The most important thing we learned from Covid-19 is how much damage a relatively mild pandemic can do by long-term historical standards. Calling it mild does not mean, and will continue to cause, lessen the suffering it caused, until an effective vaccination program is established and sustained worldwide. But Covid-19 has shown a social and economic vulnerability far greater than experts believe. It is important to understand why this is the case and to learn how to better manage the effects of such diseases in the future.
In a recent article, Harvard’s David Cutler and Lawrence Summers estimate the total cost of Covid-19 to the US alone at $ 16 billion. This corresponds to 75 percent of the US gross domestic product for one year. Almost half of that is the cumulative value of lost GDP estimated by the bipartisan budget bureau of Congress. The remainder is the cost of premature death and impairment of physical and mental health according to values customarily used in the world’s richest major economy. The total cost, they estimate, is four times that of the post-financial crisis recession of 2008. If the cost to the world were also 75 percent of annual GDP, it would be around $ 96 billion at purchasing power parity exchange rates. That is almost certainly an overestimation. Even so, the costs are enormous.
So far, the worldwide death toll from Covid-19 is estimated at 1.4 million. The number of deaths is currently a little less than 10,000 per day, or about 3.5 mA per year. If this were maintained, the cumulative deaths in the first two years could reach nearly 5 million, or just over 0.06 percent of the world’s population. In this context, the Spanish flu, which emerged in 1918, lasted 26 months and killed between 17 and 100 million people, or between 1 and 6 percent of the world population at the time. A comparable death toll for Covid-19 would be between 80m and more than 400m today. Some pandemics, particularly the 14th century Black Death, were far more deadly than the Spanish flu.
A 2006 report by the CBO argued that “a pandemic with a highly virulent strain of flu (like the one that caused the 1918 pandemic) could have short-term impacts on the global economy similar in depth and duration to that of an average post-war recession UNITED STATES “. But the Spanish flu killed approximately 675,000 Americans out of the then population of just 103 million. Today this corresponds to over 2 m. If the CBO had been right, the economic impact of this pandemic would have been far less than before.
A similar study for the EU Commission, also published in 2006, concluded that “while a pandemic would take a huge toll in human suffering, it would most likely not pose a serious threat to European macroeconomics”. This conclusion was completely wrong.
Then why was the economic damage caused by such a comparatively mild pandemic so great? The answer is: because it could be. Wealthy people can easily forego a large portion of their normal daily expenses while their governments can provide massive support to affected people and businesses. This is what people expect from governments too. The response to the pandemic is a reflection of today’s economic opportunities and social values, at least in rich countries. We are ready to pay a heavy price for pandemic containment. And we can do better so far than before.
Some argue that the methods chosen, particularly the non-discriminatory bans, were largely responsible for these enormous economic costs. Instead, they suggest, the disease (and with it the sick) should have roamed freely while only protecting the vulnerable.
That is very questionable. One reason is that the higher the incidence of the disease, the more people will be determined to shield themselves, as outlined in the IMF’s most recent World Economic Outlook.
In contrast to cost-benefit analyzes of theoretical alternatives, actual experience strengthens the case for complete disease suppression, if this is feasible. A recent paper from the Institute for New Economic Thinking, To Save the Economy, Save the People First, suggests why. A graph (reproduced here) shows that countries have pursued two strategies: suppressing or balancing deaths against the economy. Overall, the earlier group did better on both counts. In the meantime, countries that have sacrificed life tend to have high mortality and economic costs.
Now, in the midst of a second wave of infections and bans in Europe, it seems like a big mistake not to continue until you have full control of the virus in the first wave. Effective testing, tracking, and quarantining would of course be even better. However, this is impossible if the infection rates are close to recent values.
We still have a lot to learn from Covid-19, and we have to do that because the next pandemic could be far more deadly than this one. In the meantime, we must try to escape the current disaster as quickly as possible. This requires a high degree of global cooperation. Fortunately, while the cost of the pandemic was quite extraordinary, that was the scientific answer. Now vaccines need to be made and distributed around the world. An important step is for all countries, including the US, to join Covax, the initiative to make vaccines available worldwide. Global challenges require global solutions.
Covid-19 was a far more devastating economic shock than economists expected. This is a great lesson. An even more virulent disease is quite conceivable. Next time we need to suppress the new disease much faster. Many now rave about freedom. But human safety should remain the supreme law of politics now and forever.
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