The Corner

Economy & Business

The Need for Cost-Benefit Analysis Exists Even during a Pandemic

Cass Sunstein wrote a piece in Bloomberg Opinion last week about the need for cost-benefit analysis, even during a pandemic. A tidbit:

In the context of the coronavirus pandemic, it’s unusually challenging to engage in quantitative cost-benefit analysis. But the best available estimates, released within the last few days, suggest that the U.S. should continue with expensive precautions, even if they take a major economic toll. . . .

It should be acknowledged that Trump, and many others, have been right to emphasize the importance of balancing a range of considerations, and not focusing only on one. . . .

Turn to the coronavirus pandemic in this light. . . .Michael Greenstone and Vishan Nigam of the University of Chicago analyzed the likely benefits of “a moderate form of social distancing,” including a seven-day isolation for anyone showing coronavirus symptoms, a 14-day voluntary quarantine for their entire household and dramatically reduced social contact for all those over 70 years of age. They found that over a period of seven months, the result would be to prevent 1.7 million deaths. Under standard assumptions, that’s $17 trillion in benefits. Because a significant percentage of the avoided mortalities involve older people, Greenstone and Nigam adjusted the number down — but still, it’s over $8 trillion, which is the equivalent of $60,000 per U.S. household.

Looking at costs as well as benefits, a team of economists at the University of Wyoming, led by Linda Thunstrom, reached broadly similar conclusions.

They explored the effects of a more aggressive understanding of social distancing, including closing schools and universities and cancellation of cultural events and sports leagues.

Like Greenstone and Nigam, Thunstrom and her colleagues offered a lot of numbers, but their bottom line, driven in large part by deaths prevented, is clear: The net benefits (benefits minus costs) are about $5 trillion.

The problem with the column, however, is that Sunstein doesn’t say which “precautionary” route he thinks we should take. Should we adopt the targeted isolation laid out in the first study, or the government shutdowns of the second study? He doesn’t say. Unfortunately, such reluctance to speak up by experts such as Sunstein and others puts us at the mercy of politicians and bureaucrats with well-known risk-aversion.

Holman Jenkins at the Wall Street Journal puts it well:

The real moral hazard in the present crisis is the one Mr. Sunstein exemplifies: our politicians and thought leaders, because they don’t want to be seen as meanies, failing to advise the country candidly about the nature of the trade-offs we face in our current distress.

At the New York Times, Eduardo Porter and Jim Tankersley have an overview of the debate between economists on this issue, and other estimates of the options before us.

Finally, this is an interesting piece by my Mercatus colleague James Broughel about rethinking the value of a statistical life (i.e., the $10-million figure in Sustein piece).


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