Stay-at-Home Costs vs. Health Benefits

By Dick Hall-Sizemore

There is a fierce debate going on in this country.  One side is anxious to ease the restrictions imposed on the population in an effort to slow the spread the coronavirus and “open up the economy.” The other side, concerned about a resurgence of the disease and related deaths, wants to go slower.

Underlying this debate is the question of the economic damage resulting from the shutdowns and stay-at-home orders.  The President says, “We cannot let the cure be worse than the problem itself.”  Many commenters on this blog voice the same sentiment.

Implicit in these arguments is the assumption that, at some point, the cost to the economy outweighs the value of the lives lost. No one really wants to admit this because that would be putting a value on human life, which is morally anathema.

It turns out that economists have come up with a way of estimating the value of human life. (Who other than those purveyors of “the dismal science” would do this?)  It is called the Value of a Statistical Life (VSL). It is described as the amount people are willing to spend to cut risk enough to save one life. Another summation of the measure is the “economically correct measure of the benefit individuals receive from enhancements to their health and safety.” It turns out that, in the United States, that amount is about $10 million per life. For a discussion of the concept and the methodology behind it see here. (Don’t ask me to explain or defend the statistics!)

This is not just an academic concept dreamed up by some economists as a mental exercise. It has “become the most important economic parameter for the evaluation of U.S. government regulations.”

The Washington Post has reported that two sets of economists have conducted cost-benefit analyses of the country’s efforts to limit the spread of the coronavirus, using VSL. Basically, they were asking, “Is the damage to the economy worth it in terms of lives saved?” They found that it was. Economists at the University of Wyoming estimated the economic benefits from the lives saved outweighed the projected damage to the economy by $5.2 trillion. An analysis by a couple of economists from the University of Chicago concluded that the “mortality benefits of social distancing are about $8 trillion” in the United States. (The University of Chicago study even adjusted the VSL for age, with the VSL value decreasing with age.)

There are lots of problems with these studies and any studies like them:

  • What we can’t know—Because researchers cannot run a controlled experiment (this state has stay-at-home orders; this one does not), the baseline assumptions cannot be known definitely. We do not know how many people would have died if there had not been any efforts to control the spread of the coronavirus. Many analysts believe that the “official” COVID-19 death toll is understated. Therefore, we may not know how many people the disease killed. We do not know what the GDP would have been if the coronavirus had not emerged. Nor can we know what it would have been if there had been no effort to control the spread of the disease. Finally, we still do not know the extent of the decrease in GDP in the present environment. All we have are projections and some of those are controversial.
  • Timing—These two studies were published in March. We know a lot more about the coronavirus now than we did then. Deaths have been lower that the assumptions used in these studies. The decrease in GDP is not yet known and may be higher than assumed in the studies.
  • Limitation of GDP—GDP is one measure of the cost of the mitigation measures. There are other societal costs that are not captured by GDP.  Commenters on this blog have pointed out some of these:  lost time in school for low-achieving students, mental health stress, possible increase in domestic violence, substance abuse, among others. It is difficult to quantify these costs.
  • Variations—The measures taken to slow the spread of the virus varied among states. The number of deaths vary greatly among states and even among regions within states. Therefore, the costs likely outweigh the VSL benefits in some areas of the country.

As imperfect as they are, cost-benefit analyses such as these (which conservatives usually embrace) provide a different perspective in the debate.  More importantly, they could provide policymakers an objective tool to use in making their decisions. Otherwise, we continue to operate on educated guesses and partisan hype.

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32 responses to “Stay-at-Home Costs vs. Health Benefits

  1. Everyone loves a fun game of cost benefit analysis!

  2. “It turns out that, in the United States, that amount is about $10 million per life.” Not really. In a court, someone who is single will get a lower amount than someone married with kids. Someone in their 70’s will get less than someone in their 30’s. A doctor in their 40’s will get more than a fast food cook at the same age. So no way can any one say that’s the cost of one life.

  3. The analysis seems to be based on 100% confinement, such as we are suffering. There is no data-based reason to confine those under the age of 50 or, perhaps 60. There is much to be gained by opening businesses that are run by people under age 50 or 60.

