Defense production vs. markets - Barokong - Teknoiot

20 May 2020

Defense production vs. markets - Barokong

Take your bets which produces more ventilators faster.

From Marginal Revolution. First quoting New York Times,

The White House had been preparing to reveal on Wednesday a joint venture between General Motors and Ventec Life Systems that would allow for the production of as many as 80,000 desperately needed ventilators to respond to an escalating pandemic when word suddenly came down that the announcement was off.
The decision to cancel the announcement, government officials say, came after the Federal Emergency Management Agency said it needed more time to assess whether the estimated cost was prohibitive. That price tag was more than $1 billion,
The president went on to invoke the defense production act, to somehow force companies to do it.


At $1.2-$1.5 billion that’s $15,000-$18,750 per ventilator which is well below the standard price of $25,000-$50,000
FEMA are you out of your minds? Haggling over $1 billion and wasting time?

Lack of ventilators (and simple masks and gowns) are costing the Federal taxpayer $2,000 billion immediately, and $1,000 billion per month or so of lost GDP, to say nothing of 80,000 lives.  80,000 ventilators would have been a great deal at $10 billion!

It is a classic example of how bureaucracies follow rules and cannot be expected to think. Sure, stocking up ahead of time we want a good deal. FEMA bureaucrats follow rules to get a good deal. With opportunity costs thousands of times larger, we don't. But they're not allowed to think.

Which reminds me. Dear FEMA: The virus has been around since January. Why has nobody thought until just now that ordering up some masks, shields and ventilators might be a good idea?

Trump also named Peter Navarro as the national Defense Production Act policy coordinator for the federal government.
It will be fun to see if GM and Ford now actually do produce ventilators faster than other companies and ever become a significant source of supply, or if Mr. Navarro's interference leads to one snafu after another.

BTW, one reason we're short of such a basic commodity as masks is tariffs on Chinese goods. Which by the way have just been suspended, a little noticed concession to common sense. But the Chinese, who could send us masks and ventilators quickly, are hardly in a mood to do so.

Of course invoking the defense production act is political. Everyone in the Administration understands this basic economics.  I was listening to NPR coverage this morning and the only criticism from reporters and largely democratic governors was that Trump wasn't "doing enough" or had not invoked it soon enough. Well, now they get their way.

Contrary good news from MR

Now that the CDC and the FDA have gotten out of the way, we are producing more tests.
Honeywell and 3M are already ramping up production of N95 masks. We should arrange with China to buy more. The Federal Government is playing a useful role by buying surgical masks from companies like Hanes. Ironically, we will be importing them from Latin America....
Using U.S.-grown cotton, the masks are being produced in Hanesbrands’ sewing factories in El Salvador, Honduras and the Dominican Republic.
These factories would normally be producing T-shirts, underwear, socks, sweatpants and sweatshirts.
(Note the stupid requirement to use American Cotton.)
One of many stupid requirements still in place. Perhaps there is a silver lining, that people are starting to see how many regulatory and protectionist weeds impede production in the US.

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