Has the coronavirus panic cost us at least 10 million lives already?

The number of people worldwide who have died from the coronavirus stands at 8,000 at the moment, equivalent to the death toll of two days of the world’s traffic accidents. The fear is of course that millions more will follow.

The panic over what the virus might do has now lead to economic meltdown: businesses and workplaces have stopped functioning, ports are closed, the aviation industry is dead, and many businesses providing livelihoods for billions of people are on the brink of bankruptcy.

You may not like to hear this, but such a meltdown costs lives. Many lives.

The value of stock markets has dropped about 25% worldwide, about 20 trillion in lost value. The world economy is expected to shrink at least 2% this year, and if we take the conservative estimate that the capital stocks that are not traded have lost the same value as those in stock markets, the world has probably lost about 50 trillion in economic value. This loss is spread evenly over rich and poor countries, with the loss in India just as bad as in Wall Street. So the panic has cost 1.2 billion Indians a quarter of their wealth, just as they were dragging themselves out of a very bad, very unhealthy place.

A functioning economy is what pays for the hospitals. It generates the food we need to survive, and pays for the roads and ports we need to ship food from the farms to us. It allows us to construct sewage works and cleaner energy systems that transform dirty unhealthy countries into better ones. It pays for the houses that keep us warm and safe. A functioning economy ultimately also pays for the schools in which our kids learn what they need to have a bright future and to be proper citizens.

The economy provides the medicine, the science, and the organisation that allows us to live with 7 billion on this planet, rather than the paltry few tens of millions sustained by the autarky we enjoyed before we started trading with each other. And now we have just broken many of those trade ties out of fear, bunkering down and closing our ports, not caring about the destruction of human lives elsewhere that causes. Some of the progress humans have made in the last decades will be undone. With more poverty come civil wars, famines, and just generally less healthy living.

So let us stare the truth in the face: how much has the panic of the last few weeks cost humanity in terms of lives lost?

We are here not talking about lives lost that you can pinpoint, but about lives that are euphemistically known as “statistical lives lost”. These are the people that will die in years to come because the roads they drive on didn’t get repaired because of lack of funds because of the panic. These are the people that will die without proper health care because the health sector will have less funds as there is less to go round. These are the people that will die because their doctors, policemen, farmers, and everyone else is somewhat less competent because of the lower education due to the panic we now have. They will be the ones dying from diseases that sewage works would have prevented, but those sewage works were delayed. They will be the millions dying in civil wars as this economic meltdown pushes their social systems over the brink.

I think the number is at least 10 million, possibly far bigger. These people will never know they died because of the panic of the last few weeks, but they would have lived without the panic and they have families and loved ones too who will be just as distraught, whether they know the panic was to blame or not.

The maths on such questions can never be perfect, but we can make an educated guess based on official numbers.

Let us use two very different ways of calculating the likely number: the rough relation between the economy and length of life, and the costs governments say they make to save lives.

On the importance of economic growth for length of life, we can look at China. In 1978 its GDP per capita per year was about 500 dollars per person in purchasing power parity terms. It was about 10,000 dollars by 2010. In the same period, all the improvements this growth paid for increased life expectancy by about 10 years, from 65 to 75. That was due to improvements in food security, health, social stability, and many other factors.

10,000 dollars per person per year means a lifetime income of about 750,000 dollars. If 750,000 dollars buys 10 more years of life, a whole life of 75 years is basically generated by an additional 5 million dollars in purchasing power terms. A loss of 50 trillion then means a loss of about 10 million individuals. Note that these are full lives from cradle to grave, not the same as a “prevented death of a random person” which will on average be in the middle of a full life. So we could equivalently say the loss of 50 trillion means 20 million more deaths.

If we don’t look at the transition in China but take the one in India, things looks more dire still. In the same period 1980-now, life expectancy rose 15 years in India, though GDP rose maybe about 5,000 per person in purchasing power parity terms. Using those numbers, humanity has just lost 30 million lives due to the panic.

Let us then consider a different approach and take the rule of thumb that the UK’s National Health Service itself uses, which is that it generates 1 additional year of healthy life for an additional 20,000 dollars (15 thousand pounds). That is the internal number used in the UK for the costs of saving a year of life. The average cost is much lower than that because lives are saved more cheaply with the first few billions spent on health rather than the “marginal costs”, but let us take this official number at face value. If the UK buys 1 year of life with 20,000 dollars, then about 1.5 million buys a whole life.

