No Free Lunch: Guest Editorial by Jonathan Ketcham, PhD

Economists evaluate policy using two fundamental criteria: equity and efficiency. Equity concerns the extent to which different groups would ‘win’ or ‘lose ’if policy were implemented. Efficiency has to do with tradeoffs, scarcity, and opportunity cost. Efficient policy creates the most value with respect to the resources it uses (given that we could do other valuable things with those resources)

Economists will be studying the equity and efficiency of lockdowns and other non-pharmaceutical interventions (NPIs) for years to come. Cost-benefit analysis will be a workhorse of these studies. The aim of cost-benefit analysis is to account for the full set of benefits and costs to all members of a society caused by the policy in question. Policies must be evaluated based on all of their costs and benefits, not only their effects on COVID-19 cases, hospitalizations, morbidity and mortality.

Nobel Laureate Gary Becker’s idea of “human capital” unifies many of these costs and benefits. The concept of human capital recognizes that people have innate value and asserts that we can invest in ourselves by spending time and money on our social linkages, education, skills, and health. Death is the ultimate destroyer of human capital, although by the time of death many people have lost substantial capital due to illness and old age.

NPIs can create both benefits and costs in terms of human capital. Potential benefits include saved lives and preserved health from reduced COVID-19 transmission. Potential costs include death and worsened health due to isolation, inactivity, and loss of education, medical care, safety nets, employment, and income. Some of these costs, sadly, remain ahead of us, including deaths from delays in cancer screening and treatment, rising opioid overdose, and harms to the life expectancy of today’s children due to lost schooling. Beyond the sum total of these costs, evaluating the equity of NPIs will require a careful accounting of how their benefits and costs differ across age, income, race, ethnicity, sex, and nationality. For example, while breast cancer screening in Washington state fell by 50% for women overall, the drop was even more precipitous among minorities.

Ahead of us lies the difficult work of determining which benefits and costs were caused by which policies. One insight derived from the human capital concept is that a top-line measure for evaluating the equity and efficiency of NPIs is their effects on excess mortality by age. This measures the degree to which the number of all-cause deaths in each age group differs from what would have been expected without COVID-19 and NPIs.

Which outcomes were inevitable consequences of the deadly, contagious virus, and which were self-inflicted wounds from unsound policies? 

The debate will be contentious given the inherent uncertainty around the “counterfactual.” We can only observe what occurred, not what would have happened if another path was chosen. On the benefits side, how many COVID-19 deaths did NPIs prevent? Which COVID-19 deaths would have been prevented by other NPIs such as stricter shelter-in-place mandates, wider availability of rapid testing, or simply better communication of the wide range of risks across age and health?

On the cost side, how many non-COVID excess deaths did the chosen NPIs cause? To what extent did NPIs destroy jobs, grow poverty, prevent education, limit access to medical care, and incur government debt?

A common approach economists use to answer these types of questions is the counterfactual benchmark of what well informed people would have voluntarily chosen to do for themselves. Because this benchmark never existed, we are left to draw inferences from the costs and benefits of different mitigation strategies as they were implemented around the world.

Available data on various governments’ chosen NPIs show no first-blush evidence that those with stricter, more sustained NPIs benefited from a lower COVID-19 burden or decreased economical damage. To this point, recent work found that in Brazil, NPIs that effectively increased social isolation likely caused more COVID-19 deaths. That said, raw data can obscure causal relationships of interest and rigorous studies are necessary to understand NPI’s holistic effects on people’s lives.

Despite the challenging research agenda that lies ahead, several conclusions are already apparent.

1. The disease burden of COVID-19 and the costs of NPIs have disproportionately affected poor people. The poor were more likely to die from COVID-19, and it is unclear whether this is despite or because of the chosen NPIs. They were also most likely to lose jobs, income and education under the chosen policies. As explained in this week’s Research Recap, low-income workers shouldered a disproportionate share of lockdown costs because their jobs were made temporarily illegal. Assessing the benefits of NPIs and weighing them against their costs for the poor specifically should be a top priority.

• School closures have had virtually no benefits and significant, though largely unmeasured, costs. These policies directly harmed young people who have negligible risk from COVID-19. With the majority of their lives still ahead of them, the effects of extended loss of full-time, in-person education will continue to hinder the current cohort of children for many decades. They have been forced to bear these costs despite little to no benefit to the adults around them. Even now, many kids are being denied access to full-time, in-person school. Where schools are open currently, protocols for quarantining healthy are quite costly to children and their families with virtually no benefits. Further, the costs of mandatory masking, distancing, and restricted activities and interactions among school children remain unknown.

•  “Zero-COVID” policies fail cost-benefit analyses. Once immunity brings deaths and hospitalizations down, the costs of COVID-19 on human capital will be minuscule relative to the costs of trying to reduce COVID-19 cases. Still, many leaders have embraced Zero-COVID-19 policies going forward, advising against resumption of normal activities even after widespread immunity.

• Lockdowns are not a free lunch. Some economists initially believed that shelter-in-place orders would save lives and benefit the economy. A free lunch for all…even if that lunch would have to be eaten in isolation. Thirteen months have passed since those orders were first implemented, and many are still living under them and bearing their painful costs.

A recent peer-reviewed study makes these costs woefully clear. Just two weeks of shelter-in-place mandates increased unemployment by one percentage point, a substantial and immediate effect. The study also shows that these costs bought nothing: the mandates created no benefits in terms of reduced COVID-19 spread or fewer COVID-19 deaths, with results indicating that the mandates may have actually increased COVID-19 deaths. While substantial research remains to be done, it is clear already that any important benefits from NPIs must be because they reduced COVID-19 complications and deaths and not from narrowly defined benefits to the economy. However, research gives little support for hope of such benefits.  In fact, the Global South may have been best served by adopting the approach of “saving lives by saving the economy”, contrary to the free-lunchers’ mantra that we can save the economy by squelching COVID-19.

COVID-19 has reminded us how interconnected we all are. 

In this issue of CG: Editions, we offer statistics, stories and studies that drive this point home, from juxtaposing the growth in worldwide billionaires with the growth in global poverty and food insecurity to tracing how government decisions to close a favorite local retailer, theater or restaurant causes ripples up and down the income distribution and around the world. The effects will be felt, the stories told, and the studies conducted over our lifetimes.

The economic framework complements these essential perspectives by equipping us to evaluate pandemic policies in terms of their efficiency and equity. I hope that you will come away from this issue with a clearer view of how to engage in the ongoing conversation about whether our chosen policies were worthwhile, who won and who lost from them, and how we might choose a better path going forward.

Jonathan Ketcham, Ph.D., is the Earl G. and Gladys C. Davis Distinguished Research Professor in Business in the W.P. Carey School’s Department of Economics at Arizona State University and a member of the Collateral Global editorial board.

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