The Covid-19 crisis has made the notion of tradeoffs more relevant than ever before, with the huge challenge of successfully dealing with both the pandemic and economic downturn.
When New York Governor Andrew Cuomo claimed he would never put a dollar figure on human life, he effectively but unwittingly rejected any negotiation involving lives. President Trump, in his eagerness to put Americans back to work, was blunter and insisted that the cure for the virus should never be more expensive than the virus itself.
I find the Production Possibility Frontier (PPF) curves useful for depicting the two tradeoffs. In a PPF between saving lives and saving production, Point C (for Cuomo) gives the maximum utility to saving lives. Because it touches the horizontal axis, it assigns zero utility to saving economic outputs during the pandemic. Point T (for Trump) on the other hand refuses to give up on anything but tries to find the balance between the two.
This is a standard PPF with increasing marginal opportunity cost such that the curves are concave toward the origin. All points on the curve are efficient combinations of production, although not all are allocative efficient. Note Point T is located where the slope of PPF is getting steeper or faster downward, signaling an increasing marginal cost of saving life in terms of giving up production. This is where Trump had problem with when he talked about the costs of cure versus virus.
Mr. Cuomo may have just said something that is politically correct. However, I found Trump more believable on this case, as he was closer to the cold truth that everything has a cost, and beyond certain level of cost the outcomes become unbearable.
Betting on Breakthroughs
None of the opinion pieces I read so far talked about breaking through. Two economists Paul Romer & Alan Garber proposed the strategies and specifically argued that “Resources, not scientific breakthroughs, are needed to expand our capacity for virus test.” Their focus was clearly on improving allocative efficiency but keeping the existing PPF. It makes sense at this time when the PPF is already shifting to the left, shown by Point T’’ (for double tragedies in both production and life savings). I would still offer another possibility. There are two PPF curves with an improved one in broken line to the right of the existing PPF. If we draw a ray from the origin to Point T’ on the improved PPF, it becomes clear that at that point we can save more lives as well as more economic outputs. True, Point T’ would bring lower utility from saving lives than Point C, but that is only because the latter sacrifices all utilities from saving production.
There are four reasons to be optimistic this time. First of all, the coronavirus is a close cousin of the SARS virus we encountered before. This should cut down the time required for finding new and better ways of fighting it. Secondly, globalization may have helped spread the virus, but it also opened doors for international collaboration (and international competition) to expand our resources. Third, although the pandemic is global, the outbreak hit the largest (i.e., China) and richest (e.g., UK & US) countries early on. With full respect to people who had died in these countries, this is fortunate from a globally humanistic perspective, because these economies are more resourceful for fighting and taming the disease, thus shielding weaker and smaller countries that would be far more vulnerable if left on their own. Finally, breakthroughs are not limited to vaccines that are notoriously slow to come, but social psychology matters. As long as people know they have easy access to tests — and to treatments even if tested positive, they will be willing to go back to make money and bring home hope, comfort and happiness. We can expect a jump in outputs even when the pandemic is only partially controlled without vaccine.
The Leadership Point
There is one catch for betting on breakthrough and moving the current PPF to the right: We need strong leaders more than ever. This is where the “Leadership Point” — to the right of the improved PPF — comes into play. It is placed near the spot where the current PPF curve is about to turn steeper. The reason is that effective leaders leverage those turning points for better tradeoff outcomes. More generally, true leaders lead by visions and by asking how the curve can be shifted, not just where the best allocative efficiency point is on an existing PPF curve. All points beyond the current PPF curve are deemed impossible in the short run, obviously including the leadership point. Yet it is the seemingly impossible things that inspire us to move forward. Unfortunately, as Jorge Rivera correctly pointed out, many politicians and executives respond slowly, or worse still, respond in wrong directions, perhaps limited by local knowledge or lack thereof (see Jennifer Oetzel & Chang Hoon Oh). What we need most now is encouraging rapid responsible innovations like Leopoldo Gutierrez-Gutierrez et al. have proposed.