When can America reopen from its coronavirus shutdown? The answer
depends how you weigh human health against the economy. We asked experts
how to think about the tricky calculus.
After
days of market freefall, President Donald Trump hinted two weeks ago
that he was thinking about relaxing public-health restrictions for the
sake of the economy—“WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM
ITSELF,” he tweeted, before promptly getting roasted by the public
health world. Did he really want to sacrifice American lives to goose
the Dow back up? It seemed inhumane.
Since then, the president
has backed away from opening businesses up right away, but he also had a
point: This cure is pretty bad. This week’s report that 6.6. million
Americans had filed for unemployment insurance was double the previous
record, which was set only last week. Analysts are predicting that GDP
could shrink by
double-digit percentages this quarter. That’s a lot of future unhappiness.
At
the same time, the disease might be even worse. Trump’s coronavirus
task force has said that 100,000 to 240,000 Americans could die from the
virus, and that’s the best-case scenario.
So, what’s the right
amount of economic pain to endure in order to save lives? The debate
will only intensify over the next month, as we approach the April 30
endpoint Trump set for national social-distancing guidelines, and
pressure builds to re-open businesses, despite the high likelihood the
virus will still be spreading.
MARCA POLITICA turned to a
handful of thinkers—people who have studied the impact of pandemics,
recessions and more—to helps us understand how to even begin to think
about the dilemma ahead. Do we really need to weigh lives against money?
If so, how do you do it right?
Spoiler alert: No one offered us
a hard date for when life will go back to normal. But there were some
surprises. You’ll find a clear guide to making the lives-money tradeoff
(and a good rationale for doing it), a surprising fact about the
economics of the response to a past global pandemic, a suggestion for a
surgical middle-ground approach to a reopening, and a strong argument
that recessions actually save lives.
1. THE COST-BENEFIT ANALYSIS
2. HOW RECESSIONS AFFECT DEATH
3. WHAT THE SPANISH FLU TELLS US
4. WHAT IF THERE’S NO TRADEOFF?
5. THE QUICKEST FIX
6. MODELING THE COSTS OF SOCIAL DISTANCING
1
Why Economists Measure Human Lives in Dollars
It’s
a highly imperfect exercise—but could actually save more people. James
Broughel is a senior research fellow and Michael Kotrous is a program
manager with the Mercatus Center at George Mason University.
It
might feel heartless when President Donald Trump muses about whether the
“cure is worse than the problem,” as though a plunging stock market and
a patchwork of business and travel shutdowns could possibly outweigh
the lives saved by America’s response to the Covid-19 pandemic. And it
might feel uncomfortable to think about the response as a tradeoff
between saving the economy and saving lives.
But we really are
facing that tradeoff, and, in fact, economists make a routine practice
of comparing dollars with lives. There are costs and benefits to every
policy decision, and by valuing human lives in dollar terms we can
arrive at a way to measure those costs and benefits against each other.
As
human beings, we tend to see life as having almost infinite value, but
it’s also worth remembering that money spent to save one life has an
opportunity cost: It could have been spent in another fashion and—if
spent more efficiently—saved even more lives. Resources are never
unlimited, and without assessing the dollars-to-lives tradeoff, it’s
likely that policymakers will fail to save as many lives as they
otherwise could.
When it comes to policy, and especially an
urgent and life-altering policy issue like the current epidemic, the
problem with this kind of cost-benefit calculation isn’t in the idea,
it’s in the execution. Even for run-of-the-mill policies, it’s tricky to
assess whether a policy does more good than harm. With respect to
Covid-19, an exhaustive cost-benefit analysis is even harder because of
limitations in our ability to track the disease’s spread, predict the
human response to it and analyze the effects that policy will have in
slowing its transmission.
Acknowledging these challenges, here’s what the numbers look like, as best we can determine.
On
the cost side of the ledger, it is difficult to disentangle the costs
of the shutdown policy from the costs of the coronavirus itself. Many of
Trump’s supporters talk as though the economy would fully re-open if
the restrictions were lifted. But even if governors around the country
lifted their emergency orders overnight, would life return to normal,
and the stock market revive fully? Likely not. There would still be a
new and dangerous virus in the country. Aside from the thousands, maybe
millions, who became sick, many more people would still stay home while
the risk of infection remains high.
To get a handle on the costs
of current policies, one must identify the elusive “counterfactual”
scenario—what would happen if the government did nothing. If we assume
that most people would choose to stay home regardless of any government
action, then the costs of government orders to stay inside and close
businesses could be close to zero. At the other extreme, Federal Reserve
analysts have estimated that GDP could decline by as much as
50 percent
in the second quarter of this year. If we assume that it’s really
government orders driving this behavior, and otherwise people would be
going about their business, then the cumulative cost of the government’s
response is vast, as much as $2.5 trillion just in this quarter. The
cost over the long-term would be even higher.
