Dollars and Sense: COVID Economics

US jobless claims have now surpassed 40 million over the past 12 weeks. Early numbers suggest nearly 50% of small businesses have temporarily closed, and it’s estimated that only about a third of workers are able to work from home. For those essential employees who are still working on the frontlines, unsafe working conditions and inadequate access to PPE have already pushed many to strike in protest. We know saving lives is important, but we have also heard that damage to the economy may be even more deadly. University of Chicago economist and former member of President Trump’s Council of Economic Advisers Casey Mulligan, tells us, “But [saving lives] is not the only consideration. That’s why we don’t shut down the economy every flu season. They’re ignoring the costs of what they’re doing. They also have very little clue how many lives they’re saving.” Projections for economic losses due to COVID-19 are currently in the trillions. But will easing restrictions earlier than public health expert recommendations provide real, substantive benefit to the economy? Let’s talk about it.

Disclaimer: I am not an economist. What I hope to provide, however, is an economic perspective on a complicated issue that is often poorly understood. This perspective is distilled from the evidence and opinions that are currently available from the nation’s top economic experts.

To begin, we first need to discuss what factors are at play in the delicate web that is weaved between health/safety and economics. I’m sure many of you have heard of supply and demand, but let’s review quickly. Supply in a market is affected by things like the workforce, number of suppliers, technology, cost, etc. Demand is affected by income, price, options, consumer preferences and expectations, etc. The United Nations Department of Economic and Social Affairs predicts a 0.9 percent contraction of the global economy in 2020, and initially they believe this will be related to supply issues with closed businesses and broken supply chains.

Further, we need only look at individuals currently still working in essential roles in transit, at grocery stores and other frontline businesses to gain perspective that these individuals may already be dying at increased rates compared to the general population. Industry experts seem to indicate that this discrepancy will pose a major obstacle for many businesses to retaining a sufficient workforce to meet demand. As businesses lose revenue, however, the United Nations says that the expected increases in unemployment “will transform a supply-side shock to a wider demand-side shock for the economy”.

So with expectations of loss, what do the experts think about factors affecting severity? For historical perspective, an analysis from the Harvard Business Review (HBR) suggests that although a majority of bear markets (when stock prices are falling and there is more pressure to sell) lead to a recession, about one-third do not actually result in a recession. They further suggest that the type of recession that would likely occur due to a transient shock to supply and demand is typically the easiest to recover from. This is in comparison to, for example, the Great Depression, which resulted from failures of policy. This recovery, though, will be dependent on what type of more “structural” damage has occurred. Consumer confidence will be one of the most important demand-side concepts of these structural supports. People want to feel safe. If a consumer is not reasonably assured of safety in their purchase pursuits, they will remain at home regardless of whether locations of business are open or not, and down goes demand. If the workforce cannot be reasonably assured of safety in their work efforts, production decreases or halts, supply chains are damaged, and down goes supply. The authors from the HBR are sure to mention that it would take a particularly prolonged impact to have an effect in this way. (More info here:

Importantly, if the justification for ramping up return to normalcy is to preserve the economy, let us not ignore the fact that people dying isn’t exactly a stimulus package. We all know what a cost-benefit analysis is, and we do them all the time. It’s not at all unreasonable to question whether more death will come from economic chaos. In fact, we know that economic downturn leads to indirect deaths through multiple methods including suicide and lack of ability to afford essential food, water, etc. In one example, experts have estimated that every loss of income of $100 million in the economy causes one additional death. But let’s look at what the models show us, keeping in mind that models are only as good as the assumptions that are put into them. This is a dynamic issue. If the options for treating sick patients improves and mortality rate decreases, or if a larger hit to the economy is found to be required to get through this period, for example, benefits may no longer outweigh costs.

Research from Northwestern University helps provide answers to some of these pressing questions. These analyses are difficult. Nobody wants to put a price on human life, but when it becomes necessary in situations such as these, the standard number developed by years of research and used by the government in these sorts of calculations is $9.3 million per statistical life. If people fear getting sick, they may stay home and not go out and buy things. The study’s best-case scenario model identified that it would be important to enforce containment strategies that would reduce this consumption even several times more. This model also identified that the Gross Domestic Product (GDP) would drop less in this scenario than in the scenario with lifted restrictions due to more living members of the workforce. The enhanced containment strategy leads to an inevitable recession, but it should rebound easily and it limits the death toll by many hundreds of thousands of lives, and in the most severe assumptions, even millions of lives. Using the standard cost of a statistical life, the savings become clear very quickly, not to mention the added benefit of making such a morally justifiable decision.

In addition to supporting a more unified federal response, the economic experts also further support the essential nature of a response that unites public health rationale with economic decision making. A vast majority of these experts in a panel from the Initiative on Global Markets believe that a strong public health response is critical to economic recovery, not in opposition to such recovery.

They acknowledge that tolerance of economic contraction is part of the recovery process until there is a significant reduction in cases. And further, they suggest that it’s important for the government to be doing more to assist in accelerating testing, ramping up PPE production and incentivizing vaccine production as key elements in the path to economic recovery (more here: Surveys indicate that as healthcare is becoming the most trusted field, business is becoming the least trusted. Meanwhile, out of 400 op eds in publications over the last month, 2 were from CEOs - people want to see the business community stepping up and doing the right thing to ensure appropriate public health safeguards in order to regain consumer confidence and trust.

As legendary healthcare systems management expert and physician Donald Berwick alluded to in his speech during the AMA 2020 Medical School Graduate Tribute, we cannot let finance displace compassion. If compassion isn’t good enough, please at least acknowledge that prevention of a second peak is an absolutely critical goal, and failure to do so will likely pose an even greater threat to the economy. Business will be affected by reduced demand, impacted supply chains and, of course, by labor deficits. Most other countries with similar social distancing recommendations, however, have not had the same magnitude of economic impacts. They have accomplished this through more creative solutions. The creativity and adaptability of yesterday and today will heavily influence the grace with which we transition our economy tomorrow. And until then, the economic experts are clear. As Jake J. Smith from Kellogg Insight writes, containment strategies that are currently in effect “drastically reduce the death toll of the virus and are therefore well worth the economic cost, however large it may seem.”

For further reading, I recommend this great article from Northwestern University’s Kellogg School of Management that walks through economic impacts of various scenarios:

And the full United Nations Economic and Social Affairs report:

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