Last week, Trump and his National Economic Council director, Larry Kudlow, complained that the “cure” to this pandemic — that is, our collective economic coma — might “be worse than the disease.” Right-wing news organizations echoed this complaint, sometimes appallingly implying that Grandpa should be sacrificed to juice GDP.
After widespread pushback from public health experts, Trump gave in, and on Sunday extended social distancing guidance through the end of April. Still, he appeared to want credit for making the supposedly bold choice to set aside U.S. economic interests (and by implication, his political interests) to save lives.
In fact, there’s near-unanimity among economists that the best way to limit economic damage would be to listen to the public health experts’ advice about how to limit infections — including by continued dramatic social distancing measures.
This should make sense.
If the virus is not contained, customers will be afraid to shop, travel and dine out, even without mandatory lockdowns. Or, as Harvard economics professor Lawrence H. Summers wrote in The Post recently: “It is an elementary confusion to believe that lost growth and lost jobs are primarily a consequence of social distancing measures rather than the pandemic itself.”
In other words, the demand-side shock would continue, even without forced business closures. So, too, would the supply-side shock. After all, Americans won’t be able to work if they’re sick. They definitely won’t be able to work if they’re dead.
Funny thing about our economy, that: Until the robots take over, we still need healthy workers to produce stuff.
Don’t take my word for it.
In a recent University of Chicago IGM Economic Experts Panel survey, 80 percent agreed that “Abandoning severe lockdowns at a time when the likelihood of a resurgence in infections remains high will lead to greater total economic damage than sustaining the lockdowns to eliminate the resurgence risk.” Not a single economist surveyed disagreed with the statement; remaining respondents instead said they were “uncertain.”
A bipartisan group of high-profile economists and former economic policymakers likewise signed onto a recent letter reading in part: “Saving lives and saving the economy are not in conflict right now; we will hasten the return to robust economic activity by taking steps to stem the spread of the virus and save lives.”
These conclusions are informed by both theoretical models and historical data.
Theoretical work by Martin Eichenbaum and Sergio Rebelo (of Northwestern University) and Mathias Trabandt (of Freie Universitat Berlin) finds that, in the short term, there does appear to be a trade-off between economic activity and health outcomes. That is, the containment measures required to limit the spread of the coronavirus would result in a sharp initial recession. But over the long run, an optimal containment strategy would reduce economic costs, largely because it preserves the lives of workers needed to keep the economy running.
That is, not shuttering businesses would be more expensive for society than strategically shuttering them.
Historical research on the 1918 flu, by Sergio Correia (Federal Reserve Board), Stephan Luck (Federal Reserve Bank of New York) and Emil Verner (MIT) backs this up.
Their new working paper finds that “cities that intervened earlier and more aggressively” through school closures, bans on public gathering, isolation and quarantine did better economically post-pandemic than cities with a more laissez-faire approach.
Economists, by the way, have also found ways to quantify the value of saved lives above and beyond whatever might be measured by wages or productivity.
A new paper from Michael Greenstone and Vishan Nigam, both of the University of Chicago, estimates that moderate social distancing would save 1.7 million (!) lives in the next six months, an astronomical number largely due to not overwhelming hospital systems. This translates to about $8 trillion in economic benefits — equivalent to more than a third of GDP, and more than the size of the entire annual federal budget — when monetized through a standard measure used by the U.S. government called the value of a statistical life.
Economists as a rule are hypersensitive to trade-offs, which are, arguably, the fundamental premise of their discipline. When virtually the entire profession shouts from the rooftops that there are no trade-offs here — and that two critical societal priorities are aligned — we should listen.