Column: COVID-19 will cost U.S. $16 trillion, almost a full year’s GDP
We all know that the COVID-19 pandemic is an enormously costly crisis. But how costly? Here are some numbers.
The total economic cost in the U.S., measured in lost gross domestic product as well as premature deaths and other health losses, comes to $16 trillion.
That’s as much as 90% of U.S. annual GDP, four times as much as lost output in the Great Recession and more than twice the outlay on all the wars the U.S. has fought in this century.
Loss of life among friends and loved ones, fear of contracting the virus, concern about economic security, and the effects of isolation and loneliness have all taken a toll on the mental health of the population.
— David Cutler and Lawrence Summers, JAMA
That makes the pandemic “the greatest threat to prosperity and well-being the U.S. has encountered since the Great Depression,” say Harvard economist David M. Cutler and former Treasury Secretary Lawrence H. Summers in a new article in the Journal of the American Medical Assn., from which these estimates are drawn. “Output losses of this magnitude are immense.”
Even worse: A good portion of this loss could have been averted by a robust response to the pandemic by government. “Most of the damages scale with the number of people affected,” Cutler told me Tuesday. To take only the number of those whose deaths have been attributed to COVID-19, that’s more than 200,000 people in the U.S.
The dire projection by Cutler and Summers also harbors reason for optimism — if the government’s laissez-faire approach to the pandemic thus far changes. The greater the U.S. effort to address the pandemic going forward, the lower the possible cost.
Cutler and Summers observe that the relationship between the human toll and the economic impact means that policies that can reduce the spread of the virus “have enormous social value.”
They focus on testing, contact tracing and isolating infected or exposed people. The degree to which these policies are likely to reduce deaths and severe and critical illness, they reckon, makes the cost-benefit calculation for them a simple matter.
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Taking the estimated cost of premature deaths at $7 million each — a figure based on estimates used in environmental and health policy — they reckon that the economic return from a test-and-trace strategy would be 30 times its cost. A 30-fold return on investment — who could oppose that?
Cutler and Summers specify the pandemic’s losses in economic and health terms, though the two are interrelated. Just under half of the loss, $7.6 trillion, represents lost GDP. The rest is reckoned as losses from premature deaths ($4.4 trillion), long-term health impairment ($2.6 trillion) and mental health impairment ($1.6 trillion).
The last of these is an oft-overlooked consequence of the pandemic, but it’s significant. The proportion of U.S. adults reporting symptoms of depression or anxiety has averaged 40% during the pandemic, according to the Centers for Disease Control and Prevention, compared with an average of only 11% during the same period a year earlier.
That produces costs for healthcare, as well as reduced productivity across the economic spectrum.
That’s also a sign of how the virus extends its influence to those not directly infected. “Loss of life among friends and loved ones, fear of contracting the virus, concern about economic security, and the effects of isolation and loneliness have all taken a toll on the mental health of the population,” Cutler and Summers write.
How much of the economic loss from the pandemic could have been averted is impossible to determine definitively, given all the factors that play into. Some guideposts exist, however. The U.S. has 4% of the world’s population but 25% of its COVID-19 deaths, Cutler notes.
“If you thought we could be like the rest of the world, that would mean that 80% of the deaths would have been avoidable, so 80% of the costs would have been avoidable.” That’s $13 trillion. But that’s an outside estimate, he acknowledges, because the U.S., given its size and diversity, would be hard pressed to match the rest of the world.
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The estimates by Cutler and Summers point to an urgent need for fiscal relief — exactly the response that has been tied up by the failure of Congress and the Trump White House to come to terms on a new fiscal package.
“The $3-trillion CARES Act [enacted in March] was a really big deal,” Cutler says, “but Congress is going to have to do more, because we’re seeing the effects of that wearing off.” A fair estimate of the additional assistance is about $2 trillion, he says, but that depends on the progress made against the pandemic.
The further spending should be seen as “steps to keep the economy afloat and people afloat until we really tackle the virus situation. We need more now because we didn’t tackle it well enough, and we’ll need more in the future if we don’t tackle it well enough from here on out.”
Should we be concerned about the burden in the future of what will necessarily be deficit spending today?
“At the moment, people are happy to lend us money basically for free,” Cutler says. The need for household assistance to help people stay home is critical: “There’s incredible need — we don’t want people back at work, because we don’t want the virus to kill a ton of people. So if there’s ever a time to do it, now is the time.”
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The authors point to a greater risk if steps aren’t taken in the near term to avert exponentially increasing economic damage in the long term — and made permanent so they’re in place for future pandemics.
“Recessions feed on themselves,” they write. “Workers not at work have less to spend, and thus subsequent business revenue declines.” By placing thousands of dollars in the hands of families and augmenting unemployment benefits, the CARES Act averted what might well have metastasized into “what likely would have been a new Great Depression.”
But the course of the pandemic is still unknown, and the U.S. response becalmed in the doldrums, at least for the moment. The lesson of this pandemic is that among the flaws of the U.S. healthcare system is that it focuses on treating acute conditions as they arise, “with far less spending on public health services and infrastructure.”
Assuming that the government will eventually establish systems of testing and contact tracing that will stem the transmission of this virus, dismantling them once COVID-19 is defeated will be a disastrous mistake. The U.S. hasn’t learned from its past encounters with global health crises. This one is the worst in American history; will its lessons finally take?