Thread by @jsuedekum

Everybody knows that an effective strategy against #Covid_19 is to have *many* more (quick-)tests and protective FFP-face masks.

But this stuff isn’t easily available.

Two ways to get it are:
- source internationally
- produce it at home

But both are problematic. /thread

The world market for tests&masks is empty, because many countries try to buy at the same time.

Prices are soaring, which is a big problem for developing countries in urgent need of this stuff, and even efficient sourcers like 🇩🇪 hit capacity constraints. /2

That’s why many countries (incl 🇩🇪) have started to increase supply by pushing domestic production rather than just relying on imports from Asia where the comp advantage lies.

But this also proves to be damn hard. Why? Because jump-starting production from scratch isn’t easy. /3

It requires huge upfront costs (like setting up supply chains for reagents, fleece, etc.), but the amortization period is highly uncertain.

Once a vaccine is available, nobody cares much about #Covid_19 quick-tests and face masks anymore.

Not an ideal investment environment /4

The best medical companies thus rather invest in research for the vaccine, because (in case of success) this pays off gigantically over a longer term.

But market signals aren’t strong enough to trigger tests&mask production in Europe, yet supply from Asia is insufficient. /5

What to do? Government must step in and guarantee practically unlimited demand at an attractive price, since the market apparently doesn’t deliver this on its own (given all the externalities involved)

But there are some pitfalls. /6

Prices must be good enough to trigger meaningful investment, given the short-term nature of the demand.

It’s not enough to get a few 🇩🇪underwear producers on board, who start minuscule mask production just for the marketing show. For serious business, you need much more. /7

At the same time, prices cannot be outrageously good.

This would lure crooks who then supply crappy quality, and more importantly, it could distract serious medical companies (which are surely capable to manufacture masks&tests) from their true mission to invent the vaccine. /8

Some overcapacities might be welcome, since demand is global and 🇩🇪 firms could easily sell to other countries — or to the government which then donates it as foreign medical aid.

But the basic trade-off for the guaranteed purchasing price remains. /9

Anyway, this is one of today’s most important tasks for @BMF_Bund and @BMWi_Bund : how to resolve this problem of a centrally planned economy?

And now let’s see the practical advice by my fellow free-market, liberal economist friends 😊 /End