Author: kirby

Economic impact of isolation vs. economic impact of non-isolation.

Short answer – (TL;DR) – restrictions have a positive economic impact.

There has been a lot of discussion regarding the cost of restrictions vs. the impact to the economy so I thought I would take a quick crack at answer the question.

There are a lot of assumptions.  I am ‘showing my work’ so others can re-try the equation or see if the result are still valid as we get more information or the add details (such as breaking out deaths by age and the associated economic impact – e.g. an 80 year old death has no impact to economy (might save money) vs. the death of a child that will never return the 9.6M.)

I won’t argue every assumption – the details are listed at the bottom.  If you think one of the assumptions is wrong – please suggest a better source!  Non-constructive criticism is not helpful.

Cost of shutting down the economy v. economic losses from deaths

If Shutting down is > additional deaths then the conclusion is that we should leave the economy open.

If Cost from deaths > than shutting down then we should be isolating.

Value of life * number of people killed   vs.  Value of file vs. Loss of productivity

BASELINE – patchwork that we have now

9.6M value of life (1/2 average age) * 1M deaths   AND     22T GDP * 10% contraction* 2 year impact

4.8T                                                                        AND   4.4T 

Expected loss from pandemic in US: 9.2T USD

NO RESTRICITONS

9.6M (1/2 midpoint) * 5M deaths   

Economic loss from no restrictions: 24T USD

FULL RESTRICTIONS

22T GDP * 20% contraction * 2 years  

Economic loss from restrictions:  8.8T USD

I am open to modifying these numbers or improving them – there are problems and opportunities to improve as I discussed below.

I am unsure if I can equate GDP to value of a human life – I suspect there is a better comparison, but it what I have.

I used ‘****’ to indicate the best resources I used. See below

Some assumptions:

There are different levels of isolation.  E.g. Levels of mitigations 1-4 Per the CDC.
https://www.cdc.gov/coronavirus/2019-ncov/community/community-mitigation.html

• The initial analysis will ignore the levels – we will just use ‘as-Is’ as a starting point … basically was this a good decision?

That the different levels will only slow the spread – that we are fire fighting until vaccine arrives.  And it will take time to distribute the vaccine.

•  I will use an assumption that we will have wide spread availability of a vaccine by June 2021.

That slowing the spread may save lives by giving hospitals time to process patients rather than overwhelm the hospital.

• I will be avoiding this assumption, but it is critical to confirm that there are beds or the death rate will increase.

The value of a person’s life based on economic input to the country.

• https://en.wikipedia.org/wiki/Value_of_life – U.S. – 9.6M
• I am assuming that. On average, a person will be half way through their life.
• This is likely incorrect given the distribution of deaths, but it’s a starting point.

The cost in hospital to heal people who are hospitalized. Ignored because of the cost relative to economic costs.

• https://www.cnbc.com/2020/04/09/heres-what-you-need-to-know-about-coronavirus-treatment-costs.html – 30K
• Need to determine how many people are hospitalized.

Economic Impact of Covid – How severe

• I could try to do this by industry (e.g. restaurant workers).
• Cheated and am using a GDP impact to generalize impact.
• https://en.wikipedia.org/wiki/Economic_impact_of_the_COVID-19_pandemic_in_the_United_States
• How do we measure?  GDP is misleading since impact to ‘workers’ is offset by financial offsets (e.g. loans to ‘workers’ by banks.)
• ****  https://www.whitehouse.gov/wp-content/uploads/2020/08/Evaluating-the-Effects-of-the-Economic-Response-to-COVID-19.pdf – The conclusion I am using is that the economy will be impacted by ~10% for two years
• 2019 GDP as a baseline – 22T – https://www.bea.gov/news/2020/gross-domestic-product-fourth-quarter-and-year-2019-advance-estimate

Full lockdown impact:

• ****  https://blogs.imf.org/2020/10/08/covids-impact-in-real-time-finding-balance-amid-the-crisis/  – 20% contraction

Death rate from Covid:

• https://coronavirus.jhu.edu/data/mortality – approx 2% is left unchecked.
• Herd immunity estimated at around 80% if R0 is ~2.  See: https://www.nature.com/articles/s41577-020-00451-5

Philosophical argument

                At what point is a philosophical argument worth death or wage loss?  It’s an equation many people do.  Do I speed or do I accept that I may get a ticket?  What is the cost of that ticket?

To I quit a job and lose $100K a year, or accept the insult and keep working?

In this case, at what point to accept wearing a mask as opposed to may chance of dying?

