The most important thing we have learned from Covid-19 is the extent of the damage that can be caused by a relatively mild pandemic by long-term historical norms. Calling it gentle does not mean minimizing the suffering it has caused and will continue to cause before an effective immunization program is rolled out and sustained globally. But Covid-19 has demonstrated much greater social and economic vulnerability than experts imagined. It is important to understand why this is the case and to learn how to better manage the impact of these diseases in the future.
In a recent article, David Cutler and Lawrence Summers of Harvard estimate the total cost of Covid-19 to the United States alone at $ 16 billion. This represents 75 percent of the gross domestic product of the United States per year. Almost half of that amount is the cumulative value of the GDP loss estimated by the non-partisan Congressional Budget Office. The rest is the cost of premature death and deteriorating physical and mental health, by values usually used for the world’s richest large economy. The total cost, they say, is four times that of the recession after the 2008 financial crisis. If the cost to the world were also 75% of annual GDP, it would be around $ 96 billion, at rates purchasing power parity exchange rate. This is almost certainly an overestimate. However, the cost is enormous.
So far, the global death toll from Covid-19 is estimated at 1.4 million. The dead now run to a just under 10,000 per day or about 3.5 million years ago. If this were maintained, cumulative deaths in the first two years could reach nearly 5 million, or just over 0.06% of the world’s population. To put this in context, the Spanish flu, which emerged in 1918, lasted 26 months and claimed between 17 and 100 million lives, or between 1 and 6 percent of the then world population. A comparable toll for Covid-19 today would be between 80 m and more than 400 m. Some pandemics, notably the Black Death in the 14th century, were even more deadly than the Spanish flu.
A 2006 report by the CBO argued that “a pandemic involving a very virulent influenza strain (such as the one that caused the pandemic in 1918) could have a short-term impact on the global economy of a similar depth and duration as of an average post-war recession in the United States ”. But the Spanish flu killed approximately 675,000 Americans out of a population of only 103 million inhabitants. This equates to over 2m today. If the CBO had been right, the economic impact of this pandemic should have been much less than it was.
A similar study for the European Commission, also published in 2006, concluded that “even if a pandemic would take a heavy toll in human suffering, it would probably not pose a serious threat to the European macroeconomy”. This conclusion was quite wrong.
Why, then, has the economic damage from such a moderate pandemic been so enormous? The answer is: because it could be. Successful people can easily do without much of their normal daily expenses, while their governments can support affected people and businesses on a large scale. This is also what people expect from governments. The response to the pandemic is a reflection of today’s economic opportunities and social values, at least in rich countries. We are prepared to pay a high price to contain pandemics. And we can do so much better than before.
Some argue that the methods chosen, including indiscriminate lockdowns, were largely responsible for these huge economic costs. Instead, they suggest, the disease (and thus the sick) should have been allowed to roam freely, while seeking to protect only the vulnerable.
It is very debatable. One reason is that the higher the incidence of the disease, the more determined people will be to protect themselves, a point made in the latest IMF report. World Economic Outlook.
Real experience, as opposed to cost-benefit analyzes of theoretical alternatives, further strengthens the case for complete disease suppression, where possible. A recent article from the Institute for New Economic Thinking, To save the economy, save people first, suggests why. A graph (reproduced here) shows that countries have followed two strategies: suppressing or trading deaths for the economy. Overall, the old group did better in both respects. Meanwhile, countries that have sacrificed lives have tended to end up with high mortality and economic costs.
Now, in the midst of a second wave of infections and lockdowns in Europe, failing to persist until they have gained full control over the virus in the first wave seems like a big mistake. Of course, effective testing, tracing and quarantining would be even better. But this is impossible if infection rates are close to recent levels.
We still have a lot to learn from Covid-19, and we must do it, because the next pandemic could be far deadlier than this one. In the meantime, we must seek to escape as quickly as possible from the present catastrophe. This will require a high level of global cooperation. While the costs of the pandemic have been quite extraordinary, so has the scientific response. Now vaccines must be produced and distributed around the world. An important step is that all countries, including the United States, join Covax, the initiative to provide vaccines worldwide. Global challenges need global solutions.
Covid-19 was a far more devastating economic shock than economists anticipated. It’s a huge lesson. An even more virulent disease is perfectly possible. Next time we have to suppress the new disease much faster. Many now advocate freedom. But the The security of people must remain the supreme law of politics, now and forever.
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Letters in response to this column:
Antipathy against Friedman fuels ethical investment / By Peter Hulsroj, Hornbaek, Denmark
A libertarian paradise we could do without / By Ian MacKillop, Ilminster, Somerset, UK
‘People’s safety’ is a totalitarian slogan / By Richard Pryke, retired lecturer, University of Liverpool, Chester, Cheshire, UK
Terrified politicians overreacted to virus / By Jamie Sandison, Norwalk, CT, USA