Governments around the world have to deal with this health crisis and manage the economic side effects. Some are doing it better than others, but this is not nearly over.
Now is is clear the US government will spend several trillion dollars in direct healthcare costs, business aid and payments to American workers.
The federal budget was already over $1-T in deficit. Now, it will be several times that amount, especially since tax revenue will fall.
That money will be spent to minimize the economic damage of closing businesses and keeping people home for weeks, possibly months.
These measures will greatly reduce the number of coronavirus related deaths.
Experts assembled last month by the US Centers for Disease Control and Prevention (CDC) have considered various scenarios. They estimated a death toll somewhere between 200,000 and 1.7-M if we did nothing.
Each of us has economic value. Every life lost is both a personal tragedy and a cost to the economy.
The Big Q: What is the cost, in USD terms?
The Big A: Economists have a concept called “Value of a Statistical Life” to help answer these questions. We will use VSL to measure how much coronavirus deaths would cost the economy.
VSL drops with age, and we know those who die from the condition tend to be older. Healthcare website STAT ran the numbers assuming the average death would be 60. In that case, the VSL per life would be $5-M.
If that is right, and using the CDC estimated death totals, then coronavirus would cost the economy somewhere between $1 and $8.5-T.
But that is actually low because the deaths would not be the only cost. Before they die, these people would consume a lot of healthcare resources. So would many others who get sick but survive. That is money taken from the economy, too.
CDC estimated total cases, mostly non-fatal would range from 160 to 214-M. If we assume an average $10,000 to treat each one, the cost would be between $1.6 and 2.14-T.
Then there is a psychological cost of such a national trauma. More T’s
But in any case, we can estimate the coronavirus costing the economy something like $3-T and $10-T.
Keeping everyone home and shutting down much of the economy is an attempt to prevent that outcome.
If shutting down large parts of the economy forces the government to spend $5-T, but saves the economy $5-T in prematurely lost lives and medical costs, did we really spend anything extra? No, if we offset the damage.
Overall, not everyone would be made whole, some people will lose more than they gained, and vice versa.
It is also true that no amount of money can replace a vital productive life or restore a hammered community’s spirit. But we can establish economic conditions that help.
Much will depend on how the government conducts its aid and repair programs.
The lockdowns are expensive, as humans are social creatures that do not do well alone. We need each other, we need to get closer than 6 feet. This mass separation, if it lasts, will have unpredictable effects apart from whatever the virus does to people.
But, on the Question of whether aid and fiscal stimulus makes sense in this situation, yes it does. This is a natural medical disaster in which most victims have no personal fault.
Protecting people from it is not any different than the military protecting them from foreign attack.
The cost will be less than a few years of defense spending
Have a healthy weekend, stay home!
Latest posts by HEFFX Australia (see all)
- Tesla (NASDAQ:TSLA) Drops a Huge Bombshell with Q3 2020 Results - October 22, 2020
- Amazon (NASDAQ:AMZN) Technical Update – HEFFX - October 22, 2020
- Buying Opportunity For Apple (NASDAQ:AAPL) Stock - October 22, 2020