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Here’s a letter to a new reader of Café Hayek, Kevin Nowak:
Mr. Nowak:
Thanks for your e-mail.
You write that you “get the putting of little confidence in Washington politicians to insure resiliency in US supplies of critical goods like medicine.” You then ask, “[i]sn’t this though better than putting confidence in foreign governments to insure this resiliency?”
Your question is understandable, but it poses a false choice. The question for us Americans is not ‘To best ensure optimal resiliency of medical supplies, do we trust our government officials or do we trust foreign government officials?’ If this question were the correct one, I’d hold my nose and answer ‘trust our government officials.’
But instead the correct question is this one: ‘To best ensure optimal resiliency of medical supplies, do we trust our government officials or do we trust the market?’ For me, the answer to this question is obvious: the market.
The market includes retailers, wholesalers, medical facilities, and manufacturers. Each of these firms has powerful incentives to ensure the integrity of its supply sources. When a tradeoff exists between low prices and the insurance that a diversity of supply sources gives against supply disruptions, no government official has either the knowledge or the incentives that are had by buyers of supplies to make this trade-off ‘optimally.’ The truth of this last observation becomes even more solid when we recognize that the best way to make this trade-off for some supplies (say, N95 masks) is different from the best way to make this trade-off for other supplies (say, antibiotics and prosthetics).
If Walgreens runs out of supplies, its shareholders personally pay a hefty price. Ditto for pharmaceutical wholesalers such as McKesson [2] and Morris & Dickson [3]. Ditto for U.S. producers of medical supplies such as 3M, and of pharmaceutical products such as Pfizer: disruptions of their input supplies disrupt their production and sales, including their exports. (Are you aware, by the way, that the U.S. is second only to Germany as an exporter of medical supplies [4]? It’s ample business that shareholders and managers of these American firms are powerfully interested in keeping from being disrupted.)
The simple fact is that America does not buy from, or sell to, China or to “foreigners.” America is not a company with Congress as its board of directors, or a household with the president as our papa. All talk of “America” buying from, selling to, or “being dependent on” on non-Americans is language as careless as it is misleading. It masks the fact that, in reality, many American firms, of different sizes and playing very different roles within an astonishingly complex global supply network, buy from many Chinese and other foreign suppliers. Also, many American firms, also of different sizes and playing very different roles within an astonishingly complex global supply network [5], sell to many Chinese and other foreign buyers.
Of course it would be foolish to assert that market prices and the profit motive prevent any of these American firms from ever making mistakes. But of this I’m certain: each of these firms not only knows its business far better than do politicians and Washington bureaucrats, each firm also has much stronger incentives than do the likes of Marco Rubio, Nancy Pelosi, and Donald Trump to take appropriate steps to secure their sources of supplies.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030