These figures are nothing less than staggering on their own, but they fail to account for the full social costs of the COVID-19 pandemic. Other noteworthy costs include those that are incurred by the health care delivery system and the costs of lost work for those who contract the virus but miss short spells of work. These costs have proven to be substantial even for the seasonal flu and will be much higher for COVID-19.
What Actions Should We Take?
To answer this question, it is necessary to introduce the costs of mitigating the spread of the virus. Let’s assume that mitigation efforts lead to a 25% contraction in state GDP in the second quarter of the year, roughly commensurate with the dire expectations of economic forecasters for the national economy.
This figure is on the high side in the sense that economic activity would contract even in the absence of any mitigation policies enacted by government due to illness, death and individual preventive measures; a high figure means it is relatively harder to justify policy interventions since the economic costs are higher.
A 25% reduction in state GDP translates to lost output of $95.3 billion:
- If the reduced output saves 100,000 lives, the cost per life saved is $952,558
- If the reduced output saves 50,000 lives, the cost per life saved doubles to $1,905,115
- If the reduced output saves 22,795 lives, the cost per life saved is $4,178,800
Note that in each of the three cases, the value of a life ($9.4 million) far exceeds the social costs in terms of reduced economic output.
In fact, any mitigation policy that saves more than 10,000 lives would ensure the value of life exceeds the social cost of reduced economic output.
Note that the modeling data presented above suggest that both social distancing and safer at home policies would save more than 10,000 lives.
One could easily quibble with these numbers on several counts. On the one hand, the figures do not address other benefits of virus mitigation, such as reduced time off work (for those who continue to work) and reduced health care expenditures.
On the other hand, weaker economic conditions and the high levels of unemployment that accompany it can generate other social problems and social costs, including addictive behavior and suicide.
The information above sheds light on the value of policies like social distancing and safer at home.
Assume that social distancing saves 36,000 lives consistent with the modeling data presented above. The value of lives saved is $338.4 billion (or $9.4 million*36,000). This is equal to about 88.8 percent of state GPD.
Now assume a safer at home policy that extends for three months, sparing 132,000 lives in the state relative to the no action scenario. The total value of lives saved is $1.2 trillion or about 3.3 times larger than state GDP.
It is important to recognize that the economy will slump even in the absence of aggressive public policy efforts. People will get sick and not be able to work, some will die and never return to work and individual behaviors like self quarantine will limit economic activity.
Thus, the scary predictions of a 25-30% drop in GDP will not go away simply by eliminating restrictions and “opening up” the economy. If the state economy does decline by 25% in the second quarter, only a portion of this can be attributed to the aggressive public policies being discussed and implemented.
The Path Forward
The stark choices confronting society today are often expressed as polar extremes: we can either have a healthy economy or we can have diminished economic growth in order to promote public health. This is a false dichotomy.
We cannot have a healthy economy in the face of COVID-19 and its accelerating rate of infection. A completely open economy means extensive person-to-person contact and subsequently the mass spread of the disease and its consequences.
This would overwhelm the health care system and ultimately lead to a subsequent closure of the economy. Mitigation policies will certainly impose costs on the economy and these costs need to be balanced against the benefits of lower infection rates and reduced deaths.
The evidence presented here is compelling: the costs of a fully open economy in the face of COVID-19 are potentially enormous.
Key to combatting the virus and getting the economy back on a firm footing are steps that can break the chain of transmission and protect the lives of vulnerable groups.
This public health action needs to be coupled with other policy action, including the recent federal stimulus package that will inject liquidity into the economy, helping households and businesses alike. Limiting economic activity will buy us valuable time to increase the capacity of our health care system.
Disclaimer: the information in this policy brief was produced by researchers, not medical or public health professionals, and is based on their best assessment of the existing knowledge and data available on the topic. It does not constitute medical advice and is subject to change as additional information becomes available.
Coronavirus-19 Outbreak Response Experts (CORE-19)
