At a recent press conference, New York Governor Andrew Cuomo implored President Trump to use the Defense Production Act (DPA) to compel U.S. factories to manufacture essential medical equipment such as masks, gloves, gowns and ventilators. Unfortunately, Trump has continually refused to do so, saying that the acquisition of medical supplies is a job for governors. But Massachusetts’ Republican governor Charlie Baker reports that his state has been denied three major orders for medical equipment because the federal government has outbid him.
Both Democratic and Republican governors are pleading for such help, and staff in at least one nursing home has already resorted to using plastic garbage bags to make protective gowns. Clearly, the DPA can make a difference.
The DPA is a Korean War-era law used many times to help the federal government respond to national emergencies. Prior to the coronavirus crisis, Trump invoked the law in 2017 to mobilize the industrial base for his latest fantasy, the Space Force. The act allows the president to require companies to prioritize government contracts and orders needed for national defense, including national emergencies.
Rep. Ro Khanna (D-Calif.) has called for a massive $75 billion appropriation for funding under the DPA. As written, the 1950 Act has caps of $50 million per contract, with total funding of only $750 million. But the president can waive the $50 million cap in emergencies. Significantly, the federal government estimates that 3.5 billion N-95 ventilator masks will be needed over the next year alone, at a cost of $7 billion. Individual air purifiers and ventilators, at $25,000 to $50,000 each, will require tens of additional billions of dollars. Since the funding limits in the 1950 DPA are outdated, they must be waived immediately to meet these needs.
The economics of the DPA are straightforward — volume buying is cheaper and more efficient. Rather than having 50 state governors, plus thousands of mayors and hospitals, competing with each other for scarce resources, the purchasing power of the federal government should be used to maximize production, minimize costs and allocate supplies to areas of greatest need.
Prices always tend to rise in times of shortages. In this case, it’s the surge in demand caused by the COVID-19 crisis. As Governor Cuomo explained: “I will contract with a company for 1,000 masks. They’ll call back 20 minutes later and say the price just went up because they had a better offer.”
Trump’s opposition to invoking the DPA is simply based on the politics of profit. The Chamber of Commerce has opposed its use, saying the act “may do more harm than good in sectors such as pharmaceuticals and medical equipment.” But the chamber’s members simply want to maximize profits by playing desperate states, cities and medical facilities against each other. That’s not the way to run an economy during a national crisis.
The federal government should contract for all needed supplies, pay for them directly, and prioritize shipments to areas of greatest need. The Department of Defense and the Federal Emergency Management Agency (FEMA) should immediately be tasked with these responsibilities. And President Trump should limit exports of critically needed medical supplies and equipment.
The current shortages of key medical supplies are being exacerbated by the centralization of decisions in the White House and an unwillingness or inability to delegate authority to the relevant government agencies. The Trump administration is prioritizing the profits of medical equipment manufacturers over the lives of millions of Americans on the front lines of the crisis. Given the time that will be needed to ramp up production and repurpose factories and production lines, the nation is already weeks late in launching this urgent mobilization.
It’s time for the full power of the federal government to respond to the COVID-19 pandemic. While the stimulus act now being considered by Congress contains some additional DPA funding, it does not go far enough. Congress should fully fund Rep. Khanna’s proposal and require the administration to invoke the DPA for all medical supplies, drugs and equipment needed to respond to the coronavirus crisis. If not in this stimulus bill, then in the next. There’s no more time to waste.
Robert E. Scott is a senior economist with the Economic Policy Institute (EPI).