Thoughts About COVID-19: PPE

By James Kwak

PPE, as we now know, stands for Personal Protective Equipment, like face masks and gloves. Right now there isn’t enough of it, and that’s one of the constraints on being able to test people, which is one of the biggest problems we face.

Photo by ehpien (CC BY-NC-ND 2.0)

The only point I want me make here is this: This is how capitalism is supposed to work. If you’re a for-profit healthcare provider—or any kind of provider that is trying to provide the most value, however defined, with limited resources— you are not going to stock up on enough PPE to handle every possible scenario you might face. This is what management consultants and business school professors have been saying for decades. PPE, like inventory, is a form of working capital. If you can reduce the amount of working capital you need, you can translate that dollar-for-dollar into cash for your shareholders—or, if you’re a non-profit, into clinics for poor people, salaries for your executives, or that next gorgeous building you’re going to put up. Excess working capital is pure inefficiency.

Sure, there’s the risk that you might run out in an emergency. But capitalism works on expectations: If there’s a 1% chance of a $10 million loss, you’re willing to spend $100,000 to prevent it. If there’s a 0.001% chance (according to your latest models) of a $1 billion loss, you’re only willing to spend $10,000 to prevent it. COVID-19 was basically off the probability charts, at least as far as operational preparedness was concerned. This is exactly parallel to the factors that created the financial crisis. VAR models only attempted to estimate the potential risk in scenarios that were, say, 1% likely, and they were excessively optimistic because they were based on historical data from the Great Moderation. Hospital preparedness similarly was based on historical data with no pandemic.

In capitalism, you know you can only prepare for 99% of the scenarios. It’s just not value maximizing to worry about the others. If those others occur, you go bankrupt, dust yourself off, and start again.

But that’s why capitalism is a lousy way to run a healthcare sector.

What should we instead? Well, probably the federal government should have a big stockpile of medical equipment to be used in an emergency. You know, big government.

Brief note from the author: I haven’t written anything about COVID-19 because I have no particular expertise in medicine or public health. But there are some aspects of the crisis that are amenable to economic, statistical, or simply logical analysis. This blog, as a few people may remember, was born during the financial crisis as an attempt to help make sense of what was going on. (Hence the subtitle at the top of the page: “What happened to the global economy and what we can do about it.”) To the extent I think I have anything to say that I think might be useful, I’ll put it up here.

Be safe.

5 thoughts on “Thoughts About COVID-19: PPE

  1. All true, except the statement that capitalism is working as expected. It’s not. All large businesses are operating on the assumption that they will not be forced to own the consequences of bad decisions and poor risk management. Boeing for example.

    It’s true that capitalism’s focus on “efficiency” makes it brittle, and poorly adapted to meeting black swan events. But what we have in the US is not that form of capitalism. It is corporate kleptocracy – heads I win, tails you lose – which is far MORE brittle than a healthy capitalist economy would be.

  2. Following up on the prior comment: It is not simply Boeing that is expecting to be bailed out but airlines, cruise lines or any large company with a significant lobbying capability. It may be that it is prudent to keep company X alive (assuming it is not a zombie — a discussion for another day — but there is no reason why its equity shareholders should not pay a significant price. The “market” would never lend to these companies on other than market terms. It the great recession too many institutions were bailed out without there equity shareholders paying a stiff market price; and, without requiring changes in management.

  3. These after bailed out company’s, (like gm), are never better than they were prior to the bailouts, they dont increase the quality of their product, just the price of the product (to compensate for the costs of being bailed out) and the many things that need to be recalled or redesigned.

    Boeing and a host of different company’s will share this same fate.

