The novel Coronavirus pandemic has stopped the world in its tracks. In particular, the onslaught of cases and community spread in the United States has sent the Federal Government into a full-blown panic. After poo-pooing the virus for weeks as something less dangerous than the common Flu, the government has begun to roll out plans to stop the spread. These plans entail a number of different approaches to fight the economic havoc wreaked by social distancing, but primarily authorizes government spending through the CARES Act. The CARES Act stimulus/relief package has authorized $2 Trillion to fight the coronavirus outbreak.[1] This money should be viewed as compensation to the American people for practicing social distancing, a measure that prevents many Americans from earning their normal income and participating in normal economic activity. Of course, social distancing is predicted to have immense benefits to the medical system and efficacy of treatment in saving lives.
The Washington Post simulated what would likely happen in scenarios where groups practiced business-as-usual, a full but short quarantine (like they did in Wuhan), and various levels of social distancing. While these simulations are not entirely accurate, mainly because no one dies, they produce a reasonable estimate for the impacts of social distancing. Further, we can look to countries that failed to take necessary precautions and see that their infection and death rates are noticeably higher. In Italy, the country hit hardest by Coronavirus, there are 147577 confirmed cases and 18,849 confirmed deaths. This produces a staggering mortality rate of 12.77%. While the mortality rate is likely lower than reported due to a shortage of testing available for those with milder symptoms, the reported rate is almost triple the mortality rate in China, and almost six times the mortality rate in South Korea.[2] There is little to no uncertainty that acting to stop the spread is effective, but it’s important to endeavor to understand how helpful.
The United States has roughly 330 million people. According to the CDC, between 160 million and 214 million Americans may become infected and between 200,000 and 1.7 million could die.[3] Now, on face, the estimate of the death toll does not seem to match statistics from other countries. Based on South Korea, the country with the lowest mortality rate, we can expect one percent of people with Coronavirus to die. That would mean that 214 million infected would leave 2.14 million dead, but let’s assume the CDC is better at modeling than I am. We will proceed under the assumption that the best-case scenario with social distancing is 200,000 deaths and the worst-case scenario under business-as-usual is 1.7 million deaths. These estimates imply that social distancing can save up to 1.5 million lives. As of now, those lives are worth $2.1 Trillion.
I’m sure you can see where this is going. Each life saved costs the government approximately $1.33 million. For reference, the typical calculation demonstrating the Value of a Statistical Life, the amount of money spent (through revealed preference) to expect to save one life through increased safety or precaution, is much higher. In 2016, the EPA estimated the value of a statistical life at $10 million.[4] Any reasonable person would be right to wonder how the government is undervaluing lives in this pandemic, but it’s not that simple. The median age of death from Coronavirus, thus far, is 75. For Americans aged 75, life expectancy is 11.18 years for men and 12.98 years for women. That is, the median person who dies from Coronavirus will lose approximately 12.08 years of life.[5] According to the Institute for Clinical and Economic Review, an outgrowth of Harvard Medical School, the value of each marginal Quality-Adjusted Life Year is $150,000.[6] That means the average life lost from coronavirus can be reasonably estimated (if you think human life can have a finite value) at $1.812 million. This estimate is conservative. Michael Greenstone and Vishan Nigam at UChicago use private willingness-to-pay to estimate that the VSL of a 70-79 year old is $3.7 million. [7] Importantly, both estimates are higher than the amount of money actually being spent to save a statistical life from the virus ($1.33m). It’s true that we cannot guarantee the additional spending would actually save the lives we estimate, but that uncertainty is non-unique to the coronavirus.
Some might say that the government’s stimulus package should only be as big as is necessary to stabilize the economy, but this line of thinking misses the point. Social distancing is being recommended and enforced (in some areas) specifically to save lives, but it is not without costs to the economy. And, because those costs are entirely unknowable as of now, the only reasonable way to look at government spending is as a preventative measure to prevent unnecessary deaths. Using this metric, we are still falling short.
That said, we are also doing more to combat the Coronavirus than we have to combat most other issues in our society. This is particularly evident with respect to the environment as Stanford Economist, Marshall Burke estimates that the number of deaths saved from averted air pollution could be 20x higher than the number of deaths due to the Coronavirus. [8] Governor Andrew Cuomo, of New York, said if all the precautions saved only 1 life, he would be happy. I hope that maybe next time there is an opportunity to say no to a new factory that will inevitably kill those in vulnerable communities, public officials will take the same “human-first” approach.
[1] The government is also spending on lending facilities through the federal reserve, but the government expects those programs to earn a profit through interest. This article focuses on the assumed cost by using the CARES Act as a basis for government spending.
[2] https://www.worldometers.info/coronavirus/ (Updated on Friday, April 10th)
[3] https://www.nytimes.com/2020/03/13/us/coronavirus-deaths-estimate.html
[4] https://www.bloomberg.com/graphics/2017-value-of-life/
[5] https://www.ssa.gov/oact/STATS/table4c6.html (I assume coronavirus deaths are evenly distributed across gender)
[6] https://www.wsj.com/articles/obscure-model-puts-a-price-on-good-healthand-drives-down-drug-costs-11572885123
[7] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3561244