The number of people worldwide who have died from the coronavirus stands at 8,000 at the moment, equivalent to the death toll of two days of the world’s traffic accidents. The fear is of course that millions more will follow.
The panic over what the virus might do has now lead to economic meltdown: businesses and workplaces have stopped functioning, ports are closed, the aviation industry is dead, and many businesses providing livelihoods for billions of people are on the brink of bankruptcy.
You may not like to hear this, but such a meltdown costs lives. Many lives.
The value of stock markets has dropped about 25% worldwide, about 20 trillion in lost value. The world economy is expected to shrink at least 2% this year, and if we take the conservative estimate that the capital stocks that are not traded have lost the same value as those in stock markets, the world has probably lost about 50 trillion in economic value. This loss is spread evenly over rich and poor countries, with the loss in India just as bad as in Wall Street. So the panic has cost 1.2 billion Indians a quarter of their wealth, just as they were dragging themselves out of a very bad, very unhealthy place.
A functioning economy is what pays for the hospitals. It generates the food we need to survive, and pays for the roads and ports we need to ship food from the farms to us. It allows us to construct sewage works and cleaner energy systems that transform dirty unhealthy countries into better ones. It pays for the houses that keep us warm and safe. A functioning economy ultimately also pays for the schools in which our kids learn what they need to have a bright future and to be proper citizens.
The economy provides the medicine, the science, and the organisation that allows us to live with 7 billion on this planet, rather than the paltry few tens of millions sustained by the autarky we enjoyed before we started trading with each other. And now we have just broken many of those trade ties out of fear, bunkering down and closing our ports, not caring about the destruction of human lives elsewhere that causes. Some of the progress humans have made in the last decades will be undone. With more poverty come civil wars, famines, and just generally less healthy living.
So let us stare the truth in the face: how much has the panic of the last few weeks cost humanity in terms of lives lost?
We are here not talking about lives lost that you can pinpoint, but about lives that are euphemistically known as “statistical lives lost”. These are the people that will die in years to come because the roads they drive on didn’t get repaired because of lack of funds because of the panic. These are the people that will die without proper health care because the health sector will have less funds as there is less to go round. These are the people that will die because their doctors, policemen, farmers, and everyone else is somewhat less competent because of the lower education due to the panic we now have. They will be the ones dying from diseases that sewage works would have prevented, but those sewage works were delayed. They will be the millions dying in civil wars as this economic meltdown pushes their social systems over the brink.
I think the number is at least 10 million, possibly far bigger. These people will never know they died because of the panic of the last few weeks, but they would have lived without the panic and they have families and loved ones too who will be just as distraught, whether they know the panic was to blame or not.
The maths on such questions can never be perfect, but we can make an educated guess based on official numbers.
Let us use two very different ways of calculating the likely number: the rough relation between the economy and length of life, and the costs governments say they make to save lives.
On the importance of economic growth for length of life, we can look at China. In 1978 its GDP per capita per year was about 500 dollars per person in purchasing power parity terms. It was about 10,000 dollars by 2010. In the same period, all the improvements this growth paid for increased life expectancy by about 10 years, from 65 to 75. That was due to improvements in food security, health, social stability, and many other factors.
10,000 dollars per person per year means a lifetime income of about 750,000 dollars. If 750,000 dollars buys 10 more years of life, a whole life of 75 years is basically generated by an additional 5 million dollars in purchasing power terms. A loss of 50 trillion then means a loss of about 10 million individuals. Note that these are full lives from cradle to grave, not the same as a “prevented death of a random person” which will on average be in the middle of a full life. So we could equivalently say the loss of 50 trillion means 20 million more deaths.
If we don’t look at the transition in China but take the one in India, things looks more dire still. In the same period 1980-now, life expectancy rose 15 years in India, though GDP rose maybe about 5,000 per person in purchasing power parity terms. Using those numbers, humanity has just lost 30 million lives due to the panic.
Let us then consider a different approach and take the rule of thumb that the UK’s National Health Service itself uses, which is that it generates 1 additional year of healthy life for an additional 20,000 dollars (15 thousand pounds). That is the internal number used in the UK for the costs of saving a year of life. The average cost is much lower than that because lives are saved more cheaply with the first few billions spent on health rather than the “marginal costs”, but let us take this official number at face value. If the UK buys 1 year of life with 20,000 dollars, then about 1.5 million buys a whole life.
