Testing! Testing! Testing!
By Alice Temnick
In this episode, Nobel laureate Paul Romer argues that we need to look beyond both mitigation and suppression strategies for a sustainable alternative that is a lot less costly. This is needed to avoid further devastating effects of economic shut-down, living with fear, and Romer’s and host Russ Roberts’ greatest concern: the potential for a mobilizing force that could fundamentally change our society. This rich discussion includes the science of virus testing, explores prizes for firms as an incentive to innovate, and visits a recurring theme of how to preserve personal freedom and individual responsibility in society. Please add your voice to this important conversation in the comments below, we love to hear from you.
1- Romer opens by suggesting that bygones should be ignored as we can’t change how we have handled this enormous shock to-date. What other examples of sunk cost effects have inhibited current decision making in this pandemic time?
2- In Romer’s work on charter cities (discussed in this EconTalk from April 2019) he acknowledges the bad circumstances and bad outcomes resulting from the voluntary and involuntary movement of people away from dangerous areas in the world. In reacting to the COVID-19 crisis, Romer again claims that we face choices among only bad alternatives. Is Romer’s approach pessimistic? Not pessimistic enough? Explain.
3- Roberts itemizes the following three categories of costs beyond IFR (infection fatality rates). What should define the margin for the cost-benefit analysis of a $100B a year expenditure on tests and building testing infrastructure? What other costs should be added?
1) economic loss (GDP)
2) fiscal costs that will have to be repaid
3) costs to individuals such as unemployment, depression or worse
4- Would purchase commitments ensuring revenue or prizes for innovative firms that can scale up testing provide a more effective incentive? What short and long-run (unintended?) consequences might unfold?
5- Could government job creation in the vein of the Civilian Conservation Corps promote human dignity better than cash transfers or financial assistance to firms? Are there ways this effort could create value, reduce fear and possibly contribute to the goal of returning toward normalcy? Explain.