COVID-19

The Story of an American Mask Distributor

By SAURABH JHA

Seven weeks before President Trump declared COVID-19 a federal emergency heralding the economic lockdown, Jesse’s customers began cutting their orders. Jesse sells garments and cotton, imported predominantly from India, to wholesalers and retailers, big and small, in malls across the North East corridor.  His business had a good January. December was like any December. But February was different.  His customers, reassuring him that it wasn’t personal, were predicting a falling demand for their products because of COVID-19. They may be over reacting, but better shortage than glut, they felt.

Jesse, who has no medical background, had heard of a virus which quarantined cruise ships, but nothing seemed foreboding back in February. He had tuned out the President, who was being his usual clownish self. It was business as usual in Manhattan, where he lives. He received reassuring messages from public health figures about the novel coronavirus. New York City’s mayor was particularly upbeat, urging New Yorkers to mingle with even more vigor.

Jesse didn’t know how to reassure his customers. A week later, more customers cancelled their orders. By middle of February, the orders halved. Being a businessman, not philosopher, it mattered not to him why his customers had seemingly overestimated COVID-19’s threat. What mattered is that they had. Since his business operated on small margins, the reverberations could be substantial. The first order of the day was reducing the output of his factory in India which was running on all cylinders.

The second order of the day was survival. If his customers’ fears came true, his business would be destroyed. Jesse had no qualms accepting government bailout. But this was long before the federal government announced relief for businesses. The virus had yet to strike Italy. COVID-19, like Chengiz Khan, seemed to prefer the eastern perimeters of the Silk Road.

In his culture, Jesse Singh is an American Sikh hailing from the Punjab – there’s a simple rule. When customers don’t want a certain product, find something else to sell. His family motto is that you should love the act of selling, not the product being sold (the motto sounds better when said by a Punjabi in Punjabi).  

Another Punjabi rule, technically not a rule but part of their cultural RNA, is that Punjabis don’t sit idle. During the partition of the subcontinent, thousands of Sikhs arrived at Delhi train station hungry, battered, penniless, and homeless, after losing their homes and families to the mobs. After feeling sorry for themselves for a couple of days, they started selling tea and biscuits on the railway platforms.

If the panic from coronavirus could shut old businesses it surely could open new ones, Jesse thought. A soaring demand for personal protective equipment (PPE) seemed obvious. Since N-95 supply was regulated, he threw his weight behind surgical masks, believing that they’d be demanded by healthcare workers and eventually the general public. He decided to import a small batch on a trial basis.

Had Jesse searched PubMed for high quality evidence for the efficacy of masks, he might have found a Cochrane review which concluded that there was no evidence that masks reduced the spread of respiratory infections. Were he fluent in evidence-based medicine, he might have been despondent that no randomized controlled trial, adequately powered for hard outcomes, showed that masks work.

Were he on medical Twitter, he’d have read unambiguous messages from thought leaders that the public shouldn’t wear masks because they don’t work. Had he consulted medical experts, he might have seen a PowerPoint explaining the nuances of contact and aerosolized spread of viruses. He has never heard of the Peltzman effect – the phenomenon where people engage in riskier behavior when safety measures are enacted – an argument used by very clever people against universal masks.

Had Jesse been more informed in February, he might have binned his new business venture for want of effectiveness, but his blissful ignorance of statistics and experts allowed him to hone his business instincts. He had to choose between manufacturers in India or China. He was familiar with India but trusted China with quality. Jesse promptly flew to China to scout manufacturers of masks in Shanghai, Shenzhen, and Wuhan. The Chinese, who had by then successfully controlled their epidemic, had a whiff of the rising demand for masks. But it was early days and it was by no means certain that COVID-19 would become a global tour de force.

Jesse’s immediate concern was quality. An experienced distributor, he knew quality often outlived price. He knew even less about masks than he knew about viruses. He used SGS, a third party company, to check their quality. From twenty manufacturers that he initially scouted, he chose five.

In late February, a week after visiting China, his intuitions were verified. His customers, the same retailers selling clothes in malls, who’d buy cotton from him, asked him for masks. Jesse didn’t formally advertise his services or promote masks’ efficacy. There were no billboards on freeways picturing him with masks. He used his network on his smart phone. His customers knew he was pivoting to masks. They trusted him with cotton. They’d trust him with masks.

