Wednesday, June 03, 2020

Should We Really Have Shut Down a Week Earlier?

Ian Ayres

By Ian Ayres, Yair Listokin, Robert Schonberger, and Zachary Shelley

Sacrifice lives or sacrifice the economy? Since Covid-19 reared its ugly head in the US, policymakers have confronted this grisly dilemma. A blockbuster study drives the point home. If we had shut the economy down just one week earlier this March, 36,000 lives would have been saved.

Does this research indicate that we should have sacrificed the economy down one week earlier? The researchers certainly think so, emphasizing “the importance of early intervention and aggressive response.” The Trump administration’s defensive response to the study, blaming China for the delayed response, suggests that it agrees.

We are not so sure. Cost-benefit analysis, which allows us to directly compare the costs of sacrificing lives with the costs of sacrificing the economy, suggests the decision was a close one. The economic cost of shutting down the economy one week earlier is almost exactly the same as the economic value of the years of life lost by the unfortunate 36,000. Even if we could run back history, we might choose to shut things down at exactly the same time we in fact did. Such a calculus may seem grisly particularly to upper-income Americans who are somewhat shielded against poverty, but perhaps it is less so for some of the least wealthy among us who bear the brunt of economic ruin even beyond their disproportionate share of the disease burden. 

Cost benefit analysis places an economic value on each year of life by estimating how much the average person is willing to pay to avoid health risks of different magnitudes. According to one commonly used estimate, one year of life in good health is worth $125,000 to the average American. Putting a value on life is undoubtedly fraught, but it's something we implicitly do every day. Any time we take a decision that risks our health, like getting into a car, we trade health for convenience or some economic benefit.

Cost benefit analysis is naturally suited to the gut-wrenching questions posed by Covid-19. The coronavirus requires policymakers to weigh hundreds of thousands or even millions of deaths against unprecedented economic ruin.   Cost benefit analysis insures that policymakers make this tragic choice by using the same economic value of life applied to other health related decisions.

The costs of a shutdown beginning on March 8 rather than on March 15 (when the shutdown in fact began) are measured by the decreased economic production. The Penn Wharton model of the economy estimates that shutdowns reduced production by 11.9%. Some of this decline would have happened in the absence of government-mandated shutdowns due to the individual personal precautions of citizens with Covid-19 fears. But not much. Up through March 15, the US economy functioned relatively normally, with initial unemployment claims for the week ending March 14 totaling 288,000, in line with January and February of 2020. The week ending March 21, by contrast, saw over 3.8 million new unemployment claims, a record smashing figure suggesting economic devastation. A shutdown beginning March 8 rather than March 15 would have brought Covid-19’s economic devastation forward by a week. We therefore estimate that a March 8 shutdown would have reduced GDP for the week of March 8-March 15 by 10%, for a cost of roughly $40 billion.

 A shutdown beginning March 8 rather than March 15 would have saved 36,000 additional lives. To give this number an economic value, we estimate the quality-adjusted years of life lost by these 36,000. Because so many of the victims of Covid-19 have low remaining life expectancy, Covid-19’s cost in terms of life-years lost is lower (roughly 7.6 years) than it would be if a random 36,000 people had perished (roughly 18.7 years). At a value of $125,000 per year of life in good health, the mortality benefits of a March 8 shutdown are worth approximately $34 billion.

 Our analysis suggests that the economic costs of an early March 8 shutdown (roughly $40 billion) exceeded the economic value of its health benefits ($34 billion). An after-the-fact cost-benefit analysis rejects an earlier shutdown as too costly.

However, our estimates of both the costs and the benefits are not precise. With slightly different assumptions, we could easily find that the benefits of a March 8 shutdown exceeded the costs. Rather, we think the tone of the Columbia study and the media coverage of it needs to change. The existing coverage suggests that our failure to shut down earlier was an unmitigated disaster. No. Careful after-the-fact analysis suggests it was a close call. Shutting down earlier would have saved many precious lives but further destroyed many livelihoods.

If you viscerally balk at the idea of this entire exercise and think we should be willing to sacrifice much more money to extend human life then you should also favor a wide range of other precautions that would substantially erode our nation’s income.  Ignoring the real costs of precaution to our minds is not sensible in any context.

The tragic choices posed by Covid-19 at times offers clear cost-benefits prescriptions.  But expediting our nation’s shutdown by one week was not one of them.

Listokin teaches at Yale Law School, where Shelley is a research fellow, Schonberger teaches at Yale School of Medicine.

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