Opinion | Why the best way to save the economy during the coronavirus crisis is simply to save lives

Name: Coronavirus: anti-lockdown protests erupt across Europe in UK, Germany and Spain
Uploaded: 2020-05-28T19:00:13.000Z
Duration: 3 min 6 s
Description: Coronavirus: anti-lockdown protests erupt across Europe in UK, Germany and Spain

One reason for the long-term economic impact of a poorly controlled pandemic is the financial cost of fatalities and severe illness. Each life lost or changed as a result of the coronavirus represents a loss of future productivity and demand

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A pedestrian wearing a mask passes a closed Apple store in Brooklyn, New York City, on April 15. Photo: Bloomberg

Yenting Chen

Published: 3:00am, 29 May 2020Updated: 6:10am, 29 May 2020

The narrative during the coronavirus pandemic is strong and pervasive: we must sacrifice either jobs or lives. This debate about the economic and ethical grounds of lockdowns has seemingly polarised American society. However, in reality, we all want to protect both the economy and public health. The good news is that this horrible choice might be a false dilemma. Indeed, the best way to save the economy is actually to save lives.

The first thing to consider is whether we are ruining the economy with social distancing. Millions in the United States have filed for unemployment and businesses of all sizes are teetering on bankruptcy. It is tempting to see a direct correlation between social distancing policies and economic suffering.

However, global pandemics like the Covid-19 crisis are akin to wildfires ripping through the economy. Social distancing mandates are the controlled fires we set to contain the devastation. Both are damaging to the economy, but the primary destructive force is the pandemic itself.

A working paper by the University of Copenhagen has compared the economic impacts of the Covid-19 crisis in Denmark and Sweden. The two Scandinavian countries both suffered outbreaks at the same time. Denmark imposed severe social distancing restrictions, while Sweden famously did not.

Sweden experienced an estimated drop of 25 per cent in aggregate spending, while Denmark suffered a loss of 29 per cent – a difference of only 4 percentage points. The data implies that much of the damage to the economy was done by the pandemic itself, not the mandated lockdown.

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Coronavirus: anti-lockdown protests erupt across Europe in UK, Germany and Spain

Why is this the case? While social distancing prohibitions result in supply-side restrictions, the horrors of a dangerous and contagious pandemic simply crush demand. Most people are highly motivated to avoid illness, disability and death. Even without restrictions on businesses, events and gatherings, many consumers will stay at home until the threat is reduced.