    • Actually, the Chicago analysis is not based on 100% confinement. It is “a moderate form of social distancing that consists of 7-day isolation of anyone showing coronavirus symptoms, a 14-day volutary quarantine for their entire household, and dramatically reduced social contact for those over 70 years of age.” There is no closing of businesses. Therefore, the actual GDP impact would probably be higher than that assumed in their analysis.

  4. It has now been almost 10 weeks since a good cardiac workout. I know what has kept me healthy in the ten years since that massive surgery, and unrelated back issues give me limited options (Northam would recognize the big scary words about my spine), so I need to get back to something. That’s the big issue in my cost-benefit equation. Avoiding this virus is not the only health concern for many, many others besides me. And home exercise equipment disappeared as fast as TP….(Of course some people here get my pulse up for a few….)

    • That’s funny. There were a number of things the Church thrift shop would not take because they had little demand – old computer monitors, printers, and exercise equipment! We had a stationary bike and a rowing machine… can’t remember where they went… but I do have a “climber”… it’s not a fund device…. I can’t last more than a few minutes on it.

    • James Wyatt Whitehead V

      Mr. Haner try a medicine ball. I use it everyday. There are endless ways to use this. Start out with something light weight like a 4 pound ball. I think I got mine for 9 bucks. I have worked up to 15 pound ball. Easy to store. No membership fees. I have a bicep again! Mine used to look like Bugs Bunny biceps.

    • Obviously, the cost-benefit/risk analysis is different for each individual. Macroeconomics often has little relationship to the individual situation.

    • House value will recover a lap pool in 4 years. Just a thought.

      Uh, given the economy recovery time, make that 6 years.

      • We picked this place in part for the community fitness room and pool. The board is too freaked out to ever open them again, I fear. Jim and I can throw a baseball from our front doors to hit that community building….but it’s still closed. (Well, I used to be able to make that home plate throw….)

  5. I never thought the choice was not open at all or open all the way.

    But I also think the workforce is not so easily separated into young and healthy versus older and sick. A lot of workers are older than the median age of 42 and a lot of them do have health conditions. A lot of the older ones are supervisors… folks who know how that business operates.

    Even then – your doctor/dentist/elective surgery guy/gal – he/she is not going to just “open up” because he/she are actually seeing older and people with conditions.

    But there is no question that the floodgates are open… and we’re gonna find out in a couple of weeks what comes next.

  6. WWII/4

  7. Not wanting to sound cavalier, but neglecting the individual setbacks, small business like salons, parlors, etc,, are based on artist skills that won’t disappear in 2 months. Restaurants fail faster than any other business so that got accelerated.

    With luck many of these small business will reorganize debt and open in a much stronger position.

    Hey worked for American Airlines, what, something like 4 times?

  8. 70% of McDonalds business was drive-thru BEFORE the virus, in fact, many major fast food restaurants are in that range. Just about every fast food place in our area are chock-a-block most of the day.

    The Ruby Tuesdays and Olive Gardens are getting hurt, but they are often part of conglomerates that have some financial staying power. They may close low performers.

    Those companies sound like they want to test their workforce but at $100 a pop, it’s not cheap, and they’d like quicker tests… that’s sounds like a high volume opportunity for someone.

    If advertising to the public that your employees have been tested – becomes the gold standard – then only the strongest of the local/unaffiliated restaurants are going to have enough finances to survive.

    Funny (not) – used to be software was certified as “virus free” – as a selling point….. it could be that places where people congregate – some folks are going to want some level of assurance as to “virus free”.

  9. Dick, thanks for illuminating this aspect of the debate. You’ve clearly made an effort to do a fair and impartial job of presenting the issues at stake. I don’t have a problem with setting an economic value on a human life, but I do have a huge problem with the methodology. Consider…

    First, these economists are looking only at one side of the balance sheet. They are looking at the value of lives saved from the restrictive measures. They are not looking at lives lost through the build-up of stress, anxiety, depression, substance abuse, suicide, domestic abuse and child neglect, deferred medical treatment, and other causes. Those lives have economic value, too, even if we have trouble measuring them in real time.

