Regulatory agencies like EPA use cost-benefit analysis (CBA) to justify regulations. Let apply some back-of-the-envelope CBA to the current COVID lockdown.
A rudimentary cost of the lockdown is roughly GDP loss plus increase in government spending.
Let’s assume the cost of the lockdown so far is about $3 trillion — $1 trillion from lost GDP and $2 trillion in borrowing from the stimulus bill.
Worst-case modeling estimated that COVID will kill about 2+ million Americans.
The most recent modeling estimated that COVID will kill about 60,000 Americans.
Using round numbers to simplify the math, let’s say that the lockdown saved 2 million lives (i.e., 2+ million minus 60,000).
Therefore a rudimentary cost-benefit ratio for the lockdown is that each death prevented cost about $1.5 million ($3 trillion in costs divided by 2 million lives saved).
How can you evaluate whether a $1.5 million cost-per-life saved is reasonable?
- Death compensation for military service is $100,000 per life.
- During the 2000s, the median jury verdict for the wrongful death of an adult female was $1.1 million (age 18-24), 2.5 million (age 30-39) but only $322,000 (age 80+).
- The Obama EPA valued lives saved by regulations at about $9 million each.
- Under the health insurance “dialysis” standard, the average value per year of quality life is about $72,000.
So is spending $1.5 million per life saved reasonable? Compared to the military standard, no. Compared to the Obama EPA standard, yes. Compared to wrongful death verdiucts and the health indusrance industry it depends on age and quality of life preserved. So it’s a judgment call.
But… the $1.5 million figure is a best-case estimate of the cost of a COVID death prevented.
But what if the cost of the economic destruction is $6 trillion instead of $3 trillion? Then the cost of a life saved is $3 million.That might not change you view much.
But what if, in reality, the lockdown only saved 1 million lives?
Under our two scenarios ($3 trillion and $6 trillion in costs), the cost of a life saved would be $3 million and $6 million, respectively.
What if the reality were that only 100,000 lives were saved by the lockdown?
Then the cost of a life-saved skyrockets to $30 million and $60 million, respectively.
That’s pretty darn expensive.
This is only simplified guesstimation that omits many actual and non-monetizable costs and benefits.
But President Trump’s forthcoming commission on how to open the economy has to start somewhere.
We won’t really know the truth death toll from COVID until next year — when we can compare the 2020 death toll with what was expected based on the historical trend.
If the COVID death toll is under 100,000 it very well may be hard to detect amid the 2.8 million or so deaths expected for 2020.
Just food for thought on re-opening the economy.