Why Didn't They Tell You?

Dr. FRANK MARTINS COMMENTARY ON HISTORICAL, SOCIAL & ECONOMIC ISSUES OF OUR TIME

about the cost of the unintended consequences of the COVID-19 shutdown?

about the cost of the unintended consequences of the COVID-19 shutdown?

In this post, I put on my economist’s hat and seeing as I do have a Ph. D. in economics, it is fitting that I should weigh in on this issue. It is important to understand that every action taken, every public policy implemented generates both costs and benefits, in the short-run and in the long-run. Often the costs are unanticipated and/or unintended. Whether or not an action is taken, or how much of it is done, must be decided by weighing the costs and benefits of a contemplated action or public policy change. As a general rule, we can say that if the benefits of a proposed action overwhelmingly exceed the costs, then the action should be undertaken. On the other hand, if the costs overwhelmingly exceed the benefits, then it should not be undertaken.

Initially the focus was almost exclusively on the benefits (reducing infections and deaths) from implementing a shutdown of the economy. If implementing these restrictions only conferred benefits on society at no cost, then the decision would have been easy. But that is not the case. There are enormous costs as well as benefits associated with the governmental restrictions imposed in an attempt to diminish the spread of COVID-19. The first thing that comes to mind is the loss in output and concomitant incomes. Policymakers (the U. S. Congress and the President) anticipated these losses by approving legislation giving households stimulus payments, liberalizing unemployment compensation, making available loans and subsidies to businesses as well as implementing other changes to try to soften the impact of the shutdown of the economy. Both individuals and small businesses, as well as large businesses, suffered great economic losses that began to be felt immediately.

Because so many businesses had to shut down, unemployment skyrocketed as the unemployment rate went from 3.5% (effectively full-employment) in February to 4.4% in March and 14.7% in April. May’s unemployment will certainly be even higher. Almost twenty-four and a half million people lost their jobs in a mere two months. There was a corresponding loss in business income as so many businesses completely or partly shut down. This loss of employment and personal and business income is inflicting  serious emotional and psychological harm on people.

In addition to the income losses, there were negative unintended consequences. Hoarding became a problem, even before the production of goods and services began to be impacted, as people began buying up large amounts of water, toilet tissue, paper towels, and disinfectants.

Recall as part of the shutdown, hospitals began focusing almost exclusively on COVID-19 patients. Most hospitals and doctors were only seeing non-COVID emergency cases. The health of many people was delayed or foregone, and some died as a result.

Three researchers, Dr. Scott W. Atlas (physician and senior fellow at Stanford University’s Hoover Institution), Dr. John R. Birge (professor at the University of Chicago, Booth School of Business), and Dr. Ralph L Keeney (professor emeritus in business at Duke University and in engineering at the University of Southern California) estimated the income loss and the costs of some of the unintended consequences of the shutdown.1 These estimate should not be taken as exact, but they do give a sense of the order of magnitude of the losses.

  1. Lost economic output and income

We will see the full impact of the shutdown on output (production of goods and services) when the second quarter (April, May, and June) Gross Domestic Product estimates are released in July. At the rate that the economy has been contracting, the researchers have estimated the annual losses to be in the trillions. According to the researchers, “This lost income results in lost lives as the stresses of unemployment and providing basic needs increase the incidence of suicide, alcohol or drug abuse, and stress-induced illnesses. These effects are particularly severe on the lower-income populace, as they are more likely to lose their jobs, and mortality rates are much higher for lower-income individuals.” Taking into account both the personal and business income losses, “With an average estimate of one additional lost life per $17 million income loss, that would translate to 65,000 lives lost in the U.S. for each month because of the economic shutdown.”2 (Italics added).

  • Delayed or foregone health care

Instead of deaths, lost years of life is another term used by the authors to measure loss of life. This seems to be a measure of life loss due to pre-mature death.

Lost years of life because of:

  • Treatment delays for situations other than COVID-19: 8,000 lives per month or about 120 years of remaining life.
  • Missed strokes not treated: 100,000 lost years of life per month.
  • Late cancer diagnosis: 250,000 lost  years of life per each month,
  • Missing living-donor transplants: 5,000 lost years of life per month.

The researchers conclude that COVIS-19 “has been responsible for 800,000 lost years of life so far. Considering only the losses of life from missed health care and unemployment due solely to the lockdown policy, we conservatively estimate that the national lockdown is responsible for at least 700,000 lost years of life every month, or about 1.5 million so far — already far surpassing the COVID-19 total.”3 Of course, we must take into consideration that the number of deaths would have been greater if the lockdown had not been implemented. The benefit would have been the lives saved as a result of the shutdown.

The takeaway is that we have to weigh both the costs and benefits, taking into account the unintended consequences of the shutdown. As Dr. Atlas said, “Policymakers combatting the effects of COVID-19 must recognize and consider the full impact of their decisions.”4  

How does all of this help us in dealing with the situation we are in right now? The question that naturally arises is, are we paying too high a cost to continue with the shutdown as it is? I think many policymakers, including the President, have come to the conclusion that we are. However, the alternative they are presenting us is not to go back to business as usual. We know more about this virus than we did two months ago. Therefore, in opening up, we implement precautions to protect against infections ramping up. There are precautions that businesses can take such as testing employees for the virus, frequently disinfecting the business premises, requiring employees to wear masks, and putting up barriers to the spread of the virus, where possible. Employees have to be tested not just once but at regular intervals. Companies will have to strictly enforce policies that many, if not most, businesses have observe for years, namely, if someone is sick, they have to go home and can only return to work when their doctor releases them.

Businesses directly serving the public must implement sensible protocols.

In short, if sensible precautions are taken, businesses can open up without it leading to big spikes in infections. Clearly we should all observe the precautions necessary to protect each. Since one can be a carrier without any symptoms (35% of those infected do not show any symptoms), we should wear the face mask in public even if we have no symptoms.

I would like to end on an optimistic note. There have been many comparisons made to the Spanish Flu of a 100 years ago. I do not think we have to repeat that scenario. Knowledge is much greater today than it was then; there has been a quantum increase in knowledge over the past 100 years, not just the store of knowledge but how we acquire knowledge. Every day we hear about promising treatments and/or vaccines that may be available sooner than we thought.

It has cost us a lot but we have learned much from this experience.

Next week’s blog will be on why Ancient Egypt is so important to the world.

  1. Atlas, Scott W., John R. Birge, and Ralph L Keeny (2020). The COVID-19 shutdown will cost America millions of years of life, in The Hill (5/20/2020).
  2. Atlas, et al.
  3. Atlas, et al.
  4. Atlas, et al.

2 thoughts on “Why Didn’t They Tell You…

  1. Samuel Martin says:

    Went light on the unnecessary lost of lives due to poor leadership, guess there’s enough criticism about that already. I’m left wondering your forecast as to a time that the economy will rebound, if ever, or are we just headed into a totally new system of things.

    Like

    1. As long as necessary precautions are put in place so that businesses can open up and people can go back to work, the economy will rebound quickly and robustly. The deeper the downturn, the more robust the rebound or recovery, generally. I’ve been saying that for a while. One of Obama’s former economic advisors just recently said the same thing; others are also saying it. After the deep recession of 2008-2009. the economy recovered steadily and continued, and even picked up some, after Trump was elected. However, the Obama recovery was steady but tepid (low rates of growth of GDP), especially given the depth of the recession we came out of. Of course our coming up with effective treatment and/or a vaccine for COVID-19 soon will help speed the recovery. Trump’s re-election would be good for the recovery.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s