Word spread in the malls in the Tristate area about the mask distributor. New customers, such as McDonalds, began approaching him. Businesses bought masks in bulk not to comply with government mandates – there weren’t any, this was even before the lockdown, but to protect their employees in the only way they thought they could. Business leaders felt their employees needed masks to continue economic activity safely in a pandemic.

His first batch of 250, 000 masks was devoured instantly. By the end of March, Jesse was importing twenty million masks a week. By middle of April, in thick of the carnage in New York City, he finally began getting orders from hospitals and nursing homes.

The “landing costs” for an importer – the costs of getting masks to the local warehouse – includes manufacturing costs, truck and air delivery costs, and the tariff, pegged at 7 % – there was no clemency from economic protectionism in the pandemic. Jesse runs a business not charity but he was uncomfortable eking a margin off the imports. How does one profit from human misery?

The line between profiting and price gouging isn’t as blunt as their moral distinction. Adam Smith’s invisible hand, which is elegant, subtle, and self-effacing can, in a blink, become Gordon Gekko’s visible middle finger, which is brutish, ostentatious, and unrepentant. It was one thing making money off McDonalds. But his new customers were nursing homes, with vulnerable elderly. Jesse consulted his community’s elders to assuage his moral discomfort.

Trade assumes a high moral position amongst Sikhs because they believe that the buying and selling of goods benefits both buyers and sellers. Money is only a medium of exchange; means rather than an end. Trade is “changa”, meaning a good thing or, to borrow a fancy economic term, “Pareto efficient”, win-win for all.

Nothing is immoral in selling or responding to demand in a pandemic, Jesse was reassured. So long as Jesse charged what he and his buyers thought reasonable, profiting wasn’t immoral, his elders said. It’d be immoral hording masks for rainier days, i.e. not fulfilling the present demand but waiting for customers to get more desperate to make more profit. Ironically, many hospitals rationed PPE in case the pandemic got worse, creating real shortages to combat hypothetical shortages.

In March, the landing cost of a mask was 38 cents, comprising manufacturing cost of 32 cents. Heeding his elders’ advice of not price gouging, Jesse’s margin was only 2 cents. He capped margins at 10 %. In the open market, the price of masks varied, and some distributors made margins of 60 % in the peak of the pandemic.

Jesse is an intermediary, a match maker, between buyers (businesses and hospitals in the US) and sellers (manufacturers in China). His services aren’t indispensable but valuable to both parties, because he saves them the time they would have spent looking for each other, and the information costs. He’s an information concentrator. He’s to mask manufacturers what Grub Hub is to restaurants.

The Chinese had no interest in price gouging either. They wanted to sell masks as cheaply as possible. They were willing to scale production but the demand had to come first. As the demand rose, the manufacturers produced more masks, and through economies of scale the marginal cost fell, and a month later, the cost of manufacturing a mask had fallen from 32 cents to 8 cents per mask. The quality remained unchanged.

Jesse never exceeded his religious ceiling of 10 % margin on the landing costs. By late May, when the WHO still had to change its stance on universal masks, and Jesse was selling over ten million masks a week, mask prices fell by 75 %. By then the masks were so cheap that you could buy forty for the price of a pumpkin spice latte at Starbucks.

The graphs in economic textbooks showing supply running heel-on-toes on demand simplifies reality. Demand doesn’t talk directly to supply.  The Chinese manufacturers weren’t responding to real-time demand as much as the expectation of future demand. Distributors like Jesse signal to the manufacturers when to ramp up production. Without intermediaries, economies of scale may never be realized because manufacturers, fearing making too many, may make too few to scale. Manufacturing costs don’t fluctuate like the stock market. Once manufacturing becomes cheaper, it remains cheap for some time.

Masks have become culturally iconic and politically toxic, symbols of community, of being our “brother’s keeper”, a proof of selflessness. Wear the mask for others not for yourself is the rallying motto. Masks, like taxes, have become objects of right wing resistance. Instead of the Gladstone flag’s inscription, “don’t tread on me”, the new slogan for small government conservatives is “don’t mask on me.” Mask defiance has caricatured libertarianism, which has taken more beating in this pandemic than any other ideology.

