Stop covid or save the economy? We can do both.
In the first employment report after social distancing measures had taken hold in many US states, the Department of Labor announced that 3.3 million people had filed jobless claims. A week later, in the first week in April, an additional 6.6 million claims came in—almost unfathomable compared with the previous record of 695,000, which was set in 1982.
As bad as those numbers are, though, they greatly understate the crisis, since they don’t take into account many part-time, self-employed, and gig workers who are also losing their livelihoods. Financial experts predict that US GDP will drop as much as 30% to 50% by summer.
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In late March, President Donald Trump warned against letting “the cure be worse than the problem itself” and talked of getting the country back to business by Easter, then just two weeks away. Casey Mulligan, a University of Chicago economist and former member of the president’s Council of Economic Advisers, warned that “an optimistic projection” for the cost of closing nonessential businesses until July was almost $10,000 per American household. He told the New York Times that shutting down economic activity to slow the virus would be more damaging than doing nothing at all.
Eventually the White House released models suggesting that letting the virus spread unchecked could kill as many as 2.2 million Americans, in line with the projections of other epidemiologists. Trump backed off his calls for an early reopening, extending guidelines on social distancing through the end of April. But his essential argument remained: that in the coronavirus pandemic, there is an agonizing trade-off between saving the economy and saving lives.
Evidence from research, however, shows that this is a false dichotomy. The best way to limit the economic damage will be to save as many lives as possible.
A novel recession
Part of the difficulty with setting policy now is that the situation is unprecedented in living memory. “It’s impossible to know how the world is changing,” says David Autor, a labor economist at MIT. “It isn’t like anything we’ve seen in a hundred years.” In any past recession or depression, the economic solution has always been to stimulate demand for labor—to get workers back on the job. But in this case, we’re purposely shutting down economic activity and telling people to stay at home. “It’s not just the depth of the recession,” Autor says. “It’s qualitatively different.”
One of the biggest fears is that those least able to withstand the downturn will be hit hardest—low-wage service workers in restaurants and hotels, and the growing number of people in the gig economy. For the last two decades, service workers have become an increasingly large part of the labor force as many of the midlevel office and manufacturing jobs previously open to people without college degrees have dried up, says Autor. It’s people in these service jobs, already low paid and often with few health and other benefits, who will struggle the most.
“On a good day they are vulnerable, and on a bad day they are even more vulnerable,” Autor says. “And this is a very bad day.”
Provisions included in the $2 trillion legislative package passed by Congress in late March were meant to give affected workers and businesses the means to weather the shutdown and, once the outbreak is under control, help restart the economy. Each adult earning less than $75,000 will be given $1,200, and for the first time, gig workers and self-employed people will qualify for unemployment benefits. Hundreds of billions of dollars will also go to helping businesses stay afloat.
But it almost certainly won’t be enough, especially in the hardest-hit areas of the country. Cities like Las Vegas and Orlando, “places with gargantuan leisure hospitality economies,” will be badly affected, says Mark Muro, coauthor of a report from the Brookings Institution analyzing the numbers. But any region with a large service economy is vulnerable. Muro points out that many of these places never recovered from the 2008 financial crisis.
The people losing these low-wage service jobs were already experiencing skyrocketing mortality rates from what economists have begun calling “deaths of despair,” caused by alcoholism, drug abuse, and suicide. The coming crash could make things much worse.
The value of a life
Yet shutting down businesses is the only real choice, given that an unchecked pandemic would itself be hugely destructive to economic activity. If tens of millions of people become sick and millions die, the economy suffers, and not just because the workforce is being depleted. Widespread fear is bad for business: consumers won’t flock back to restaurants, book air travel, or spend on activities that might put them at risk of getting sick. In a recent survey of leading economists by Chicago’s Booth School, 88% believed that “a comprehensive policy response” will need to involve tolerating “a very large contraction in economic activity” to get the outbreak under control. Some 80% thought that “abandoning severe lockdowns” too early will lead to even greater economic damage.
Meanwhile, any measures to slow deaths from the virus will have huge downstream economic benefits. Michael Greenstone, an economist at the University of Chicago, finds that even moderate social distancing will save 1.7 million lives between March 1 and October 1, according to disease-spread models done at Imperial College London. Avoiding those deaths translates into a benefit of around $8 trillion to the economy, or about one-third of the US GDP, he estimates, on the basis of a widely accepted economic measure, the “value of a statistical life.” And if the outbreak is less severe than predicted by the Imperial College work, Greenstone predicts, social distancing could still save some $3.6 trillion.
“Our choice is not whether we intervene or whether we go back to the normal economy,” says Emil Verner, an economist at MIT’s Sloan School who has recently looked at the flu pandemic of 1918 for insights into today’s outbreak. “Our choice is whether we intervene—and the economy will be really bad now and will be better in the future—versus doing nothing and the pandemic goes out of control and really destroys the economy.”
