6 votes

A pandemic trust fund

1 comment

  1. skybrian
    From the essay: [...] [...] [...]

    From the essay:

    We were warned. Indeed, the great pandemic may be the most warned about disaster in human history. Even more surprisingly the warnings were not ignored. Inspired by John Barry’s The Great Influenza, George Bush launched a national pandemic preparation plan in 2005. [...] A similar preparation process was started in California.


    But when no pandemic happened, priorities changed, and both Federal and state programs languished and died.


    It is evident that the US government finds it difficult to invest in long-term projects, perhaps especially in preparing for small probability events with very large costs. Pandemic preparation is exactly one such project. How can we improve the chances that we are better prepared next time?

    Small probability events by their nature happen infrequently and by human nature attract attention only when they do happen. The political attention span is limited. Thus when attention is available, we want to spend a lot on infrastructure that commits us to a future flow of benefits. In other words, it’s better for the government to spend a large amount at once in return for a committed flow of benefits than to budget for the flow annually.

    To their credit, the Department of Defense has invested in private-public partnerships with the correct structure. Namely, in return for an up-front investment in capacity a vaccine manufacturer sells options to the DOD that can be exercised on that capacity in an emergency. Similar contracts have been entered into by The Coalition for Epidemic Preparedness Innovations (CEPI), a global public-private partnership. The advantage of these contracts is that the DOD spends now but the firm commits to maintain the capacity for a long period of time (e.g. 25 years). In future non-pandemic years, the DOD’s contract doesn’t cost the DOD very much, and so it is not subject to budgetary degradation.


    The main problem with these contracts is that the government needs to buy much more to protect the public. The key to protecting the public is to invest enough to increase total capacity in an emergency, not merely to delegate some of that total capacity to a relatively small number of military personnel, the main goal of the current DOD programs.

    More generally, we would like organizations tasked with protecting the public from low-probability, high-cost events to be funded on a permanent basis that is not subject to budgetary discretion or degradation. Instead of yearly appropriations, it’s preferable to have a one-time appropriation to finance a stream of investments. The financial means of doing this is to buy a bond with an earmarked revenue stream. That is, instead of selling bonds the government buys long-term safe bonds which pay out dividends that are earmarked to a program, in this case to pandemic preparation.

    There is a well-known example of such a financing scheme, the social security trust fund. The social security trust fund was established in 1937. It buys long-term safe bonds that pay dividends that are used to finance social security payments. Unlike the pandemic trust fund I propose, the Social Security Trust Fund buys bonds on an ongoing basis but that is a relatively unimportant difference.

    1 vote