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.