America is facing a dilemma.
Amid the greatest crisis since World War II, and four weeks into an effective shut down of the U.S. economy as a response to the COVID-19 Pandemic, public debate is turning towards the question of how long the shutdown should continue. Last week President Trump released federal guidelines for “re-opening” the economy, and several states have started to coordinate their policies on the matter.
Some voices are demanding further lockdowns of up to 18 months. Still, as Kimberly Strassel writes in the Wall Street Journal, the “goal of the shutdown was never to eradicate the disease-an impossibility absent a vaccine. The lockdown was designed to buy the health sector time. To make sure all the cases didn’t hit at once in a crush that would overwhelm hospitals, a la Italy.”
Moving the Goal Post
Now that we have seen some success in flattening the curve, Strassel argues that “democrats and liberal journalists” are moving the goal post.
Meeting these new standards would require that “no lockdown may end until the Trump administration can ‘guarantee’ a ‘safe’ world in which people return to ‘normal.’ The feds must stand up a testing system capable of hunting down and snuffing out each new infection. There can be no more outbreaks, and re-opening cannot ‘significantly add’ to existing counts.”
Setting aside the inevitable partisan posturing about such standards, legitimate concerns and questions remain regarding when and how to “open up.” But there doesn’t seem to be many legitimate concerns and questions regarding the cost and sustainability of lockdown measures.
New York Governor Andrew Cuomo was praised for his compassion when he proclaimed that “if everything we do saves just one life, I’ll be happy.” But that sentiment ignores an unforgiving reality that devoting vast resources to save one life, may ultimately endanger or sacrifice the lives of others.
What price should we be willing to pay to save a life?
As awkward, a question that may seem to polite society – those in specific legal, insurance, and regulatory professions have a methodology to determine the answer.
According to a New York Times article, the Environmental Protection Agency “has established a cost of about $9.5 million per life saved as a benchmark for determining whether to clean up a toxic site.” Adding to the complexity of such calculations is that the cost to save a life can vary significantly from one economy to another.
Going further, the article asks if “saving the life of an 80-year old is as valuable as saving the life of a baby?” An alternative method would value years of lives lost, but as the Times explains – past attempts at using such valuations have led to “fierce” resistance.
A 2008 Time magazine article analyzed the standard for the value of life, based on private and government-run health insurance. The international standard deemed $60,000 for a year of quality life when adjusted for inflation. In the U.S., researchers using a different standard based on Medicare provisions put the 2020 inflation-adjusted value at $154,800 per year.
Thus, the value of an entire U.S. life with an expectancy of 79 years would be $12.2 million. The value of life for a 65-year old (80% of U.S. COVID-19 deaths are aged 65 or older) would be $2.1 million.
A cost-benefit analysis discussed at Politico used a life value of $10 million and estimated 1.2 million lives would be saved from social distancing measures, pegging the benefit of such measures as $12.2 trillion.
Another often-cited paper concludes that 600,000 U.S. lives could be saved from distancing measures that would inflict a significant decline in aggregate output while reducing mortality from 2.2 million lives lost to 1.6 million.
Just How Much is the Economic Lockdown Costing the U.S.?
While determining the value of a life is varied and requires subjective judgments, calculating the total cost of the shutdown is outright bewildering.
Simply put, we are in uncharted territory.
Evidence of the economic carnage is just now starting to become apparent. Initial jobless claims spiked to a four-week total of 20 million, ten times the previous record set in 1982.
The Federal Reserve of St. Louis released a study that projects the jobless number to climb to 47 million, translating to an unemployment rate of 32.1%. For context, the highest level of U.S. Unemployment recorded was during the great depression at 24.9%.
Perhaps more shocking is a “J.P. Morgan Economists’ estimate that U.S. gross domestic product is collapsing at a 40% annual rate.”
Credit Suisse notes that during “the financial crisis, the worst quarter of 2008 suffered only an 8.4% GDP slump…Coronavirus is also outpacing the previous record — a 10% slump in the first quarter of 1958, amid the Eisenhower recession.”
A 40% drop in GDP would result in a loss of $2 trillion in economic activity for the quarter.
To date, the federal government has “thrown more than $6 trillion at the coronavirus crisis,” and the Washington Post warns that number could grow. Congress passed a fiscal stimulus package totaling over $2 trillion.
The Federal Reserve stepped in to ease near panic in stock and bond markets by reducing interest rates to zero while enacting emergency measures that put even the 2008 crisis playbook to shame. The Fed’s plan includes outright purchasing of bonds and exchange-traded funds (ETFs), which the Post estimates will “blow past the $4 trillion mark.”
While stock market losses have softened of late, a return to the March lows would indicate a capital loss in the neighborhood of $13 trillion.
Whistling Past the Grave Yard
Consensus economic estimates project a sharp but short recession with a quick rebound to near normal business activity in the third and fourth quarters.
But if it is not safe to return to normalcy for six to eighteen months, how can the economy be expected to bounce back?