One might be tempted to think non-health expenditures (the other 3/4 of government spending) couldn’t possibly have a similar effect, but that is wrong: to survive we need food, shelter, safety, clean energy, and everything that generates those things. The criminal and social system that prevents our societies from descending into mass murder are saving lives just as much as our health systems. So indeed, government use a similar rule of thumb as to how much value-for-money other services should buy: higher costs at the margin, but similar costs on average. Indeed, some expenses are fare more effective than marginal NHS spending. Mental health services are for instance known to save lives far more cheaply!
If we thus take the pretty low estimate that 1.5 million in government expenditure buys one whole life, then applying the fact that government expenditure is only 40% of GDP, we’d need about 4 million more economic value for an extra life. Note that that implicitly presumes that what individuals do with money other than pay taxes has no benefit to their health, so we are being very cautious here!
Hence with a conservative run-of-the-mill estimate, we should say that even in rich countries 4 million in economic activity buys a life. By that token, the loss of value of the economy would cost humanity about 12 million full lives, equivalent to about 25 million more random deaths.
However, that is a very conservative estimate because it applies the number for rich countries to the whole world. Since the world is on average much poorer than the UK, by about a factor of 3, the numbers of lives lost is about 3 times higher than it would be if everyone were as rich as in the UK.
So as a very crude calculation the panic in this world has cost us at the very least 10 million full lives, and quite possibly 50 million full lives or more. It is as if we have randomly killed 100 million people in the decades to come. This is the price humanity is going to pay in the coming decades, caused in just a few weeks of panic. These are not people who will die in the coming months from the corona virus, but from the many effects that broken trade ties and lower economic activity has in this world.
Think of that next time you think it is “safe” to close down the economy to keep the burden for our hospitals low now. The cost of this panic is measured in blood.
In terms of the question “what should we have done”, it is basically too late now. It was probably impossible to coordinate humanity into any other response than the panic we are now having. There is simply not the political power in anyone’s hands to react much different to the way we have. Governments of the UK and the Netherlands (who incidentally have the better modellers in this realm), tried to take a wider view and be more balanced, and were roundly denounced for it, internally and externally, forcing them into greater panic.
Health organisations were always going to call for measures that would cause economic panic and thus cost millions of lives, for the simple reason that health organisations are not set up to think about the damage they do via panic. Populations were always going to clamour for whatever seemed the safe thing to do in the immediate here and now once a virus built up to be scary started flooding the emergency rooms of various regions.
Perhaps these reactions were needed to shake us out of complacency, but whether they are or not, they have done major damage on their own.
All we can do now is save what we can of our interconnected international economy. Some of the right steps are being taken: we have learned from the crash of 1929 that allowed Hitler to rise and hence caused WWII. After the crash of 1929, countries bunkered down too and trade collapsed, fueling an anger that inflamed the world. Our economic institutions made many mistakes then, including halting trade and squeezing liquidity, causing massive unemployment. This time round our national and international economic institutions are pumping liquidity into the system and trying to guarantee jobs and keeping vital international industries going at any cost. Its a good start, but much more will be needed.
How many lives this virus will take directly we really do not yet know. But the panic has killed many millions, that is for sure already.
After WWII we set up new economic institutions to prevent the mistakes of 1929 from recurring, ie the self-isolation of whole economies to the loss of all. Let us think what institutions we need to prevent what we are now experiencing.
- Update March 22nd: in a follow up post, I provide the tentative estimate that the ratio of years of life saved by our isolation policies versus years of life lost due to those policies is 1:70. Particularly hard-hit are the elderly whose pensions have been decimated. I advocate that international macro-economic modellers to team up with epidemiology-modellers to produce more authoritative numbers in the hope that a multi-disciplinary effort can help convince the public and key decision makers to reduce the self-inflicted disaster we are still creating.
- Update March 24th: as more economic data gets in, it becomes clear the post above is far too optimistic about the economic damage done. For instance, markets have now tanked 30-40% rather than 25% as mentioned in the post. The IFO institute now expects German GDP to shrink 7 to 20 percent this year, yet still ignoring structural losses for ensuing years. Seven forecasting agencies on the financial markets, including Deutsche Bank and Goldman Sachs, are now forecasting deep recessions in the world and US economy, with a peak of up to 24% in the second quarter of this year alone.