The true cost
likely falls somewhere in between these extremes. The debate in Congress
about the proper amount of stimulus might be instructive. One way to
look at the $2 trillion stimulus package passed last week is as an
attempt by the government to make Americans whole for the costs of being
forced to stay home by government orders. Provisions of the stimulus
bill directly address these costs—increasing unemployment benefits and
broadening eligibility for
millions of recently unemployed Americans, as well as loan and grant programs that may allow small businesses to make payroll during the shutdown.
Then there is the benefits side of the ledger, which is also difficult to gauge. A
study
from Imperial College London estimated that as many as 2.2 million
Americans might die as a result of Covid-19, but this was an early
estimate that basically assumes
no behavioral responses
from the public as the disease devastates the country. Even if we
assume that number is a reasonable upper limit on how many people might
die, there’s still the question of how effective government policy will
be in changing the trajectory of the pandemic’s progression and saving
lives. Some epidemiologists believe that as soon as the social
distancing efforts end, the virus will return with a vengeance.
Here’s
where assigning a dollar value to life-extending benefits enters the
equation. One common way to do this is by using the “value of a
statistical life,” or VSL, which reflects what current citizens are
willing to pay to reduce their own risk of death. (It’s usually
estimated by looking at how much extra compensation workers in dangerous
professions get paid.) Estimates of the VSL vary, but tend to average
about
$10 million
for Americans. If we assume, for example, that the government’s
response to Covid-19 prevents an enormous death toll of 2 million
citizens, the value of all those prevented deaths could be as much as
$20 trillion.
However, the value of a statistical life is not
universally accepted by economists. For one thing, what an individual is
willing to pay to reduce risk might be very different from what society
should pay. A person nearing the end of life might find it rational to
expend all of his or her wealth on potential life-extending treatments.
But society, which will endure past any of our individual lives, ought
to be more frugal with its finite resources.
An alternative
approach to the VSL is to consider the productive contributions
associated with extending life—that is, the economic value people are
expected to contribute. Such an approach is commonly employed when
valuing the benefits of regulations that enhance our health. For
example, an environmental policy that prevents asthma attacks or
non-life-threatening illnesses might end up saving society money by
reducing hospital stays or emergency room visits. Compared with the VSL,
this approach provides more of an apples-to-apples comparison between
benefits and financial costs. It accepts that the true value of a life
is likely undefined, but we are at least able to estimate the economic
value each person creates.
One
2009 study
estimated the total value of worker production at different stages of
life, including the value of “nonmarket” roles such as staying at home
to raise kids. The authors estimated that the present value of future
worker contributions ranged from about $91,000 to $1.2 million in 2007,
depending on the age of the worker.
Age is an important factor in the coronavirus pandemic, too. The CDC has
reported
that, as of March 16, 80 percent of U.S. deaths from Covid-19 have been
people ages 65 or older. Combining the CDC’s numbers with the
aforementioned estimates of the value of worker production at various
ages (and updating them for rising productivity and inflation since
2007), we end up with an expected value of forgone earnings for victims
of Covid-19 of about $414,000 per person. Even this estimate of
benefits—already drastically lower than the VSL at $10 million—likely
overestimates the economic value of workers in cases when the cost of
replacing them is relatively low.
In other words, the economic
benefit of preventing all those potential deaths depends on which
controversial measure you use: In this case, upper-bound estimates of
mortality benefits associated with government interventions range
between $20 trillion with the VSL approach and $828 billion if the
worker production approach is extended to 2 million lives saved. Twenty
trillion dollars is roughly the value of an entire year of the nation’s
GDP; $828 billion is considerably less than the value of Congress’
latest economic stimulus bill.
There are other costs and benefits to account for as well. On the one hand, a prolonged shutdown of the economy could
increase
some health risks for those who lose their jobs, a knock-on cost of
impoverishing so much of the citizenry. On the other hand, Covid-19 has
been shown to cause significant
lung damage
among some of those who recover; reducing those cases is another
potential benefit of government action. An economic shutdown could even
have unexpected benefits—for example, a decrease in air pollution or the
number of car crashes.
To go strictly by the numbers, Trump may
well be right that the government “cure”—in the form of restrictions on
commerce and movement—might be worse than the Covid-19 disease. But
it’s also possible, given what we know, that everything the government
is currently doing is worth it, and relatively inexpensive to boot.
Cost-benefit
analysis can offer us a way to think about decisions, and put some
boundaries around the likely outcomes. But even in simpler
circumstances, it cannot always provide bright-line recommendations. And
it can’t answer our deepest and most profound questions. In some cases,
the calculus has to be driven not by a set of numbers, but by our
values.
2
Social Distancing Saves Lives. So Do Recessions.
If
you’re weighing a recession versus a pandemic in terms of lives lost,
there’s no contest. Contrary to popular belief, deaths go down during
economic downturns.
Anne Case and Angus Deaton are economists at Princeton University. They are the authors of the recently published book
Deaths of Despair and the Future of Capitalism.
