I’ve been on something of a crash course since last night trying to make sense of how and why the federal government is relying – at least to a significant degree – on ordinary market forces to distribute medical supplies during this national crisis. I noted last night in this post and video how this is the plan in terms of how the White House task force is approaching this. These airlifts from abroad are mainly being used to ferry purchases by private distributors. In itself that is not a bad thing. Indeed, it addresses a critical need. So let’s understand that first.
What you have right now are distributors and brokers attempting to purchase supplies abroad. But a lot of these supplies normally go by ship that takes weeks to arrive. Meanwhile the air sector is massively disrupted. A lot of freight travels in excess capacity on commercial airliners. But a lot of those planes aren’t flying.
So from the best perspective the US military is stepping in and saying, ‘tell us what you bought and we’re going to fly planes every day to bring it from such and such airport in East Asia to the West Coast.’ Whoever is making a profit on the sales, that still avoids big delays getting materials in to the US. (I’m going to post a note shortly where a TPM Reader explains some of the international shipping and supply chain complexities.) The Admiral who spoke yesterday at the White House made clear his primary mission is to avoid scarcity in the US medical supply supply chain.
But obviously there are some pretty big problems here, even if we assume the hypothetical that everyone is acting more or less in good faith. Markets operate well when there’s some relative balance of power between buyers and sellers. If the buyers are metaphorically and perhaps literally dying for the product, the system is going to have very poor outcomes even if you posit good intentions on all sides. And you have massive opportunities for profiteering and corruption.
I’m still trying to get my head around just how and on what basis the existing players in the medical supply system are operating right now. But at a minimum, if it’s done as an open market you don’t have a system to allocate the product based on need. What is clear to me is that there are lots of new players flooding into the market focusing entirely on making whatever profit the market will bear. And in a lot of cases the highest bidders are abroad.
This article in Forbes give some feel for that world right now. And a lot of stuff is currently being shipped out of the United States to other countries. From what I can tell, the federal government has not made any effort to block brokers shipping materials abroad for higher bids. The Forbes author reports that on the day he did most of the reporting, hanging out with one broker as he worked, roughly 280 million masks currently in the United States were purchased by foreign buyers and queued up to be shipped abroad. “Most of the masks are leaving the country,” the broker told him.
Other countries, for very good reason, are blocking reexport of medical supplies from their countries. As far as I can tell, we are not. Even if the big distributors aren’t profiteering having market forces allocate the materials is obviously a big problem in a crisis situation. At a minimum states are bidding against each other, further bankrupting themselves, while the federal government could and should move in to play buyer for the whole country.
These are all everybody operating with the best intentions scenarios. From even a cursory examination it’s clear that the country is now crawling with middle man – some longstanding, many just hoping into the market – making fortunes on marked up medical supplies during the crisis.