COVID-19 and the Unintended Consequences of Economic Shutdown

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The bipartisan answer to the coronavirus pandemic seems to be: shutter the economy, then bail out everyone who is suffering economic pain. Of course, as RealClearMarkets editor John Tamny has observed, if we bail out everyone, we bail out no one. Instead of directly confronting the cause of the pandemic spread of COVID-19, we are inflicting vast damage on great swaths of the economy, likely bankrupting millions of small businesses, which we then seek to fix with massive fiscal and monetary stimulus. Stimulus can only bolster economic activity when slack resources – including the newly unemployed – can be put back to work in a timely way, to produce goods and services. 

The unintended consequences of current policies are vast, in both human and economic terms. The governments of Taiwan, Japan, and South Korea seem to have shown that even a democracy can manage a health crisis directly, by seeking to minimize spread of the disease, in ways that won’t cripple the economy. 

Rules vary by country and jurisdiction, but – especially in urban centers – the following generally apply. On leaving home, you must wear a mask. On entering an office building or store, your temperature is taken. If it’s elevated, you will be tested. Apart from that, if you are not feeling well, you can get tested at a convenient location. If you test positive, they will ask about whomever you’ve seen in the past week, and will test them, too. You are then placed on mandatory home quarantine, as are those who live with you. Hospitalization is reserved for serious cases. Direct and unambiguous. 

The health of the economy is not as important as the health of the citizenry. However, the two are interconnected. You can’t crush the economy without exacting a human toll. In a 2018 academic article, Taiwanese researchers Yu-Hui Lin and Wen-Yi Chen showed a link between unemployment and suicide, one that may linger for two to three years after the job market has improved. These findings suggest that even a short, sharp recession has lasting consequences. In rough terms, they postulate that each 1% rise in unemployment leads to one additional suicide per 100,000 people, and a rise in divorces of up to 1%. If unemployment jumps by 5% in the current shutdown of the U.S. economy, that would translate into some 16,500 additional suicides and up to 3 million divorces. The human toll is very real. 

Robert Zoellick and others have noted that supply chain disruptions are jeopardizing the health and lives of patients facing much more serious health risks than coronavirus. There are 23 million Americans with cancer or who have had cancer, another 30 million with heart disease, 34 million with diabetes, and 35 million with chronic lung disease. Given the overlap between these groups, around 70-80 million Americans are being treated for one or more of these ailments. If one in a hundred of them die because they can’t get their medicine, or the hospitals can’t take them, there’s another 750,000 deaths. 

How likely is death from COVID-19, for the millions who will be exposed? It’s too early to know, and it varies widely by age and health. Because many cases are asymptomatic or are mild enough that the carrier doesn’t get tested, the number of cases is likely understated by far more than the number of deaths. Countries like South Korea, which have done widespread testing, will have far fewer unreported cases. 

On the Diamond Princess cruise ship, with 3,000 aboard, everyone was tested. For both the Diamond Princess and South Korea, the mortality rate is about 1%. Those who are over 60 years old with other risk factors (the aforementioned heart or lung disease, cancer or diabetes) comprise roughly 80% of that total. This means that, for most age groups, a COVID-19 victim faces mortality risk that very roughly matches one’s risk of dying from all other causes in 2020. Why are we shuttering the global macroeconomy for a threat that temporarily doubles our risk of dying, and only for those of us who are infected? While a muscular national response is both expected and necessary, the old saying of "first do no harm" rates prominent consideration. In a noble effort to save lives, let's please be careful to not crush people’s careers, plans and dreams in the process.  

Rob Arnott is chairman Research Affiliates.



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