When Donald Trump
tweeted
in late March, “WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM
ITSELF,” a lot of people had questions about what “worse than the
problem” meant, exactly. “You’re going to lose more people by putting a
country into a massive recession or depression,” he clarified a few days
later in a Fox News town hall. “You’re going to lose people. You’re
going to have suicides by the thousands.”
The assumption that
people die more in recessions feels right, and so it seems like a good
reason to suggest risking a more severe coronavirus outbreak with
lighter restrictions on businesses and people, instead of inviting the
worst economic crisis since the 1930s. There are, after all, a lot of
reasons to imagine such a surge in deaths could happen: lost healthcare
due to lost jobs, which would make people more vulnerable to otherwise
preventable deaths and, of course, suicides.
But the assumption
that people die more during recessions is wrong, at least in wealthy
countries. Past economic downturns show that, in fact, mortality rates
go down in recessions, for a number of reasons. If you’re weighing the
human cost of a recession or depression against the human cost of
illness and death from the virus itself, as Trump and policymakers
across the country are doing right now, it’s important to keep in mind
that the toll of a recession in terms of lives lost is not a factor.
It’s
true that poor people die younger. That was true in France and Britain
in the 19th century, and it is true in the United States today. People
in their mid-40s in the top 1 percent of tax returns have about
15 more years
to live than people in the bottom 1 percent. Yet is it not true that
when people get poorer, they are more likely to die; annual death rates
are lower in recession years than in boom years.
In our recent book,
Deaths of Despair and the Future of Capitalism,
we argue that the long-term, 70-year, slow-motion collapse of work,
wages and community for working-class Americans is the root cause of the
epidemic of drug overdose, suicide and alcoholism that has ravaged
less-educated men and women. That epidemic, and those deaths, came after
a slow and prolonged decline in the wages and jobs that supported
working-class life—very different from the normal upswings and
downswings of the business cycle. Despair came over years and decades,
not from a short-term downturn in the economy.
One of the
first studies
of health and recession was published almost a century ago by
sociologists William Ogburn and Dorothy Thomas (the first woman to be
tenured at the Wharton School). They made the important distinction
between “lasting changes in the economic order”—such as the Industrial
Revolution or, to extend to our own work, the erosion of working-class
life that underlies deaths of despair—and “brief swings in economic
prosperity and depression, around the line of general economic trends,”
such as the Great Depression.
They examined booms and busts from
1870 to 1920 and found, to their own astonishment, that death rates
rose in good times and fell in bad times. They were careful not to
overstate their findings—“we do not draw a definite conclusion”—so
strong was the seemingly obvious presumption that bad times bring death.
That presumption is widely held to this day.
One might think
the pattern of recessions and death from a century ago is different from
today. A century ago, pneumonia, influenza and tuberculosis were the
leading causes of death, not cancer and heart disease. Deaths were
“younger,” with death rates among infants higher than death rates among
the elderly, the inverse of today’s pattern. Sixteen out of every 100
children did not live to see their first birthdays.
But the same pattern of recessions and deaths held throughout the 20th century. Mortality rates
fell
from 1930-33, the four worst years of the Great Depression; in the
1920s and 1930s, mortality rates were highest in the years of fastest
economic growth. The same
was true
for the longer period from 1900 to 1996. Business cycles differ to some
extent in different U.S. states, and mortality was lower in bad times
state by state in the 1970s and 1980s. The same was true in
England and Wales
for economic fluctuations from 1840 to 2000. The relationship was
stronger at some times than at others, but the pattern was consistent:
Mortality declined more rapidly in bad times, and declined more slowly
or even rose in good times. Europe and
Japan show the same pattern.
What
about the Great Recession after the financial crash in 2008? The
economic effects were most severe in a few European countries, like
Spain and Greece. Remember Greece? Its economy was so devastated that it
threatened to crash out of the Eurozone. In the United States, it was
used as the bogeyman, the perennial warning of what might happen to us
if we did not get our fiscal house in order. Unemployment in Greece and
Spain more than tripled, to the point where more than a quarter of the
population was unemployed. Yet Greece and Spain saw
increases in life expectancy that were among the best in Europe.
For
the Great Recession in the United States, the story is more
complicated, because the years after 2008 saw a large and growing
epidemic of deaths of despair. But deaths of despair began to rise in
the early 1990s and grew inexorably into the 2010s. They rose before the
Great Recession, and grew during and after the Great Recession; the
line of rising deaths shows
no perceptible effect of the collapse of the economy.
The big question is: Why? And why is our intuition so wrong?
Many
of us have the haunting vision of ruined financiers hurling themselves
out of skyscrapers and off of bridges during the great crash of 1929.
These accounts were doubtless exaggerated, but suicides did indeed
increase during the subsequent Great Depression. Suicides, however, are
the exception, not the rule, and they are a small share of total deaths.