And for the country – at what point do we decide mask are mandatory vs. saving lives [Example is gun ownership – reduced deaths vs. freedom of ownership]

OTHER TEST CASES

To see if the equation makes any sense I tested it with an example of something like the flu, with a much lower death rate.

                Typical Flu

9.6M value of life (1/2 average age) * 100,000 deaths   AND     22T GDP * 0% contraction

480M                                                                      

Expected loss from flu each year in US: 480M USD

                Flu Lockdown (6 month season)

9.6M value of life (1/2 average age) * 0 deaths + 22T GDP * 20% contraction * ½ year.

22T * .2 * .5                                                                         

Expected loss from lockdown 6 months in US to avoid 100K deaths: 2.2T USD

Conclusion – the example equation says that closing down the economy for flu would have a negative impact.  The break even for when a sickness should trigger a lockdown would be around 500K expected deaths.   At 500K the impact to the economy is the same as the loss from deaths

The equation *seems* reasonable.

Solution for Homelessness.
So let’s justs outline the problem. Housing prices are very high. Many people cannot afford a house when priceses are this high.
Why are prices so high?
One is that if you have a large amount of money, and want to put is someplace safe, real estate is considered safe. Why? Because the property never goes away. So long a the government will enforce your tile’right to the property you will always have something. The problem is that this creates significant competition for those who actually want to live in the house. This is exacerbated by the concentration of wealth into a fewer and fewer people. Income redistribution is outside the scope of this article.

Another factor is the lack of property available. Why is there a lack of property? There are talks about the costs of building and the ‘onerous’ challenges with getting permits to build. This narrative is pushed by developers who are looking make many multiples of return on their investment, but there is a much easier solution; zoning.

Zoning, as a refresher, are the rules governments put into place to make sure the all uses of land work together. The classic example is putting a pig farm next to an apartment. The smell makes the apartment unlivable. The solution, that was implemented in the 1900’s-1960’s, was a complex patchwork of zoning to find a way to put all uses of land so we could live harmoniously together.
Why is that a problem now? A couple of reasons. The first is that the zoning maps of many areas were set in the 1960’s or earlier- and the characters of many areas has changed drastically. As an exampl,e in Spokane there are many areas that were planned to be single family, but the companies that would have used them moved away and the more affluent people moved to more desirable areas. The result is an area the is zoned for single family home, that few can afford, and that people generally don’t want to live. So what can be done about it?

A zoning change would probably be in order. What would a zonign change do? Right now the area is zoned for single family homes that no one wants to live in, but it is still property that is in central Spokane. There is also still a need for housing. So why aren’t people building lower cost housing or converting to commercial?

The argument is made that anyone can request a zoning change, and that the zoning board is amenable to such changes. So why aren’t people doing this? Let’s consider a few: The zoning board is not required to approve the change, so it is perceived as risky. If it’s a single neighbor then they may be singled out as ‘destroying’ the neighborhood (a variation of Not In My BackYard (NIMBY)).
Another, very closely related issue, is that most people do know how to go through the zoning process. You have to give notice, you have to appear before the zoning board. It is not something most people are comfortable doing.
So what can be done? In the early to mid 1900’s cities would determine zoning based on existing uses and then make the hard choices as to what the correct zoning was. Another, very closely related option, has been to had a framework that continuously evaluates zoning such what is done in Portland.
Seems like an obvious solution, so why isn’t it done? The biggest reasons I have heard are: variations of NIMBY that politicians are afraid might scare away support for reelection, and that there are other priorities. [Ready to add more ..[

For NIMBY – the fix is to do the rezones piecemeal. There are blighted areas in most urban areas – either increase density, by making it zoned multi-family or apartment, or make commercial/ industrial. If is a concerns about constituents I think most will be concerned with no-their negihborhood.

Another option is to present rezoning/ redevelopment is as a way for older families that already own their home, or have a second home, to increase home value for minimal expense. Add a second home if the lot is large enough. Split a large house into a duplex and collect a rent after the kids have left home.

A huge benefit of rezoning is that redevelopment is self-funded. A home owner may be able to build a house on their existing lot – the land is ‘free’ and they are only paying for the construction costs.

The another one, as discussed above, is that it is the ideal way to reduce housing pressure – allow families to build the housing rather than relaying on large developers.

The suggestion: start looking a rezoning urban areas. Most cities have not done a thorough review of zoning in years – and it shows. Poor usage or land, limit opportunities to develop, and extreme pressure on housing in the largest urban areas.

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