COVID-19 has killed over 200,000 Americans while policies to stem the virus’ spread have caused enormous economic and societal harm. Any comparison must use a common metric, and economics uses dollars, even for human lives. No one can avoid placing a dollar value on saving lives; always choosing safety just places an infinite dollar value on life. Our only option is whether to evaluate tradeoffs.
Economists use the value of a statistical life (VSL) for policies regulating risk. The method uses the many choices people make in markets involving risks, like taking risky jobs. The VSL ensures that government decisions resemble our personal decisions.
Statistical lives are when the identity of the persons whose lives may be saved is unknown. Or as Nobel prize-winning economist Thomas Schelling wrote, when “The life you save may be your own.” An estimated 90 million Americans are in COVID-19 high-risk categories, so the pandemic involves statistical risk.
A standard value for a statistical life, based on dozens of economic studies, is $10 million. People never make trades involving millions of dollars because the risks examined are small.
We can use years of life when the people at risk are younger or older than average. This approach uses expected years of life remaining at different ages. For example, life expectation is 69.2 years at age 10 and 9.2 years at 80, so the death of a child, which many people find particularly tragic, contributes more years of life lost. A standard value for a year of life is $300,000.
The COVID Tracker website reports 201,000 deaths through October 4 for a value of $2 trillion using the VSL. If instead we use statistical years of life (over 75% of deaths are among persons over age 65), the deaths have cost 2.7 million years of life, valued at $800 billion. We may wish to reduce this further due to COVID-19 co-morbidities. Many persons dying from COVID are already in poor health; for instance, an 80-year-old COVID-19 victim might only have three years of life remaining, not the average of nine years.
COVID-19 has resulted in over 400,000 hospitalizations. Estimates of the cost of hospitalizations range from $14,000 to $72,000. The higher figure yields a hospitalization cost of $30 billion. Illnesses not involving hospitalization have modest medical costs. For these plus the millions quarantining due to contact with COVID patients, the major cost is missed work time.
Now, let’s consider the policy measures. Government policies have led to the sharpest contraction on record. Unemployment reached almost 15 percent in April and is still more than double February’s rate and we have lost $650 billion in GDP.
The economic impact exceeds lost GDP because of consumer surplus, or the value people receive from consumption beyond the amount paid. Sports, entertainment, and recreation, all badly disrupted by the lockdown, generate high ratios of consumer surplus to expenditure. Lost consumer surplus almost certainly exceeds $200 billion.
For most children, the 2019-20 school year ended in March and many schools offered little online instruction. Working parents had to accommodate children not in school, increasing this impact. Expenditures for the lost quarter of the year provide one way to value the school disruption. Public schools enroll 50 million children and spend over $12,000 per student nationally, for a $150 billion loss from education.
Americans’ mental health has suffered enormously in 2020. Anxiety, depression and calls to suicide help lines are up sharply. News reports attribute numerous suicides and overdoses to COVID stress. The virus and the pandemic together, I think, have produced the mental health costs.
The costs of the pandemic and lockdown almost surely each exceed $1 trillion. What does this imply for a potential second lockdown? Our initial policy response was almost surely excessive; masks and social distancing have allowed businesses to reopen without overwhelming hospitals. We can contain the virus without the enormous costs to date.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.