In 2018, there were 2.8 million deaths in the United States, of which
48,000 were suicides—less than 2 percent of the total. Each is a
tragedy, but it takes very large changes in suicides before the suicide
tail wags the mortality dog.
Why might the non-suicide deaths decline in recessions? High activity rates bring dangers. There are
more traffic accidents. There are more
occupational accidents when construction is booming and factories are running at full tilt. There is more
pollution,
a life-threatening danger for some infants. It is also possible that
busier lives bring stress, and that stress brings heart attacks. Or that
people have less time for exercise, healthy meals and self-care. In
today’s rich economies, most deaths are among the elderly, and many
older people are cared for by low-wage workers. When the economy is
booming, when there are better paid jobs elsewhere, it is much
harder to hire and retain these workers for nursing and elder-care homes. Care matters.
Which
brings us back to suicides. Because suicides usually do rise in
recessions, we think that there is a plausible case that the forthcoming
recession will bring more suicides. But not inevitably.
Mass layoffs from
plant closures
have often brought suicides in their wake. Today, people are losing
their businesses; workers and owners whose livelihoods and lives are
structured and given meaning by what they have created—restaurants and
coffee shops, bookstores, small businesses and non-profits of all
stripes—may reasonably fear that they will never reopen, even if
government packages provide some relief. They may feel shame that they
did not make provision for such a calamity, shame unlikely to be shared
by the managers of corporations who used their profits not to build a
rainy day fund, but to buy back shares that enriched themselves and
their shareholders, knowing that they would be bailed out in a
catastrophe.
This recession, unlike others, involves social
distancing or, for many and increasingly more as infection rates rise,
isolation. Social isolation is a classic correlate of suicide. The
United States has a suicide “belt” that runs north-south along the Rocky
Mountains where population density is low. New Jersey, where we live
most of the year, has the lowest suicide rate in the country; Montana,
where we spend August, has the highest. Zooming in, Madison County,
Montana, has a suicide rate that is four times higher than that of
Mercer County, New Jersey. Isolation and depression can be deadly.
Think, too, of the millions of people in recovery programs, like
Alcoholics Anonymous, whose sobriety depends on community support.
Social distancing will also bring more suicides this time around if
hospitals are slow to respond, so that more attempted suicides may
succeed.
Yet there is an important counterargument. Suicides tend to be low in
wartime,
especially when leaders can build social solidarity, the opposite of
social isolation. Winston Churchill inspired the British in World War
II. Governor Andrew Cuomo is inspiring New Yorkers (and many other
Americans) who listen to his broadcasts. If the rhetoric of fighting the
common enemy wins out against the possibility that Americans are
jobless, alone, terrified and without meaning in their lives, even
suicides could be low in the months ahead.
3
Here’s What Happened When Social Distancing Was Used During the Spanish Flu
The
economy took a hit during the 1918 influenza pandemic, but cities that
intervened earlier and more aggressively fared better.Emil Verner is an
assistant professor of finance at the MIT Sloan School of Management.
The
Covid-19 outbreak has sparked urgent questions about the impact of
pandemics on the economy. Will our effort to fight the disease by
locking down citizens and businesses do more damage than the disease
itself? Because pandemics are rare events, policymakers have little
guidance on how to manage the crisis. But looking at past pandemics—both
the public health responses and their economic impact—can provide some
insights.
The most frequently cited comparison is the 1918
Spanish flu, which similarly swept across the world and triggered
widespread shutdowns in response. In a
recent research paper,
Sergio Correia, Stephan Luck and I examined the impact of 1918 pandemic
in the United States to answer two sets of questions. First, what are
the real economic effects of a pandemic, and how long do they last?
Second, do public health interventions meant to slow the spread of the
pandemic, such as social distancing, have economic costs of their own?
Our
research compared different areas of the United States that were more
and less severely affected by the 1918 flu, as well as areas that were
more and less aggressive in their use of public health tactics to slow
it down. (The technical term for the tactics we measured is
“non-pharmaceutical interventions,” or NPIs.) The public health measures
implemented in 1918 resemble many of the policies used to reduce the
spread of Covid-19, including closures of schools, theaters and
churches, bans on public gatherings and funerals, quarantines of
suspected cases, and restrictions on business hours.
We came
away with two main insights. First, we found that areas that were more
severely affected by the 1918 flu saw a sharp and persistent decline in
real economic activity. Pennsylvania, for example, experienced a
substantial fall in manufacturing employment and banking sector assets,
compared with less affected states like Michigan. The decline in
economic activity was large—with an 18 percent decline in manufacturing
output for the typical state—and lasted for several years after 1918.
You
can see the economic disruption reflected in newspapers of the time. On
October 24, 1918, the Wall Street Journal reported: “In some parts of
the country [the flu] has caused a decrease in production of
approximately 50 percent and almost everywhere it has occasioned more or
less falling off. The loss of trade which the retail merchants
throughout the country have met with has been very large. The impairment
of efficiency has also been noticeable. There never has been in this
country, so the experts say, so complete domination by an epidemic as
has been the case with this one.”