One might be tempted to think non-health expenditures (the other 3/4 of government spending) couldn’t possibly have a similar effect, but that is wrong: to survive we need food, shelter, safety, clean energy, and everything that generates those things. The criminal and social system that prevents our societies from descending into mass murder are saving lives just as much as our health systems. So indeed, government use a similar rule of thumb as to how much value-for-money other services should buy: higher costs at the margin, but similar costs on average. Indeed, some expenses are fare more effective than marginal NHS spending. Mental health services are for instance known to save lives far more cheaply!

If we thus take the pretty low estimate that 1.5 million in government expenditure buys one whole life, then applying the fact that government expenditure is only 40% of GDP, we’d need about 4 million more economic value for an extra life. Note that that implicitly presumes that what individuals do with money other than pay taxes has no benefit to their health, so we are being very cautious here!

Hence with a conservative run-of-the-mill estimate, we should say that even in rich countries 4 million in economic activity buys a life. By that token, the loss of value of the economy would cost humanity about 12 million full lives, equivalent to about 25 million more random deaths.

However, that is a very conservative estimate because it applies the number for rich countries to the whole world. Since the world is on average much poorer than the UK, by about a factor of 3, the numbers of lives lost is about 3 times higher than it would be if everyone were as rich as in the UK.

So as a very crude calculation the panic in this world has cost us at the very least 10 million full lives, and quite possibly 50 million full lives or more. It is as if we have randomly killed 100 million people in the decades to come. This is the price humanity is going to pay in the coming decades, caused in just a few weeks of panic. These are not people who will die in the coming months from the corona virus, but from the many effects that broken trade ties and lower economic activity has in this world.

Think of that next time you think it is “safe” to close down the economy to keep the burden for our hospitals low now. The cost of this panic is measured in blood.

In terms of the question “what should we have done”, it is basically too late now. It was probably impossible to coordinate humanity into any other response than the panic we are now having. There is simply not the political power in anyone’s hands to react much different to the way we have. Governments of the UK and the Netherlands (who incidentally have the better modellers in this realm), tried to take a wider view and be more balanced, and were roundly denounced for it, internally and externally, forcing them into greater panic.

Health organisations were always going to call for measures that would cause economic panic and thus cost millions of lives, for the simple reason that health organisations are not set up to think about the damage they do via panic. Populations were always going to clamour for whatever seemed the safe thing to do in the immediate here and now once a virus built up to be scary started flooding the emergency rooms of various regions.

Perhaps these reactions were needed to shake us out of complacency, but whether they are or not, they have done major damage on their own.

All we can do now is save what we can of our interconnected international economy. Some of the right steps are being taken: we have learned from the crash of 1929 that allowed Hitler to rise and hence caused WWII. After the crash of 1929, countries bunkered down too and trade collapsed, fueling an anger that inflamed the world. Our economic institutions made many mistakes then, including halting trade and squeezing liquidity, causing massive unemployment. This time round our national and international economic institutions are pumping liquidity into the system and trying to guarantee jobs and keeping vital international industries going at any cost. Its a good start, but much more will be needed.

How many lives this virus will take directly we really do not yet know. But the panic has killed many millions, that is for sure already.

After WWII we set up new economic institutions to prevent the mistakes of 1929 from recurring, ie the self-isolation of whole economies to the loss of all. Let us think what institutions we need to prevent what we are now experiencing.


[Update March 22nd: in a follow up post, I provide the tentative estimate that the ratio of years of life saved by our isolation policies versus years of life lost due to those policies is 1:70. Particularly hard-hit are the elderly whose pensions have been decimated. I advocate that international macro-economic modellers to team up with epidemiology-modellers to produce more authoritative numbers in the hope that a multi-disciplinary effort can help convince the public and key decision makers to reduce the self-inflicted disaster we are still creating.]

[Update March 24th: as more economic data gets in, it becomes clear the post above is far too optimistic about the economic damage done. For instance, markets have now tanked 30-40% rather than 25% as mentioned in the post. The IFO institute now expects German GDP to shrink 7 to 20 percent this year, yet still ignoring structural losses for ensuing years. Seven forecasting agencies on the financial markets, including Deutsche Bank and Goldman Sachs, are now forecasting deep recessions in the world and US economy, with a peak of up to 24% in the second quarter of this year alone.]