An “idea” in The Atlantic seems to believe that we can put the economy on hold, let the government pay people not to work, and “build companies a time machine,” which would consist of “grants, cheap loan, and debt relief.” A once thriving business would be transported to “the post-coronavirus world [where] it should be a thriving business again.”
While the article does acknowledge that shutting down for too long results in mass suffering, it goes no further in exploring the specific cost or sustainability of the solution – other than the cost of doing nothing. A similar article in Barron’s goes deeper and estimates a price at perhaps $10 trillion.
This is not merely wishful thinking. It just might be the walking definition of whistling past the graveyard.
Neither of the cited articles probe more fundamental issues and questions regarding logistics and supply chains.
For instance, why would grocery store workers continue to show up for work, make entry-level wages while exposing themselves to risk – as the government pays the very people who put them at risk to stay home?
A wise man once said that civilization is never more than nine meals away from anarchy.
Regardless of how much money the government is willing to spend on relief programs, getting the money where it needs to be is not as easy as it seems.
With unemployment claims at staggering numbers, many laid-off workers have had difficulty accessing state platforms and systems to apply for benefits.
The Small Business Association Paycheck Protection program (part of the stimulus package) is designed to grant forgivable loans to small businesses to cover payroll and other expenses. The program allocated $350 Billion for eight weeks of coverage.
Funding was exhausted in just two weeks, with many owners unable to submit applications. The cost to extend the existing program for a year would be over $2 trillion itself and is apparently nowhere near sufficient to meet demand.
The Washington Post reports that cities as large as Boston, Baltimore, and Detroit are unable to access an emergency aid lending program set up through the Federal Reserve. More than 2,100 cities across the country, both large and small, are under duress. “With scores of businesses shuttered, millions of workers unemployed and shopping and tourism facing precipitous declines, scores of cities are anticipating major reductions in tax revenue — and considering cuts to local services and layoffs to make up for the losses.”
Perhaps more sobering is where we sit in terms of mortality rates. Even the hardest-hit countries are seeing deaths at a fraction of levels seen in the U.S. during the 1918 Spanish Influenza. Of countries whose numbers can reasonably be trusted, Spain is at 437 deaths per million of the population. Italy is at 385 per million.
For all the breathless media coverage about the U.S. as the epicenter and leading the world with 40,000 dead, on a per capita basis, we are at 118 per million, and faring better than France, the Netherlands, and Switzerland.
As for specific hot spots, New York has been particularly hard hit, suffering a mortality rate of 901 per million (statewide). In Italy, where ghastly conditions in the province of Lombardy ignited global concern and action, the toll is 1,200 per million.
Still, even these numbers pale in comparison to the U.S. rate experienced in 1918, which is estimated to have killed approximately 6,000 per million.
Worst-case projections from the Imperial College in London predicted 2.2 million deaths (about 6,500 per million) in the U.S. if no mitigation measures were taken.
Estimates of the number of lives that can be saved from aggressive mitigation and lockdowns range from 600,000 to 2 million.
Which brings us to the central questions. Are the (relatively) low U.S. death rates at this juncture a sign of success in mitigation and flattening the curve? Or do they demonstrate that we pre-maturely overreacted to a severe and dangerous threat, with draconian measures likely to result in as much pain and misery as the virus itself?
An interesting analysis published on Medium poses that “A lack of correlation between speed to shutdown and deaths implies we may have overestimated the need to shut down and underestimated other social distancing measures.”
Sweden is of particular interest. A Bloomberg article looks at the controversy and attention surrounding the Swedish reaction, which has relied almost entirely on voluntary social distancing measures. “Anders Tegnell, the architect behind Sweden’s relatively relaxed response to COVID-19, told local media the latest figures on infection rates and fatalities indicate the situation is starting to stabilize.”
The article goes on to note that Sweden’s death rate is “considerably more than in the rest of Scandinavia, but much less than in Italy, Spain, and the U.K., both in absolute and relative terms.”
The Way Forward
Indeed, policymakers are in a difficult position. To paraphrase Dr. Fauci – where we are today is not where we are; it is a reflection of where we were three weeks ago.
It is essential to recognize health experts’ concerns that difficult decisions need to be made “early” with incomplete information. But experts they may be in the world of health and infectious disease; they don’t have a background to truly understand the economic consequences of policy recommendations and the resulting human fallout.
The lockdown has been successful in initially “flattening the curve,” and perhaps more importantly- raising awareness and imparting to the American psyche that the threat from COVID-19 is real.
While we don’t yet know the actual mortality rate of those infected, the nature of its ability to spread asymptomatically and quickly means that this is much more than just a bad flu season.
But moving the goalposts from a two-week national emergency to flatten the curve to – prolonged shelter in place orders until we can create a vaccine and comprehensive testing plan is not sustainable.
The harsh cold reality is that this virus will continue to extract a significant toll in both human and economic terms. It would be foolish to plunge headlong into a return to normalcy. Still, it is time to get up, dust ourselves off, and move forward to face the challenges before us with American ingenuity, determination, and compassion.