Second, we found that cities
that implemented early and extensive public-health measures suffered no
adverse economic effects from these interventions by 1919; in other
words, the interventions did not make the economic impact of the flu
worse. On the contrary, cities that intervened earlier and more
aggressively experienced a relative increase in real economic activity
after the pandemic subsided, compared with cities that intervened less
aggressively.
Minneapolis and St. Paul, Minnesota, just across
the river from each other, illustrate the difference clearly. In 1918,
officials in Minneapolis quickly put restrictions into place and kept
them for a relatively long 116 days. Officials in St. Paul acted much
more slowly and only kept public health measures in place for 28 days.
The death rate from influenza in 1918 was 24 percent higher in St. Paul
(481 deaths compared with 388 deaths per 100,000 residents,
respectively). And Minneapolis’ economy didn’t suffer from the
restrictions. On the contrary, employment growth was twice as high in
Minneapolis in 1919 as it was in 1914, when the previous manufacturing
census was taken. These findings suggest that, at least in the medium
term, there was no tradeoff between implementing public health measures
and economic activity.
This result might be hard to grasp at a
time when millions of Americans are currently filing for unemployment
amid the coronavirus pandemic. How can it be that shutdown tactics like
school closures and restrictions on business hours could actually
benefit the economy?
The reason is that pandemic economics are
different from ordinary economics. In ordinary times, business shutdowns
and other restrictions are bad for the economy, as they limit economic
activity. But it’s important to remember that in a pandemic, the disease
itself is extremely disruptive to the economy. Households do not want
to spend money or go to work if it involves a major health risk, and
businesses do not want to invest because economic conditions are so
uncertain. The alternative to these public-health restrictions is not a
normal functioning economy, but rather a widespread, debilitating
outbreak of disease that causes major economic disruption in the short
and medium term. As a result, measures to fight the pandemic can
actually benefit the economy in the medium term, as they target the root
of what is ailing the economy—the pandemic itself.
Of course,
there are a number of important differences between the 1918 flu and the
current Covid-19 pandemic—most importantly, that the 1918 flu was
significantly more deadly for healthy, working-age adults. But our
research suggests that public health interventions such as social
distancing should not be viewed as economically costly. Doing nothing
could be far worse.
4
There’s No Tradeoff Between the Economy and Our Public Health
Both
are measures of human wellbeing. That’s what we should maximize right
now.Will Wilkinson is vice president for research at the Niskanen
Center.
In light of political pressure and expert estimates that
the Covid-19 pandemic could now rack up a six-digit American death
toll, President Donald Trump has (for now) backed down from his threat
to ease off social distancing measures, reopen the economy and “fill the
pews” on Easter. But he has
suggested nonetheless that efforts to protect the health of the American people undermine the vitality of the economy.
The
physical separation that is now necessary to contain the Covid-19
pandemic does come with a shocking price tag. Because we’re paying so
dearly to limit the risk of mass sickness and death, it can be tempting
take the next step and imagine that if we were to toughen up and bear a
bit more risk, we could maintain a much healthier economy with only a
bit more suffering and loss.
Considering the tradeoffs of one
kind of suffering against another, weighing their relative costs and
benefits, seems reasonable. But it can also lead us into error. The
tradeoff Trump has alleged between “the economy” and “public health”
conceives of them as something like knobs you can’t turn up without
turning the other down. But they are, in fact, mere abstractions,
intellectual tools for inspecting different aspects of the same thing:
the well-being of the population. Economic indicators measure well-being
(very roughly) in one way; public health indicators measure it in
another. But their common subject is how well people are doing.
Wealth
and health go hand-in-hand at both the individual and the collective
level. Because healthier populations are more productive, and wealthier
societies can afford better measures to protect the health, safety and
environment of their people, there’s generally little tradeoff between
the public health and economic performance. Tradeoffs are rife in public
policy, but the tradeoffs involved in public health initiatives around,
say, seatbelts, smoking, guns and food generally have more to do with
individual autonomy and wariness of nanny-state paternalism.
Formal
economic models abstract away from other aspects of human wellbeing
when they conceive of money as a proxy for “utility,” or the value of
consumption. More money lets you consume more (or forego less) of what
you want. A higher level of consumption, enabled by a less constrained
budget, generates a higher level of “utility” or “welfare” in economic
models simply because that’s how “utility” and “welfare” are defined in
the models. But this doesn’t necessarily tell us what we want to
know—especially when we’re struggling to contain deadly mass contagion.
“Utility,” in the economist’s formal sense, doesn’t refer to a
subjective experience of pleasure, happiness or satisfaction with life,
and “welfare” doesn’t refer to objective human health and flourishing.