    From Recovery Centers of America:

    Drug and alcohol use in the United States costs $1.45 trillion in economic loss and societal harm annually. This includes $578 billion in economic loss and $874 billion dollars in societal harm through quality of life adjustment and premature loss of life.

    The second massive flaw is that different lives have different economic values, as V.N. points out. The virus is far more likely to kill old people than working-age people. An 80-year-old semi-invalid has less economic value than a 40-year-old participant in the workforce. That’s just a fact.

    You can count on the Washington Post not to point out either flaw.

    • There _are_ “conservative” economists out there, right? Surely some of them are compiling the data, no?

      We discuss restaurants and hair salons but how about sports , conventions, etc – those venues… are we really CHOOSING to not let them open up and forcing their closure? Should we have refused to shut down sports because of harmful effect on those whose jobs were related?

      Finally, in terms of “value” – are we, in fact, saying that a professional player is worth more than an 84 year old on the basis of “productivity”?

      A basketball player is basically an entertainer, no? so we’re looking at that in terms of money and on that basis the 25 year old ball player is worth more than an 84 year old AND we’re seemingly saying that in order to protect the 84 year old we cannot have professional sports?

      is that true?

      how much of this line of thinking is really valid?

    • This “value” for a life has nothing to do with economic earning power. Through interviews and experiments, or whatever means economists use, they have calculated that people are willing to spend up to $10 million for one life to be saved.. The example given is a group of workers who would be willing to have their salaries reduced by an amount that would total $10 million for the group in order to improve safety measures to the extent that one life would be saved. Furthermore, at least one of the studies factored in a decreasing value for increased age.

      • Perhaps but I think the argument is not so much how much it costs to keep an older person alive as it is that insisting that to allow them to circulate in society means we have to shut down the economy and if we could isolate them , then the economy could open back up without restrictions.

        In other words, we’re killing the economy so that we can allow the older folks continue to freely circulate, and we have had to shut down to keep the virus from killing the older.

        And the solution being advocated is that the older folks should “quarantine” and we get rid of the restrictions and let the younger get back to work and they won’t die from the virus like older folks will.

        That’s my understanding. Is it wrong?

  10. Cost benefit analyses are fraught with problems. All make assumptions. Many don’t include all the influences. Some things are very hard to put a dollar figure on and there are often disagreements about those assigned. Many think these are factual and more dependable than other analyses. However, they can be totally unbalanced and unfair.

    • And yet, epidemiology model assumptions are all wrong.

      • All models are wrong. Some models are useful.

        • Herein be the distinction between philosophies and religions, between the natural and the man-made laws, between the arts and science.

          The models are perfect, truly divine inspiration. It’s reality that sucks.

          Einstien quipped, “As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.”

          Some foolishly believe Albert’s words were a sleight to mathematics, but he wasn’t telling mathematicians something they didn’t already know; he was reminding scientists of something they should.

          • well with art, it can be whatever the artist says it is – it does not need to make sense to anyone but the one’s it does, it’s golden.

            science has no such luxury. At some point, bad science will tar the good science as has…. and now many pick and choose what science they choose to believe and which they choose to disbelieve or be skeptics.

            Science has pretty much labored under this problem since it began… good and bad scientists were burned at the stake!

  11. I’ve become much more sanguine about the possibilities for the recovery of the economy and recovery from the virus. Consider the similarities between the victims of the coronavirus and the victims of the collapsed economy: in both cases, it is the weakest that have suffered. It is the JC Penneys and the other already weak players in the market that are failing. Similarly, it is the already weakest among us humans who have succumbed to the virus. As someone else pointed out on this blog, individual talent can be back in the market in fairly short order at the end of a recession, whether virus caused or not. In fact, if you look at the most highly valued companies today, their capital mostly walks out the door at 5 o’clock, except of course if it is working from home, as most such capital is increasingly and successfully doing these days. Who needs real estate?

    Above all, do not let MSM tell you to: “Be afraid, Be very afraid.” The market is always correct if it is allowed to operate freely. Consider why the market plunged 11,000 points on the Dow, but has now recovered 7000 of that 11,000, all in two months time. Shades of the “depression” of 1920-21, when we had one of the steepest and sharpest drops in the stock market. Everything was recovered in about 18 months because the president at the time, unlike Roosevelt, decided to do …nothing. That may be our biggest problem this time around. The government has decided to throw money at the problem. Very large amounts of money that will become debt that will eventually have to be monetized.

