Costs of the Shutdown, Quantified [Updated]

Casey Mulligan is an economist at the University of Chicago. Per his web site, he has served as Chief Economist of the White House Council of Economic Advisers and as a visiting professor teaching public economics at Harvard and Clemson. He is affiliated with the National Bureau of Economic Research, the George J. Stigler Center for the Study of the Economy and the State, and the Population Research Center. Mulligan has set up a web page where he estimates, on a daily basis, the cumulative costs of the COVID-19 epidemic. The analysis is based on his own paper dated April 16.

This is the current chart, updated through April 24. Click to enlarge:

By Mulligan’s calculation, cumulative costs approach $1 trillion. This total doesn’t necessarily include stock market losses, which mostly reflect anticipated future damages that are not part of the calculation.

On its face, Mulligan’s analysis implies that the cure (shutdowns) has been far worse than the disease (mortality), and the margin is growing. Of course, doing this calculation requires an economist to put a value on the lives that have been lost to the disease. Mulligan uses a Value of a Statistical Life of $4.3 million. In his site’s FAQ, Mulligan explains:

Q7. What VSL do you use?

A7. $4.3 million per death from COVID-19. This is what other economists are using and reflects only an age adjustment; a lower VSL will result when I am able to quantify the other differences between COVID-19 deaths and deaths from other causes. The point of VSL is to make comparisons the same way that individuals do in their personal lives. They do not treat all mortality risks equally, and therefore a VSL approach should not treat them equally. The VSL is proportional to income or consumption, which is much lower now (April 2020) than it was just two months ago. “People <65 years old had 34- to 73-fold lower risk than those >= 65 years old in the European countries and 13- to 15-fold lower risk in New York City, Louisiana and Michigan.” (cite from here). Co-morbidities are disproportionate among those dying from or with COVID-19.

This analysis will be a fertile source of debate, but any way one looks at it, the costs of the shutdowns are horrifying.

UPDATE: It is worth noting that Professor Mulligan’s analysis is limited to the U.S., so it does not include the hundreds of thousands of children who will die, worldwide, if we maintain the shutdowns.

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