None
of this is to say the means to buy the necessities and pleasures of
life is not an absolutely essential element of wellbeing. Poverty does
cause misery, sickness and death, and measures of wealth are still
incredibly valuable. But they’re valuable because we value our lives and
how well they go. Viruses don’t discriminate between rich and poor, and
the “utility” and “welfare” of economic production and consumption are
worth rather less to people struggling to breathe, and worth nothing at
all to people who are dead.
Once we acknowledge that the
epidemic and the economic slowdown aren’t really two problems, but
simply two aspects of a threat to our population’s wellbeing, the policy
response becomes clearer. Letting the epidemic rip without mitigating
measures would eventually take a catastrophic toll on the economy
anyway, in addition to the atrocity and trauma of an overwhelming level
of sickness and death. The economic cost of idling the economy to
contain the spread of the virus is more immediate than that long-term
cost, so it’s the one we are thinking about—but incurring it now better
protects the overall wellbeing of the population by minimizing the total
loss to health, life and economic capacity.
The danger of
fixating on narrow economic indicators of wellbeing, and the need to
take a more holistic perspective, has led a number of economists and
social scientists to advocate replacing measures like GDP with something
like “Gross National Happiness.” Bobby Kennedy captured the spirit of
this thinking when he famously complained that it’s confused to treat a
metric like GDP, which fails to capture “the health of our children, the
quality of their education or the joy of their play,” as the master
indicator of our society’s wellbeing. GDP does tell us roughly how much
wealth our economy produces, and how much the population has to spend,
which is something we need to know. However, as Kennedy rightly
observed, “it measures neither our wit nor our courage, neither our
wisdom nor our learning, neither our compassion nor our devotion to our
country, it measures everything in short, except that which makes life
worthwhile.”
Another reason that we can’t turn to economic
measures alone to understand how to respond to this crisis is that
standard economic models are upended by epidemics. These models assume
that physically proximate economic production and exchange generally
leave us, and the economy as a whole, better off. But epidemics
transform “brick and mortar” workers and customers into vectors of viral
transmission, rendering economies based on integrated networks of
physical nearness vulnerable to exponential growth in rates of deadly
infection. Dead people don’t buy anything, and rampant illness hammers
the productivity of workers and the profits of firms. Which is just to
say, in the language of economics, that contagious virulence creates a
“negative externality,” or harmful spillover effect, from physically
proximate labor and market exchange. Simply showing up for your shift at
Starbucks, or strolling in to grab a latte, means that you might be, or
might become, the living, breathing equivalent of a factory belching
toxic sludge into the drinking water.
If the risk of dangerous
infection is high, the total harm to health, life, productivity and
consumption imposed by the bustle of normal low-distance economic
activity can easily exceed its usual economic benefits. When that’s the
case, the level of spatial distancing needed to ensure that each
infection leads to less than one new infection is economically
efficient; it’s the best we can do given the constraints. Economic
growth may be impossible in the context of a galloping pandemic. The
best we can hope for is to suppress it in a way that minimizes the
severity of the economic Ice Age.
It’s crucial to grasp the main
constraint within which we are currently forced to optimize is that,
thanks to the Trump administration’s slow and hapless response, we don’t
know the real rates of infection. If we could better estimate the risk
of showing up at Starbucks, we could determine the epidemiologically
necessary and economically optimal level of social distancing. If we
knew which workers and patrons are most likely to be infected, we could
usefully surmise who can safely go on as usual and who should stay home.
For now, all we can do is focus on how to keep as many people
well as possible. In the end, measures of economic performance
alone—whether GDP or the Dow Jones—don’t always track the things we
cherish most. My wife’s mother, and my children’s one living
grandmother, is a respiratory therapist in Connecticut. We’re worried
sick about her, because we all love her, and she desperately loves my
children. Money is great, but it isn’t everything. It would be a cosmic
tragedy if we were forced to trade love against prosperity. But we
aren’t. Failing to protect the people we love won’t leave more money in
our pockets. It will leave them even emptier, and with holes in our
lives that we can never fill.
5
With a Little Ingenuity, We Can Reopen Much of the Economy Right Now
A
large swathe of jobs somewhere between “essential” and “optional” could
be reengineered so people can go back to work soon and safely.Jonathan
Caulkins is professor of operations research and public policy at
Carnegie Mellon University’s Heinz College.
The Covid-19 debate
about when and how to reopen the economy has become dangerously binary.
Yes, “life-sustaining” sectors like hospitals and electric utilities
must operate unimpeded, and optional, public-facing ones like concerts,
dine-in restaurants and theme parks likely aren’t worth the risks for
now.
But keeping Americans safe doesn’t require shuttering the
rest of our jobs. It does, however, require re-thinking how people do
them. There’s a large swathe of jobs, somewhere between essential and
optional, that could be reengineered to allow many to get back to work
soon and safely.