    • don’t disagree but there are some things that are not going to be the same no matter what the govt does or the MSM says…

      the govt did not cause professional sports or cruise ships or conventions to fail – the virus did.

      And you know what , the market WILL correct…. and the economy will eventually recover but as Crazy says – some things that were already weak won’t come back but other new things will appear.

      right now, someone is making a killing over Plexiglas!

      but spectator sports – who knows if that part of the economy gets back soon …. Professional, Collegiate, high school

      Neither the govt nor the MSM caused it.

  12. I think you have failed to miss the point. Cruise ships already were vulnerable to disease to the poinf where there target market was having second thoughts and cruise lines we ere having to sell berths for almost no money. Professional and collegiate sports have become weakened because the market for higher education was overheated and had already become weak because of government’s constant pumping in money and the price having risen until college had become overpriced. Now Michigan is saying no football season if no return to campus. Surprise! Why would there be z return to an overpriced campus when you can get a degree from Arizona State for …how many times less? And how do you feed pro football if there are no feeder teams in college. And how unsustainable is pro football if there are no college heroes to follow? Pro football had already become overpriced. And what is it now? 18 games? Can you say dilution? (See NHL expansion from six teams to how many now?) As for conventions? Who needs them now that everyone knows about Zoom. It’s called creative destruction.

  13. @Crazy – I dunno guy… I don’t think professional sports is dead by a long shot but it’s pretty much on it’s butt right now primarily because of what we know about the virus – hardly anyone in the sports world is blaming the govt or the media for the acknowledged reality of the virus with respect to large congregations of people. It’s clear to most everyone that it’s a danger.

    Overpriced? yes… totally agree – but like higher ed, they charge what the market will bear and there is still a lot of demand.

    And my point is that sports and the parts of the economy like broadcasting that are associated with sports is a significant part of the economy that is not coming back even as we “open up” other parts.

    You say they won’t come back because they were already “weakened”. No matter, the point is that opening up restaurants and salons is not going to fully repair the economic damage and everything from sports bars to weekend tailgate parties to gambling to sports merchandise is affected.

    The most amazing thing is just how much of the economy is reliant on discretionary spending for sports, entertainment and other things that are not “essential” for food, shelter, health and other needs of basic living.

    Our economy is in the crapper because of the loss of revenues from sit-down restaurants, sports, and the like?

  14. >>And my point is that sports and the parts of the economy like broadcasting that are associated with sports is a significant part of the economy that is not coming back even as we “open up” other parts. >>

    Here you make my point.

    >>The most amazing thing is just how much of the economy is reliant on discretionary spending for sports, entertainment and other things that are not “essential” for food, shelter, health and other needs of basic living. >>

    Here you seem to make the opposite point, unless you are saying that our economy will be in the crapper for the foreseeable future BECAUSE sports will not come back. That seems a stretch, because the market is pretty clearly saying otherwise. (see Dow closing back above 25,000 yesterday)
    Sports teams are not like those tech industries where the capital goes down the elevator and out the door at 5:00 (or 7:00, or 10:00). Tech capital talent is usable all over the economy. Sports team muscle is good for…well, sports team muscle (possilble exceptions: Tim Tebow, Michael Jordan, and the like), unless you consider being a celebrity an industry)

    Sports teams are owned privately, so we really dont’ know what their financial position is. My suspicion is that very few teams make money, but have private owners that keep them as trophies. In any event, you agree that they are not coming back, so I think the only disagreement is the net effect on the economy, which I submit will be minimal.

    • re: ” unless you are saying that our economy will be in the crapper for the foreseeable future BECAUSE sports will not come back. ”

      well , not come back the way it was anytime soon

      but not just sports, just about any activity where the central activity is a lot of people congregating together… conventions, casinos, cruise ships, theatre, amusement parks, etc, etc..

      all of these things comprise a fairly significant percentage of the economy.

      no?

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