We will get out of the COVID-19 pandemic. But we've been caught flat-footed. How did it happen that the country that more than a century ago bridged the oceans with the Panama Canal and more than half a century ago put a man on the moon failed so badly in protecting its citizenry from an invisible enemy?
The reasons are an absence of long-term thinking and systematic mispricing of risk. Let's not point fingers solely at government because these faults are equally evident in the private sector. We need a change in mindset on systemic risk. And when thinking about risk, there is a lot to learn from the insurance industry.
Perhaps the $42 billion budget of the National Institutes of Health seemed like a lot earlier this year (the proposed budget would actually have reduced that allocation). Yet, in retrospect this sum is puny relative to the loss of life, societal disruption and economic destruction wrought by the pandemic. Not to mention the tens of trillions of dollars of wealth that have been eviscerated in the past few weeks and the trillions more the government will have spent to save the economy. Investment in permanently higher budgets for medical research and other precautionary measures (reserves of emergency medical equipment and personal protective equipment alongside upgraded testing and contact-tracking tools) represent an insurance premium. And everything we're going through right now is the catastrophic loss from uninsured risk.
Human nature leans toward fighting the last battle. The next time we are tested may not be due to a virus — it could be a severe shock to power generation and distribution grids, communications networks, water supply, or flooding of coastal communities. It is encouraging that Congress and the administration are reportedly thinking about ways to finance infrastructure and extend its definition to include catastrophe response platforms. Resilience needs to be central to this. It will be expensive. But so is a strong military. These are essential public goods whose cost is an insurance premium properly borne by everyone.