The logic for all-but shutting down the economy
is that doing so will stop the virus’ spread and allow mass testing to
catch up. But even with all-out shelter-in-place efforts, we will likely
still be living in the age of Covid for the rest of this year at least.
Keeping businesses’ doors completely closed will have huge costs. Given
this possibility, we need to figure out how to work sustainably in this
new reality.
The stakes are enormous. In February, the leisure
and hospitality sectors together employed 16 million Americans, and
fewer than 6 million Americans were unemployed across the entire
economy. Soon, because of limitations on social gatherings, those
figures could be reversed. That is a steep but necessary price to pay;
gatherings at bars, theaters and other public venues, are inherently
dangerous right now.
We’ve already figured out how to protect
many white-collar jobs—just work from home online. But we also can and
should reengineer some blue-collar jobs—on-premise, physical work—so it
can get done while maintaining social distancing.
Manufacturing is a prime candidate. Major automakers have
closed
their plants in North America, putting their laborers out of work. But
these companies could be allowed to reopen if they can demonstrate that
they have developed safe operating practices. True, factories involve
people working together, but so do hospitals and grocery stores. And
factories aren’t at all like bars or nightclubs: Already, the general
public isn’t allowed inside, and many are large facilities with
relatively low densities of employees because so much of the work
involves heavy machinery. China is
pioneering
ways of getting factories back online while having workers practice
social distancing. Those practices are now a crucial competitive
advantage that U.S. workers need to catch up to. To take just one small
example, painted lines could be used to define specific pathways where
people can walk on factory floors.
Like manufacturing,
construction does not directly involve the public, and is
capital-intensive. Extended hours on construction sites could let the
same work get done with fewer people on premises at any given time.
Keeping just these two sectors—manufacturing and construction—alive
could spell the difference between severe recession and depression.
Together, they employ more people in the United States (20 million) than
leisure and hospitality, and their share of economic output (23
percent) is even greater than their share of employment (12.4 percent).
Conceivably,
there are even ways that furniture, clothing and other general stores
could reopen on a limited basis, with employees but not customers
allowed on site. Knowledgeable clerks literally walking through store
displays with customers on FaceTime might have a chance to compete, at
least in some instances, with Amazon. Shutting down stores altogether
denies them that chance. If letting employees into a furniture store
seems dangerous, note that anyone can now walk into Target or Walmart to
buy a lamp or a chair right now. Those stores remain open because they
also sell groceries, even though the furniture stores with which they
compete at lamp-selling are forced to sit idle.
In addition to
opening up more of these kinds of jobs and businesses, we should also
think differently about some of the industries that are deemed “life
sustaining.” Right now, those industries can basically operate as they
see fit. That makes sense for hospitals—but not gas stations or grocery
and convenience stores.
Of course, gas stations should remain
open, but self-service involves scores of people touching the same pump
handle every day. With so many people needing work, why not require gas
to be pumped by gloved attendants with payments made online? That’s
feasible; New Jersey bans self-serve stations, and until recently so did
Oregon. Gas would be a little more expensive, but these days people are
generally willing to pay a little more for safety.
Many grocery
stores are taking steps to make their spaces safer, by sanitizing
shelves and shopping carts more frequently or capping the number of
shoppers at a given time, but they could do more. Making aisles
“one-way” would ensure that shoppers never pass each other face to face.
Produce could be pre-bagged so customers are not touching three
tomatoes before taking one, and “comparison shopping” could be
discouraged for the same reason. Before coronavirus, there was “you
break it, you buy it”; now maybe it’s “you touch it, you buy it.” At
checkout, cashiers could replace paper receipts with e-mails. (Speaking
of which, credit card companies are allowed to operate right now, but
why not push them to replace swipe cards with contact-less “tap and pay”
cards?)
It’s not that companies viewed as essential have made
no changes, but they are haphazard and undirected. A concerted and
systematic effort to reengineer public-facing essential businesses would
almost certainly cut virus transmission by more than would
reengineering and reopening shuttered sectors that don’t inherently
involve so much person-to-person interaction.
The original idea
of two-week shutdown wasn’t long enough to eradicate the virus, and a
two-month shutdown will do permanent damage to the economy. Neither
protects against Covid returning in the fall or some other pandemic
striking next year. Instead of seeing only two possible
options—reopening the economy as before or keeping it closed until
further notice—we need to be more flexible. We can start by inventing
ways to reengineer the vast middle of the U.S. economy so that it can
operate sustainably in the Covid age.
6
We Were Skeptical Social Distancing Was Worth the Economic Cost. Then We Modeled It.
The costs of slowing the economy are high. But they are worth it from an economic perspective.
Linda
Helena Thunstrom, Jason F. Shogren, David Finnoff and Stephen C.
Newbold are professors in the Department of Economics at University of
Wyoming. Madison Ashworth is a graduate student in the university's
Department of Economics. and public policy at Carnegie Mellon
University’s Heinz College.
