The debate over lockdown between David Henderson and Justin Wolfers is extremely instructive. They take to heart the message of Ronald Coase—responsibly reckoning “the total effect” of one institutional arrangement as compared to another.
Henderson and Wolfers speak of externalities. In 2006 I published an EconLib piece “Rinkonomics: A Window on Spontaneous Order,” likening the spontaneous order on the floor of the roller rink to that of the free-enterprise system. The likeness lies in mutuality and coincidence of interest:
An important quality of collision is mutuality. If I collide with you, then you collide with me. And if I don’t collide with you, you don’t collide with me. In promoting my interest in avoiding collision with you, I also promote your interest in avoiding collision with me.
I call that a coincidence of interest. I liken the skating to voluntary exchange:
Gains from trade are mutual, giving rise to coincidence of interest: In promoting my interest in gaining in a voluntary exchange with you, I also promote your interest in gaining in a voluntary exchange with me.
How well does the logic carry over to COVID? Let’s try, followed by caveats and concessions.
Broadly, there are three groups of people:
Group 1: Those who think they are still vulnerable to COVID.
Group 2: Those who think they are not vulnerable to COVID. (Because tests show anti-bodies.)
Group 3: Those who think they have COVID. (If they do, they may be contagious.)
For an individual in Group 1, the collision analogy is pretty strong: In promoting my interest in avoiding getting infected from you, I also promote your interest in avoiding getting infected from me. There is a coincidence of interest, and infection tends to be avoided.
For a Group-2 individual who is right about his or her not being vulnerable, there is no colliding to worry about, if that person can neither get infected nor infect others.
For an individual in Group 3, the coincidence of interest breaks down. It is like a skater with a hard spiky helmet and gear, among a throng of roller nudists.
By no means does the mutuality logic work as well as in the roller rink: People might think they’re not vulnerable when they are; vulnerable people cannot social distance always and everywhere; we’re not entirely sure whether someone who is post-COVID cannot get it again or cannot be a spreader. (If we learn that they can get it again, then those people revert back to being Group 1 types, where the collision analogy is pretty strong.)
Most importantly, people might be contagious without knowing it, and they are a grave danger. But that last condition lasts only so long, and people who do know it show a lot of concern for others. If you wore a hard spiky helmet and gear and were skating through a throng of nudists, how would you behave?
Moreover the roller nudists will be keeping their distance, never knowing who might be spiky. They skate defensively. Indeed, the roller rink may be empty, even under laissez-faire.
The logic carries over to some extent. The externality is not a random force. The points raised here relate to a key issue in the Henderson-Wolfers debate: Assessing the additional dampening achieved by locking-down. Maybe most of the dampening that has occurred under lockdowns would have occurred without lockdown.
With improving knowledge and moral responsibility, people can limit the spread without heavy-handed government. Social distancing and mask wearing happen pervasively without coercion. Lockdowns surely achieve some benefits, but lockdowns also hamstring and decommission local processes of focal learning, adjustment, leadership, and the taking of responsibility. By and large, targeted action is best taken on a voluntary basis by people close—socially and relationally—to the targets.
Talk of “externalities” is often slippery, unruly, opportunistic. (It often has negative externalities!) Clearly there is an important truth to the idea, but I’ve never gotten a firm handle on it. If I slam into Bob, I impose harm on Bob. But mutuality makes that “externality problem” a small one. And, can we not say that a lot of the benefits that flow from private enterprise rain down on people as “positive externalities”?
Maybe it’s better to avoid “externality” talk and instead frame the issue in terms of what Coase called “the total effect.”