As I write these words, a debate is raging over whether the country is “overreacting” to the COVID-19 pandemic by shutting down too much economic activity. I hope that by the time you read this, everyone has agreed that we were, because the virus has proved to be far milder than many experts predicted. But however things turn out — and especially if the pandemic is still in full swing for you — it is worth thinking carefully about how governments should make such trade-offs without the benefit of hindsight.
It is sometimes said that life is priceless. But of course this is not true: Every day, we behave in ways that could shorten or end our stays on this earth, whether that means stuffing our faces with Doritos or simply traveling across train tracks, through the air, or at high speed down a highway. We do these things because we value their benefits more than we fear the risk of death they entail. And every year, this country’s legislators and regulators decide to enact some life-saving rules but not others, because some of these rules are deemed worth the costs and some are not. Making trade-offs between lives and other things we value is simply a fact of, well, life.
And as it happens, there are well-developed — if far from settled — guidelines regarding how to value human life, and these guidelines can at minimum sharpen our thinking when we have to decide between severe economic damage and a large number of lives lost. The two key concepts are the “value of a statistical life” (VSL) and the “quality-adjusted life year” (QALY).
The VSL is typically estimated by looking at data on workers who change jobs, specifically those who move between jobs that involve different mortality risks. These moves give us a clue as to how much people need to be paid to endure a higher risk of dying. Estimates vary a bit, but government agencies in the U.S. typically assume a VSL of about $9 million.
There are any number of criticisms one might make of this approach, but perhaps the most troubling is that it doesn’t value a child’s or young adult’s life more than it values anyone else’s. Saving a three-year-old is the equivalent of keeping a sick and elderly person alive a couple of years longer.
This is where the QALY comes in. This is the value of a year lived in good health, and it is scaled downward if the patient will instead be in poor health. As a 2014 article in the New England Journal of Medicine summarized:
Some economists as well as the World Health Organization have argued, on the basis of plausible assumptions about people’s values and attitudes toward risk, for a threshold of two to three times the per capita annual income, which would imply a U.S. threshold of $110,000 to $160,000 per QALY today (given that the per capita income is roughly $54,000). Others have inferred a threshold of $200,000 to $300,000 per QALY on the basis of increases in health care spending over time and the health gains that have been associated with those increases, surveys that ask people how much they would be willing to pay for health gains, or the trade-offs that people make in the workplace between pay and safety risks.
So what does all this look like in practice? In normal times, these concepts can be relatively easy to apply, at least once the relevant numbers have been studied extensively and estimated. A regulation might be estimated to cost $X and save Y lives, or a drug might cost $X and extend life by Y years, in which case X/Y gives you the cost per unit of human life you’re looking for.
However, the coronavirus pandemic, as it stands at press time, poses a number of special challenges. Estimates vary widely as to how many people an uncontrolled pandemic would kill, in large part because we have no idea how many people get the virus without showing symptoms (and thus are probably immune but not captured in current statistics). The virus causes many more hospitalizations and intensive-care visits than it does deaths, and overwhelming hospital capacity can harm patients suffering from other illnesses, meaning even more deaths, health-care costs, and misery. Meanwhile, another wave of shutdowns could be required if the virus comes back later in the year, increasing the cost of containment. And the raw economic price of our immediate response, in dollar terms, doesn’t account for the mental-health issues caused by cooping people up and driving up unemployment — though the effect on mortality is hard to predict; the Great Recession might have even reduced mortality — or for the long-term human-capital damage caused by idling workers and closing schools.
On top of all that, we don’t have time to wait around and get all the numbers just right; we have to act now, and in fact some entire states are already shut down. Further, even if governments don’t act, individuals and businesses still will, so some economic damage and some of the accompanying health benefits are inevitable, no matter what policymakers do. This is a problem that would require a lengthy study by a whole team of experts to solve satisfactorily, but we needed the answers yesterday.
Nonetheless, as I laid out on NRO’s Corner blog in late March, it’s possible to work up some very rough math illustrating the trade-offs. U.S. GDP is a bit above $20 trillion, suggesting that $5 trillion is likely a generous estimate of what shutting things down for a plausible amount of time will cost. (That would be the cost of losing all economic activity for nearly a quarter. Currently, both Morgan Stanley and Goldman Sachs see the economy severely contracting in the second quarter of the year but improving afterward — for a yearlong contraction of perhaps 3 to 9 percent depending on the scenario — and the government has enacted a $2 trillion stimulus package to prop everything up.) Meanwhile, assorted fatality estimates, such as those from the Centers for Disease Control and London’s Imperial College, suggest that keeping the virus under control could save a million lives — maybe a lot fewer, but maybe a lot more, too. Finally, judging from current age statistics on COVID-19 fatalities, which skew heavily toward the elderly, the typical victim probably has maybe a decade or so to live.
A million lives valued at $9 million apiece comes to $9 trillion in benefits — far above the expected economic damage even without accounting for the health-care spending and suffering that stem from nonfatal cases and overwhelmed hospitals. It would be hard to tally the costs of our response in a way that exceeded such a figure, unless one assumes a lasting impact on par with that of the Great Recession rather than a temporary pause in economic activity followed by a bounce-back. But by contrast, if each year of life is worth as little as, say, $125,000, and we can preserve only a decade of life for each of a million people, that amounts to just $1.25 trillion. This begins to justify the costs, but it sets up a closer call that will depend on the murkier math of hospitalizations, intubations, permanent lung damage in some cases, harm to hospital patients with other maladies, and the uncertain psychological and longer-term economic harms of a shutdown.
Several experts have attempted similar calculations. A paper from Michael Greenstone and Vishan Nigam assumes that 1.7 million lives could be saved by social distancing and, using a version of the VSL that varies by age, arrives at benefits of over $8 trillion. By contrast, Eline van den Broek-Altenburg and Adam Atherly start with a QALY of $100,000, assume the typical COVID-19 victim has only eight years left after the quality adjustment (as many already have other illnesses), and estimate that shutting down the economy will be worth it only if the correct death estimate is toward the high end of the plausible range while the economic damage is toward the low end. Meanwhile, Anna Scherbina predicts $13.2 trillion in damage from an uncontrolled pandemic (starting with a death toll of 1.9 million and a VSL that varies by age, and factoring in medical costs); she finds that a shutdown will create more benefits than costs for at least nine weeks.
My own view is that it is a good idea to practice social distancing for a bit and to entirely shut down the hardest-hit areas, to buy us time to learn more about the virus and ramp up production of masks, tests, and ventilators. More knowledge and supplies will be necessary to transition to a state where the economy is functional again but we’re still controlling the virus’s spread, and a temporary economic setback is likely to be worth it to get to that point.
Ultimately, such beliefs must rest on an analysis of the costs and benefits involved, not a blind insistence that any cost is worth it if it saves even one life. But, the situation being what it is, I must admit that the assumptions behind my analysis — both economic and epidemiological — may look very wrong by the time this magazine makes its way to your fingertips. And how to act amid such uncertainty might be the hardest question of all.
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