  4. Private Market medicine is now a demonstrated failure. For profit incentives have been attempting to privatize medical care for decades, and has managed to create a system that exploits the vulnerable and next to Big Pharma, convince the people the leverage that it is exploited over them is for their own good. Next to the big banks they have, along with the insurance industry that calls itself managed care, become the Big 3 cases of Too Big To Fail (TBTF) in this history of invisible hands driving mad max to the end of reason.
    In the 1990s NYC Mayor Rudy Giuliani led political interests seeking to privatize the public sector non-profit Hospitals in New York City. The effort failed at that time. After 2005 Stephen Berger, Herman Badillo and New York State Governor Pataki politicize power behind private equity interests and
    What comes to be commonly known as the Berger Commission is established. The Berger Commission made a series of sweeping recommendations initially targeting forty-eight hospitals and impacting the entire health care system over the entire State of New York. Measures were directed to restructure New York’s health care system and became mandated law on January 1, 2007. Closures were inevitable, and under the auspices of efficiency and reform, hospitals were closed and others forced into mergers that compromised non-profits and favored ‘for profit’ privatization. the criteria was essentially measured in terms of hospital beds not being utilized and therefore not efficient market practice. Meanwhile, with no concern about efficiency in the public / private swindle of assets, NY State has spent millions upon millions of tax payer dollars to make those mergers work and compensate costs – all turned into profit potentials for hidden subsidiaries that receives out-sourced exclusive contract rights.
    Circular finances, with hospitals circling the drain. Patients get referred when money prioritizes their medical care directives
    Over time,Stephen Berger’s efforts in NYC were heavily opposed and earned him the nick name of the Hatchet Man courtesy of the New York State Nurses Association (N.Y.S.N.A.).
    This is only an abstract abbreviation of the folly of private medicine in NY, and the parallel process that took place in New Jersey under Christie and Massachusetts are fairly similar ‘baseline-scenarios’ and now we see the consequences. And it is all carefully ignored as the pandemic gives us the greatest “stress test” ever developed for any system on the planet.
    Private Market medicine is a perverted incentive on steroids.
    Now we see why it is also a massive failure as well.
    Bruce E. Woych
    Kingston, NY

  5. For centuries the oldest surviving and self sustaining traditional cultures

    were/are serious about selective breeding ONLY for one reason – good health.

    A law firm in Las Vegas is suing the Chinese government for their failure to act when an “aerosol” virus sprung to life with the launch of 10,000 5G towers and people started dropping dead in the streets…ooopsie, a software glitch…? Hmmmm, but are they still arresting anyone who complains about some “electronic” surveillance device in Vegas damaging their health into the psyche ward…? Talk about “de-platforming” in the “post truth” era…

    Defragmentalize, deconstruct, disrupt…welcome to deranged followed by degenerate and depraved…

    Shamanism will always be as much of a threat to the human species as a viral epidemic – it’s all about the $$$$ for the Shaman….as soon as you lose your health, your wealth goes to the shaman who has a prayer and the majik cure….now there’s even a middle man “insurance” snake oil salesman getting a bigger chunk than the practicing shaman…go figure.

    But this unfolding “dead end times”

    (how many times do people have to be reminded that it is not a PROPHECY but a warning as to what brings about YOUR “end time”?!)

    comes on the heels of the opioid epidemic (doctors who believed it wasn’t addictive?!),

    flash crash 2008 lost-generation suicides,

    and a full on sex slave/fentanyl/hollowood GLOBAL criminal class that swing-danced it’s way up over the shoulders of the “poor working class” of the industrial revolution’s infrastructure in USA thanks to the repeal of Glass-Steagal…

    only to become billionaires funding unicorn start-ups like Uber ride share and sticking a “health care” chip in all 8 billion humans that has a kill switch built in by those who already stole your retirement funds…yep, used your taxes and saving to build the kill switch techno miracle chip…

    Too many health care unicorn start-ups, like Theranos, did the rest of the damage to mano et mano health provider reality – “test kits”, anyone…?

    Looks like Munchkin is psyche-op-ing a President beat up for 3 years by “virtue-signalers” media to go along with their same ol’ shtick of delaying checks for the “working poor” by selling the idea that the quarantine time can be shortened….he started that today when he didn’t get his 500B secret slush fund – check out wallstreetonparade for the devil in the details – the longer the barrage of irrelevant to the crisis details goes on, the worse it all gets, no?

    Who is the “their”…? In 2020, “they” are on BOTH sides of the aisle…but blaming Trump for the lack of test kits is just silly – go ask Elizabeth Holmes as she awaits her trial who to blame for test kits…

    Think Biden can READ this….an oldy but goody from 1984…

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