Last Wednesday we enjoyed a timely Zoom talk, “The benefits and costs of using social distancing to flatten the curve for COVID-19”, research presented by Linda Thunstrom, Associate Professor in the University of Wyoming Economics Department. She was introduced by Bob Meroney, who reminded us of an historical cost/benefit analysis (lives saved vs lives lost) by President Truman when deciding whether to use the atomic bomb against Japan in 1945.The study was conducted by Linda, her husband (also an economics professor) and 2 other colleagues at UW. The US decision to “shut down” in March because of the COVID-19 pandemic raised questions in the minds of these researchers - are we “over reacting” and what are the costs of this decision vs. the costs of not responding? Similar analyses have been required at the federal level in other crises such as terrorist attacks, other illnesses (eg, Spanish Flu of 1918-19) and our reaction to climate change.
Comparison between benefits (lives saved) and economic costs (loss of GDP) were studied using available models. Most controversial is the assignment of value to a human life. The figure has been debated by economists for years. Ten million dollars per life was used for the study (as used in other calculations by the Federal government) and no adjustment typically is made for age or other consideration.
No social distancing might overwhelm the US health care system leading to excess mortality. Calculations took into account that with social distancing the mortality rate would be 0.5% and without, 1.5%, as the health care threshold was exceeded. Using these assumptions, social distancing would save 1.2 million lives in the US (x$10 million/life) = $12.4 trillion. This is the “benefit” side of the comparison.
On the “costs” side estimates of GDP decline (with and without social distancing) were used as predicted by Goldman-Sachs as well as McKibbin and Fernando. Expected losses were compared to a predicted 1.75% GDP growth without COVID-19. The loss of GDP was calculated to be $13.7 trillion without social distancing and $6.5 trillion with social distancing. Thus the the benefit of social distancing to cost is calculated at $13.7-$6.5=$7.2 trillion. The overall study conclusion is that social distancing should result in an economic benefit of $5.2 trillion ($12.4-7.2 trillion).
Various unknowns, both present and future will affect these calculations - how stringent, how long; the effects of school openings and other loosening of restrictions; many issues on the cost side remain – the negative effects “shutting down” on education, mental health, addiction, the long term medical complications etc. Nonetheless, this study gives us a model and framework for addressing this crisis and future crises.