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Wednesday, April 8, 2020

Policy Lessons from the Coronavirus Epidemic

Do not let the lockdown debate be your policy take-away from the coronavirus epidemic. The real lesson here is about what health care system we want: the Swedish socialized model or one based on market principles?

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There is a public policy discussion to be had once the coronavirus epidemic is over. One part of that discussion will focus on the role of government in our health care system; it is a safe bet that the left will exploit this crisis to ramp up their Medicaid-for-All campaign. Common sense prescribes that we reform our health care system in the very opposite direction, and there is a case for this to be made based on the coronavirus experience.

Another part of the public-policy discussion must center on the role of government in public-health episodes like this one. For the sake of our constitutional integrity, we simply must do a thorough evaluation of every measure that was taken in response to this crisis:

  • Were the policy measures appropriate given the public-health threat as it was seen at the time?
  • What was the quality of the information that motivated the measures?
  • Did the measures have the intended effects, and what were their unintended consequences?
  • How does the achieved result weigh against the unintended consequences?

We need answers to these questions at both the federal and state levels.

For now, though, it is high time that our elected officials, in Washington as well as in our state capitals, to start the rollback of all restrictions on our economy. The daily increase in Covid-19 cases is now down below 4.4 percent; we are essentially at the top of this epidemic. The death rate thus far is at 3.4 percent, which is low by comparison. For example, in Sweden, a country many American libertarians love and cherish with almost the same intensity as Bernie Sanders does, the death rate is now at 8.2 percent.

These numbers inspire part of the research needed to answer the four questions above. Based on the global experience thus far, we have some compelling observations from which we can formulate a hypothesis: countries with market-oriented health care systems are better at responding to public-health crises.

This is, again, a hypothesis, which is not the same as a theory. A hypothesis is an elaborate question, based on stylized facts and the formulation of a problem to address. A theory emerges only when you have evidence that refute or support your hypothesis. 

In this case, the stylized facts are observations of differences between countries with varying health-care systems. These observations are by no means conclusive, only indicative of a possible institutional difference. The aforementioned numbers from the United States and Sweden are from, respectively, the Centers for Disease Control and the Swedish national public-health board, Folkhälsomyndigheten. There is more data to be examined, of course; an often-referred source is the worldometers.info coronavirus website

This site is by no means ideal for any more analytical inquiry. There are discrepancies in the site's updates, and - more importantly - they have no uniform standard for their data collection.* The site appears to be more of an aggregator than an originator of statistical information, which means it is not useful for any comprehensive analysis. Any deeper inquiry into how countries have handled this crisis would have to be based on different, more solid sources. However, if we assume that their aggregation provides adequate national statistics for a cursory review, and that the national numbers in turn are reported with the best and most unbiased methods available, then the worldometers.info numbers - together with other information - point us in an interesting direction.

South Korea, with a population density of 1,339 residents per square mile, has reported 10,384 Covid-19 cases with 200 deaths. This is a death rate of 1.9 percent. Daily increase in cases: 0.5 percent. South Korea has a predominantly private health insurance and health care system.

Spain, a single-payer country hit hard fiscally by Europe's austerity crisis in the wake of the Great Recession, has a death rate from Covid-19 at ten percent: 14,673 deaths from 146,690 cases. Their growth rate is down to 3.2 percent. There are 241 Spaniards per square mile.

Switzerland, with a population density of 539 residents per square mile, has reported 23,248 cases with 895 deaths. That is a death rate at 3.8 percent, very close to the U.S. number. Switzerland has a private health insurance and health care system.

Returning again to Sweden, the dreamland shared by libertarians and socialists in America, their population density is only 60. They have reported 8,419 Covid-19 cases to date, with 687 confirmed deaths - again a rate of 8.2 percent. The Swedish health care system is entirely run by government, funded by government and starved for resources by the world's largest, most burdensome welfare state.

It is worth noting that Sweden is not seeing a very dramatic increase in cases. Their daily growth rate is currently at 8.6 percent, compared to the Swiss rate which is almost identical to ours. In other words, the epidemic is not storming through any of these countries anymore. This gives us a good idea of what difference institutional factors make in how countries handle this situation. While the examples given here are only anecdotal, they suggest that it matters what kind of health care system a country has: the upfront experience seems to be that countries with all-government run health care systems are not as well prepared at tackling an epidemic like this, as countries with predominantly private health care.

There are examples that seem to contradict this observation. Finland, for example, has a death rate of 1.6 percent: 40 cases out of 2,487. Their daily increase is at 7.2 percent, which is higher than us but not dramatically high. With a single-payer system this suggests that they contradict our institutional observation; however, with a population density at 41 they are probably better suited at containing an epidemic. (It is also worth noting that social distancing is a national sport in Finland.) We can see a similar correlation between population density and coronavirus cases in the United States, with sparsely populated states having very few cases while densely populated New York, New Jersey and Massachusetts, with less than eleven percent of our population, account for more than half of all covid-19 cases.

In other words, it can be suggested that the ability of a country to handle public-health epidemics depends on: 

a) whether or not it allows the private sector to fund, run and manage health care, with the private sector being more responsive and adaptable; and 
b) how close people live to each other.

The first point, of course, is highly relevant going into our election this fall.

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*) We can exclude China from this comparison, simply because the country is not a reliable producer of statistics for international comparison purposes. Their macroeconomic data has been shown in the past to be exaggerated. It is entirely possible, even likely, that they have under-reported on Covid-19 for political reasons.

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