Masks are an effigy also of American technocratic incompetence. The early objections to masks were grounded in empiricism, real empiricism –  notably that the evidence was lacking that masks reduce viral exposure, and perhaps might even increase transmissibility. Iconoclastic mathematician and trader, Nassim Nicholas Taleb calls the mask debate naïve empiricism, because purveyors of such empiricism not only ignore power laws – where errors accrue asymmetrically, but invert the burden-of-proof – i.e. they answer the wrong question incorrectly.

Recently, Dr. Anthony Fauci, head of the COVID-19 taskforce and leading infectious disease expert, admitted that he downplayed masks’ efficacy early in the pandemic because he feared the public would hoard masks leading to shortage for healthcare workers. His concerns weren’t unfounded. The public had already displayed a sudden, insatiable appetite for hand sanitizers and demonstrated they could do a run on toilet paper, too.

Dr. Fauci is an honorable man. I’m not using Mark Anthony’s tone in his encomium for Brutus. I sincerely mean it. His admission takes incredible intellectual honesty and courage, particularly in the midst of a politicized pandemic, where Potomac sharks pounce on every syllable he utters. Yet, it’s hard not ruing an opportunity potentially foregone to have saved both lives and the economy.

Incompetence can’t explain why a $3.6 trillion industry, never short of drug eluting stents or CT scans, feared a mask shortage for its workers. There must be something more, something which F.A. Hayek understood, a phenomenon we ignore because we can’t control. By the time a hospital’s multidisciplinary “Mask Purchasing Committee” might have met on Zoom to discuss the economic models of cost-effectiveness of purchasing excess masks in a pandemic, Jesse was half way around the world knocking on Chinese manufacturers’ doors. Hayek’s intuition, that dispersed knowledge was, in the net, superior to centralized knowledge, may apply to supply chains, too.

When mighty American institutions failed one by one in this pandemic, the Americans failed to turn to their mightiest institution – the markets. So caught were they lamenting an imminently lamentable federal response, so frustrated were they by their leader, an Emperor Nero on Hydroxychloroquine, that they forgot about doers like the God-fearing Jesse Singh. So focused were they on their weaknesses, that the Americans forgot their strength.

Markets aren’t the panacea for many things in healthcare, such as ventilators, even if the moonraker, Elon Musk, once offered to build them. But markets are capable of supplying cheap items whose use follows the power law. In bazaars in India surgical masks sell for four cents. Each mask is washed and rinsed and used for a week! Alas, we focused on sophisticated ventilators not cheap masks.  How cheaply might ventilators have been avoided?  Musk was ridiculed for naively suggesting that he could solve the ventilator shortage. The joke was actually on us.    

In the 2005 Tsunami in the Indian Ocean, coastal animals fled to safety well before the tidal waves emerged. They sensed calamity. The market sensed an impending calamity in February, even as the WHO struggled to grade COVID-19’s threat, and many American experts remained anchored on the seasonal flu. J.M. Keynes, Hayek’s intellectual adversity, wrote about the importance of animal spirits – or consumer confidence – for the economy. The market began closing well before the technocrats recommended that they be closed. The market predicted the experts’ expertise.

Jesse doesn’t care about the politicization of masks. He doesn’t ask if masks work. He’s masked not to sell them but because he must be masked. If there was little demand for masks, he’d have sold something else in this pandemic. As to his being right about its demand, he defers credit.

“Jo Wahe Guru ki marzi”, he says. It’s all up to God.

Saurabh Jha is a radiologist who wears a mask in the dark room but has no masks to sell. If you need masks, e-mail jasjeev@maadho.com

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  1. ” a Cochrane review which concluded that there was no evidence that masks reduced the spread of respiratory infections.”

    “Nine case‐control studies suggested implementing transmission barriers, isolation and hygienic measures are effective at containing respiratory virus epidemics. Surgical masks or N95 respirators were the most consistent and comprehensive supportive measures. N95 respirators were non‐inferior to simple surgical masks but more expensive, uncomfortable and irritating to skin.

    ” Implementing barriers to transmission, such as isolation, and hygienic measures (wearing masks, gloves and gowns) can be effective in containing respiratory virus epidemics or in hospital wards. We found no evidence that the more expensive, irritating and uncomfortable N95 respirators were superior to simple surgical masks.”

    I guess we should have waited while Rome burned for that flawless empirical study to verify if masks really do work. That would have been much more intellectually satisfying.

    Maybe Trump read that Cochrane review piece and formulated his hands off covid policies from it. Maybe that’s why we’re in such great shape.

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