero.

Tabarrok: Yeah, absolutely. And the cell phone data is also amazing. People complained about privacy and so forth, which is not an illegitimate complaint, but being able to track how people move has turned out to be very useful. And more generally, the internet has just been incredibly robust. We're all using a Zoom a lot more. We're all watching Netflix a lot more. And the internet has really held up, and that's been one saving grace, which we have really had a very, very robust system. And it's kind of been exciting to see that here is one area high tech where America really has stood up on the crisis.

The internet has really held up, and that's been one saving grace, which we have really had a very, very robust system. And it's kind of been exciting to see that here is one area high tech where America really has stood up on the crisis.

Beckworth: Oh, absolutely. So along those lines, the internet has held up well, it's served us well. It's serving as a way to help locate and identify hotspots. I'm wondering about what are some of the big changes moving forward, and I think the internet is one area where we may see that. So you mentioned you're doing Zoom classes. You and Tyler Cowen had already done a lot of work for online classes with your textbooks, but I wonder if one of the big changes moving forward is if we'll see more of these MOOC classes, Massive Online Open Classes, or just any kind of online class moving forward. Do you have any thoughts on that?

Implications for Online Education, Telemedicine, and FDA Reform

Tabarrok: People ask what are the big changes that we can expect, and I think the way to think about this is don't think about big changes, think about accelerations. What trends is this going to accelerate? And online education is definitely one of those. A lot of people are going to find online education is actually better. I think there's a lot of reasons to think it's better. Now, of course it's not better just doing a Zoom class or something like that. We're going to have to invest a lot in it. But for example, when one professor can teach tens of thousands or hundreds of thousands of students, then you only need the very best professors, the very best instructors, the best people, and you only need the best courses.

Don't think about big changes, think about accelerations. What trends is this going to accelerate? And online education is definitely one of those. A lot of people are going to find online education is actually better.

Tabarrok: And did that make sense to invest $1 million in creating a course, right? If you're going to teach 100,000 students, then there's no problem taking $10 per student and spending $1 million to make this the best possible economics class, if you're going to teach that many students. Now, this I think, as I say, is going to be better, but it also raises this kind of scary thought, and that is teaching is going to be much more of a winner take all market. So people have always said, "Why don't we pay our teachers the way we pay our sports heroes?" And my response is, well with online education, we will, but there's going to be just as many of them. That is to say a lot fewer. There's going to be some superstar teachers and everybody else is not going to do as well on the instruction market.

Tabarrok: Right now there are thousands of people teaching economics 101. Do we really need all of them teaching more or less the same class? I don't think so. So it's going to be much more of a winner take all market, and that is going to be now accelerated, not just because of the technology, but also because universities are in real trouble. Universities are going to be looking for ways to save money. This is going to be a huge hit on universities, and online education is one of the few ways in which they can actually save money. So I think these two factors, the technology and the budget, is going to push towards online education and that's going to be worrisome for instructors.

Beckworth: We already hear a lot of discussions about the glut of professors. People have PhDs without work, and this is only going to exacerbate that. We're going to see more superstar teachers, fewer people getting tenure, I imagine, fewer people needed, fewer adjuncts.

Tabarrok: Yeah, that's absolutely right. I mean there's thousands of universities in the United States, and many of them survive only because even today there is still kind of a local home bias kind of effect. But if you're online, why would you go online to the university near you rather than to the best university? So again, the online technologies are going to push people away from the small local college, which they might've gone to in previous years because it was near their parents, and instead they're going to choose an online university, which has big resources, lots and lots of students. So the big universities, the ones with lots of students, they're going to be the ones who can afford to invest a lot of money in creating these classes. It's going to be something like... I liken this to video games, and not pejoratively, but if you think about a video game today, typical video game, it costs 40 to $50 million to produce, and the higher computer programmers and the higher artists and sound people and visual people and so forth.

Tabarrok: And I mean online classes are going to be like this as well, like physics 101. Physics 101, again, we don't need thousands of different professors teaching Physics 101. Let's get the five best, put $1 million behind each one of them and create five absolutely world-class online classes along with artificial intelligent tutors who are going to create a much more individualized instruction. So what I'm talking about is not simply watching videos, but as with the classes which Tyler and I teach based upon modern principles, our textbook also includes shifting of the curves and answering questions and getting data from the web, and it's a much more individualized form of instruction.

Beckworth: So what this means is we're finally going to get the productivity gains in education that we have long sought after. So many other industries have had rapid productivity growth. We'll finally see it in higher ed.

Tabarrok: That's right. Because what online education does is it ties education to a progressive sector. So you're tying education to the technology sector. So every improvement in the technology, whether it's 3D worlds or faster internet or broadband or 5G or whatever it is, all of those improvements in the technology then automatically become improvements in education as well because you've tied those two sectors together. So yes, I do think we're going to see productivity improvements. And again, along with this idea of look towards how this is going to accelerate the trend, well, finally now we have doctors without borders, by which I mean doctors are now being allowed to practice across state lines, which was always insane that they weren't allowed to do that, that we have 50 systems in the United States. That doesn't make any sense whatsoever. You could say, well maybe we don't trust the Australians to educate their physicians to our high standards in the United States.

Tabarrok: So we're not going to allow an Australian doctor to practice in the United States. I mean, I think that's crazy, but you can sort of see it. But then to say that we're not going to allow a doctor who took the exam in California to practice in Louisiana or Missouri, it's just completely insane. But I think we've hit a tipping point, so people see that that's insane. I don't think we'll go back.

Beckworth: All right Alex. So we're getting near the end of the show here. Are there any other areas where you see change coming along because of the crisis?

Tabarrok: Yeah, I think there's two. One is telemedicine. And again we're already seeing people do appointments over the web, which makes perfect sense. I do also think maybe optimistically that we'll see some FDA reform. And let me just make one point about the FDA is that I've always been, as you know, quite skeptical about the FDA. And now that's receiving a broader hearing because everyone sees how its caution and its slowness could have contributed to this crisis we're in. But the point I'd like to make is that if a year ago you had AIDS or you had a heart disease or cancer, it was already an emergency for you. So the patients who were delayed medications because of the FDA, it's always been an emergency for them. And I think we need to think about that moving forward, and hopefully we will see some FDA reform as well.

Beckworth: All right, well on that high note, our time is up. Our guest today has been Alex Tabarrok. Alex, thanks again for coming on the show.

Tabarrok: It's been a good to chat with you, David.

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