Coronavirus Needs Markets

COVID-19, known more commonly by the broad name for the type of virus it represents, “coronavirus”, has captured the news over the last several weeks. The virus seems to be spreading rapidly so far, to the point that any statistics I could provide now on the number of those infected or dead would almost certainly be outdated by the time of your reading.

Governments around the globe have been involved in trying to contain and stabilize the situation as best they can. The WHO reported that the international community has put forward $675 million to try and combat the virus and its spread. These efforts will likely increase if the virus continues to spread, and there is likely a long road ahead to reach containment of the virus.

Understandably, the outbreak has caused shortages for many consumer goods used for cleaning and sanitation. Amazon has already removed products because of prices they deemed to be unreasonably high. A quick search on eBay will show prices for hand sanitizer much higher than what would normally be charged in stores.

These shortages are affecting the international healthcare industry as well. The WHO has estimated that healthcare workers will need a monthly supply of 89 million masks, 76 million gloves, and 1.6 million pairs of goggles. To meet this demand, WHO estimates that production of these goods and others will need to be increased by 40%.

As with many other crises, any views that markets are best left alone are abandoned as soon as an emergency strikes. Markets work well under normal conditions. Resources are allocated efficiently and so forth. However, in times of emergency, free market principles must be abandoned in favor of governmental control. Prices need to be controlled, after all! 

While it is certainly true that in times of relative comfort and peace markets work well, it is equally true that markets work well in times of uncertainty.

If production on necessary goods needs to increase by 40%, as the WHO states, the best way to allow this to happen is to let prices rise on these goods. An increase in price provides a signal to other entrepreneurs that these industries are more profitable and production in these industries is more profitable than previously. This will lead to increases in production and alleviation of the stress on supplies of crucial goods.

If Amazon truly wanted its shoppers to purchase hand sanitizer of other goods, they would allow higher prices. Keeping the prices artificially low leads to shortages, just as in any other scenario with any other good. Kicking sellers that voluntarily sell with others who voluntarily buy hurts both parties involved and keeps the goods out of the hands of those who need them.

The price of wages for workers in industries producing medical goods should be allowed to rise for the same reasons. Higher wages attract more workers to these industries. The same applies to any jobs in the medical industry.

Markets will allocate resources according to where they are valued the most highly. This is done via prices, which will attract new suppliers if prices go up. If consumers and governments wish to buy more medical goods, i.e. value those goods more highly, then those increased prices will create shifts in markets that align with the preferences of buyers.

The idea that markets cannot work freely in times of distress is pure assertion. Market mechanisms are still in play even in times of trouble. To meet the rising demand for medical goods, we must understand and embrace these market mechanisms. Much labor and money will undoubtedly be spent before COVID-19 is fully contained and edaricated, but if there is to be a quick solution, markets must be involved. Emergencies do not invalidate markets, but rather, emergencies show the need for markets.

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