Should we think about the economic
costs to saving lives as Covid-19 sweeps through the United States? It
seems cold-hearted to do so in the midst of a pandemic that has already
claimed more than 5,000 lives in the United States and puts millions of
others at risk. Yet we consider costs to most of the actions we take,
small and large, in our daily lives. And as the extent of lost jobs,
missed rent payments and lost healthcare from those lost jobs comes into
view, we have a responsibility to assess that damage, too.
Because
no vaccine or effective treatments are yet available for Covid-19, the
only way to slow the spread and reduce the severity of the outbreak is
to implement a strict form of social distancing. In the United States,
this has meant temporarily closing schools, universities, daycare
centers and tourist attractions, cancellations or suspensions of
national sports leagues, shelter-in-place orders and travel
restrictions. These are unprecedented measures that come at a large
economic cost.
We’re a team of economists at the University of Wyoming, and from the first days of social distancing, some of us were publicly
wondering
if the preventive measures taken to slow the spread of the virus would
incur costs that might make us regret those measures in the long run.
So,
we decided to run the numbers for a scientific article that’s currently
under peer review. And we found, using a figure known as the “value of a
statistical life” (VSL), that the value of lives saved through
distancing measures exceeds the value of lost GDP by almost $3.4
trillion. In other words, yes, social distancing is “worth it,” also
from an economist’s point of view, based on the current information
about the economic consequences and disease spread.
To come to
this conclusion, we first estimated benefits from social distancing in
terms of the value of lives saved. To do so, we used a standard
epidemiological model designed to forecast the numbers of susceptible,
infected and recovered individuals over the course of an infectious
disease outbreak. Then, we compared the predicted disease spread and
number of deaths in the United States in two scenarios: one with social
distancing measures, in which the spread is slowed and the total number
of infections is reduced, and one without social distancing measures, in
which the virus spreads unabated. For the social distancing scenario,
we assumed a contact rate between humans about 40 percent lower than
that in in the scenario without distancing. In the model, we concluded
that 1.2 million lives would be saved by social distancing measures.
Next,
we used a standard estimate for the value people assign to reducing
their personal risk of death, VSL. It’s a controversial figure among
social and behavioral scientists, given the provocative idea of
assigning values to human lives. Further, the appropriate value is
continuously debated among economists. Nevertheless, the VSL is
frequently used in official policy analyses, consistent with guidance by
the White House Office of Management and Budget. In our analysis, we
assigned a VSL of $10 million, based on the values used by federal
agencies, which gives a total value of lives saved of $12.2 trillion for
those 1.2 million people.
Next, we estimated the costs from
social distancing, in terms of the value of lost GDP. To do so, we
compared the GDP development with and without social distancing. We
forecasted GDP growth this year and the next six years.
Our
forecast with social distancing is based on macroeconomic reports by
Goldman Sachs. With social distancing, we assume GDP will drop by 6.2
percent this year (Goldman Sachs’ forecast from March 31), and that it
will take approximately three years until the economy has recovered from
the recession. Our forecast of the baseline U.S. GDP growth this year
without social distancing relies on recent macroeconomic research that
predicts the short-run economic impact of a pandemic this year, without
accounting for stringent social distancing, would cause a 2 percent
decline in GDP.
We assumed the same proportional rate of
recovery for the economy with and without social distancing, so GDP
growth would return to a new steady rate after three years in both
scenarios.
The difference in the GDP reduction of these two
scenarios—the 2 percent decline in the scenario without social
distancing, and the 6.2 percent with social distancing, with a
three-year recovery time in both scenarios—is $8.8 trillion. That’s our
estimate of the hit that the United State GDP will take over the course
of three years from social distancing lasting into the summer months
this year.
But remember, the value of lives saved was $12.2
trillion. This rapid benefit-cost analysis suggests the net
benefits—benefits from lives saved minus costs from GDP loss—amounts to
$3.4 trillion dollars. Our results suggest that social distancing passes
a cost-benefit test.
The final outcome, however, could depend
crucially on policy choices yet to be made. Much uncertainty surrounds
both the trajectory of the disease in the coming weeks and months and
that of the economy in the coming months and years. As an illustration,
based on just a 10-day-older, and more optimistic, GDP forecast by
Goldman Sachs, we found net social benefits of social distancing
amounting to more than $5 trillion, as opposed to our current best
estimate of $3.4 trillion. This illustrates an important point—we gather
more data as time goes by, and we likely will not know with confidence
the impact of social distancing on the economy or disease spread until
after the crucial policy decisions need to be made.
Further, the
public health response and the economic stimulus might determine
whether the social distancing measures taken in these crucial weeks will
be viewed as a difficult but necessary response, or instead as a gross
over- or under-reaction. But that does not take away from the importance
of doing our best to make rapid assessments that inform policy today.
We will have to live with second-guessing our decisions, but first
guesses without systematic comparisons of the benefits and costs will
likely be regretted more.
