Most states and municipalities have shut down major sectors of their economies in the hope of minimizing the very real medical damage from the spread of the coronavirus. The benefit is assumed to be in saved lives, or at least a “flattened curve” that allows time for hospitals to ramp up capacity and for medical research to find treatments and a vaccine. To that extent, the economic shutdown will create a lot of good.
But it is reasonable to ask, “At what cost?” The economy is not some machine that can be turned off and on at the whim of politicians and medical experts. The economy is us, we the people, as we go about our daily lives trying to improve conditions for ourselves and our loved ones. As I write this, the shutdown has created more than 20 million additional unemployed workers and destroyed countless numbers of businesses. That is not a small cost. Is it worth it?
A rational person must ask if the benefits exceed the costs, or if the costs exceed the benefits. This is not easy to measure since benefits and costs do not always carry monetary values. Nevertheless, policymakers need to be aware of the tradeoffs and opportunity costs of their dictates. The argument is often put in terms of people vs. money. But that is an incorrect framework. It is about people vs. people, i.e. lives saved due to the shutdown (benefit) vs. lives lost due to the shutdown (cost).
Numerous economic studies show a high correlation between poverty and mortality, and between unemployment and mortality. Estimates range from a low of 10,000 additional deaths per percentage point increase in unemployment, to a high of 40,000. Suicides increase dramatically, the incidence of drug and alcohol abuse rises dramatically, crimes against persons and property increase, and critical medical care is postponed or canceled. The list goes on and on.
We must create income in order to create health. If we destroy income we will destroy health. But in order to create income, we must produce goods and services. Income is the payment for that production. We cannot shut down the economy, i.e., shut down production, and then print money to pretend it is not shut down. Money is merely a medium of exchange; it is not production-based income. At some point, the costs of the shutdown will exceed the benefits. But where is that point? For some wealthy individuals, that point will never be reached. For some poor individuals that point has already been exceeded. I believe that for the majority of people, we are fast approaching that tipping point.
If unemployment rises 20 percent above its preshutdown level, low-end estimates predict an additional 200,000 deaths. At 30 percent unemployment, it would be 300,000 deaths. Those numbers rise fourfold at the high end of the mortality estimates, so we could have over 1 million additional deaths from this economic shutdown.
Is it worth it? Isn’t there another way to minimize the medical damage from the coronavirus without creating such enormous medical damage from the economy? If the economy does not reopen within two to four weeks of this writing, we will see economic data not seen since the Great Depression in terms of unemployment (+25 percent) and lost GDP (–30 percent).
Some medical experts and politicians say that the economy should remain partially shut down until there are zero new coronavirus victims. Others say that it should remain shut for another 18–24 months, until an effective and safe vaccine has been developed and deployed. What madness!
To make matters worse, we are making this disastrous economic policy based on flawed (at best) medical data that is known to overstate coronavirus mortality. Why not err on the side of saving lives, rather than on the side of destroying them? We do know that the vast majority of people who contract coronavirus are either asymptomatic or have only minor symptoms. The highest levels of mortality are among the elderly who also have other preexisting health conditions. Why not focus on saving them instead of destroying the economy and the hundreds of thousands, perhaps millions, of lives that will go along with that?
It is an inconvenient question, I know, but one that must be asked.
This article was published in The Gazette, Colorado Springs, April 19, 2020.