Overall, Verner and his coauthors found that the 1918 pandemic reduced national manufacturing output in the US by 18%; but cities that implemented restrictions earlier and for longer had much better economic outcomes in the year after the outbreak.
Verner points to the fates of two cities in particular: Cleveland and Philadelphia. Cleveland acted aggressively, closing schools and banning gatherings early in the outbreak and keeping the restrictions in place for far longer. Philadelphia was slower to react and maintained restrictions for about half as long. Not only did far fewer people die in Cleveland (600 per 100,000, compared with 900 per 100,000 in Philadelphia), but its economy fared better and was much stronger in the year after the outbreak. By 1919 job growth was 5% there, while in Philadelphia it was around 2%.
Today’s economy is much different—it’s geared more toward services, and far less toward manufacturing than it was 100 years ago. Nevertheless, the cities’ stories are suggestive. Verner says that even a conservative interpretation of the data suggests there is “no evidence that interventions are worse for the economy.” And most likely they had a significant benefit. “A pandemic is so destructive,” he says. “Ultimately any policy to mitigate it is going to be good for the economy.”
The cure, then, isn’t worse than the disease. But for every day that normal economic activity is shut down, a huge number of Americans won’t be earning an income. Many already live paycheck to paycheck. Many may in fact succumb to diseases of despair. Families will fall apart under the stress. Hard-hit cities will feel abandoned. The urgency to open the economy will only grow.
However, a number of influential economists and health-care experts are saying there’s a way to get America quickly back in business while preserving public safety.
Reviving the economy
These days Paul Romer sounds exasperated. “We’re caught up in the trauma: kill the economy or kill more people,” he says. There is so much “learned helplessness, so much hand-wringing.” The New York University economist and Nobel laureate believes he has a relatively simple strategy that will “both contain the virus and let the economy revive.”
The key, says Romer, is repeatedly testing everyone without symptoms to identify who is infected. (People with symptoms should just be assumed to have covid-19 and treated accordingly.) All those who test positive should isolate themselves; those who test negative can return to work, traveling, and socializing, but they should be tested every two weeks or so. If you’re negative, you might have a card saying so that allows you to get on an airplane or freely enter a restaurant.
Testing could be voluntary. Romer acknowledges some might resist it or resist isolating themselves if positive, but “most people want to do the right thing,” he says, and that should be enough to snuff out the spread of the virus.
Romer points to new, faster diagnostic tests, including ones from Silicon Valley’s Cepheid and from the drug giant Roche. Each of Roche’s best machines can handle 4,200 tests a day; build five thousand of those machines, and you can test 20 million people a day. “It’s well within our capacity,” he says. “We just need to bend some metal and make some machines.” If you can identify and isolate those infected with the virus, you can let the rest of the population go back to business.
Indeed, in an early April survey by Chicago’s Booth School, 93% of the economists agreed that “a massive increase in testing” is required for “an economic restart.”
In a piece called “National Coronavirus Response: A roadmap to reopening,” former FDA director Scott Gottlieb also argued for ramping up testing and then isolating those infected rather shutting in the entire population. Likewise, Ezekiel Emanuel, chair of the University of Pennsylvania’s department of medical ethics and health policy, called for increasing testing in a New York Times piece called “We Can Safely Restart the Economy in June. Here’s How.” Harvard medical experts, meanwhile, have outlined similar ideas in “A Detailed Plan for Getting Americans Back to Work.”
The proposals differ in details, but all revolve around widespread testing of various sorts to know who is vulnerable and who isn’t before we risk going back to business.
There is, however, little evidence that massive and frequent testing will be implemented anytime soon. Despite the appearance of new tests, screening is still largely unavailable for anyone but the most severely ill or those at the medical front lines. Test kits and equipment to perform them are still in short supply. Many hospitals and doctors complain they can’t get needed tests; and Roche’s CEO said at the end of March that it will be “weeks, if not months” before there is widespread coronavirus testing in the US.
It’s the type of inertia that clearly frustrates Romer. He calls the $2 trillion legislation passed by Congress “palliative care” for the economy. If you took $100 billion and put it into testing, he says, we would “be far better off.”
One day we will have to reopen the economy. Perhaps we’ll be able to hold out until the pandemic is showing signs of receding, or perhaps the economic suffering will prove intolerable both to those in charge and to those living in hard-hit regions. When that day comes, if we do not have widespread testing, we will be sending people back to work without knowing if they’re at risk of getting the virus or spreading it to others. “We’re thinking about this the wrong way,” Romer says. The idea that one day you will be able to restart the economy without massive testing to see if the outbreak is under control is just “magical thinking.”
It could be a gradual process—those who are found to be free of infection or immune might be allowed back first. But without testing we won’t know how to manage this transition. In that case we will in fact be left with the Trumpian choice: between salvaging the economy and risking countless deaths.
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