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70 Responses to Has the coronavirus panic cost us at least 10 million lives already?

    • paul frijters says:

      they are not experts at all. They have no idea about the systemic damage they are partly responsible for. Via their concluding line at the end they say “In conclusion, while the moment is dire and adherence to safe practices, starting with social distancing, is absolutely necessary” they are co-responsible for the panic and mass hysteria we are now seeing that is costing us millions of lives. Yes, mass hysteria eventually burns itself out. It is the damage it does in the meantime that stays behind.

      The education of public health people really needs to be looked at. They should be taught the basic of an economy and a social system. This panic should be prime evidence in their curriculum on the topic of systemic damage. Social distancing of a village or even a region is ok as the rest of the system quickly replaces the lost networks when the small part re-connects. But when entire countries shut down, the damage is immense. Europe learned that in the 1930s and forgot. Eastern Europe learned it again in the 90s and forgot. This is a lesson we seem incapable of remembering.

      • Thanks Paul
        “The education of public health people really needs to be looked at.” I agree.
        However I really doubt that ‘public health people’ have much to do with why people ( who get virtually all their ‘news’ from social media) have been making the roughly 200km round trip from Canberra to Braidwood and back, just to stock up on loo paper.

      • derrida derider says:

        I think you do the experts a bit of an injustice here Paul.

        The planning for a pandemic has, at least in Australia, tried to take into account the economic costs of measures to manage it. Probably not enough, but the public health experts I know are not as naive or uniformed as you seem to think.

      • Korea has not done ‘nation wide lock-downs’ rather it has done testing on a large scale and selective isolation’s combined with a good public information plus public cooperation its worked.

        • paul frijters says:

          if that is true then that might well have been the optimal way to go in hindsight and in our “this is how we will do it next time” manual. It was just not politically feasible in Europe where the medics like those in the “expert” link above called for Wuhan-style lock-downs and mass hysteria made it impossible to ignore those demands.

          • Paul until a Vaccine is developed the odds are that the “next time” could be 6 months to a year from now. Everybody is watching China ; now they have eased their lock down, will the epidemic bounce back?

      • Paul the Book of Job has a “wonderful ending “.

        I put up the wrong link
        I meant to reference this report :if a drug like Chloroquine, long in use, with low side effects and fairly easy to make , turns out to be reasonably effective treatment, then some of the panic should ease.

        Prof Robin May, Professor of Infectious Disease, University of Birmingham, said:

        “Chloroquine is a so-called ‘weak base’. In other words, it is a molecule that (broadly speaking) helps to neutralise acids. It is a drug that has a long history of use against malaria, essentially because it diffuses into red blood cells, making the environment within the cell less suitable for the parasite to live in.

        “Since it has a long history of clinical use, the safety profile of chloroquine is well-established and it is cheap and relatively easy to manufacture, so it would – theoretically – be fairly easy to accelerate into clinical trials and, if successful, eventually into treatment.

        “The mode of action against COVID19 is not established. However, many viruses enter host cells through a process called endocytosis. This means that the virus is initially taken up into an intracellular ‘compartment’ which is typically fairly acidic. Chloroquine would alter the acidity of this compartment, which can interfere with the ability of viruses to escape into the host cell and start replicating. Another possibility is that chloroquine may alter the ability of the virus to bind to the outside of a host cell in the first place (which is an essential first step for entry). Lastly, chloroquine has subtle effects on a wide variety of immune cells (for this reason, the drug is sometimes used in autoimmune conditions like lupus or rheumatoid arthritis) and it may be that one of these effects helps stimulate the body’s ability to fight off COVID-19.”

  1. Alan says:

    The Spanish flu pandemic (which in a just world would be known as Kansas flu from the location of Patient Zero) lasted from March 1918 to November 1920. There were three waves, the second was far more intense than the others. Estimates of deaths are shaky because data capture was so uneven outside Australasia, Western Europe and North America. Estimates range from 50 to 100 million. More recent work suggests the higher figure.

    The Spanish flu infected one in three people on earth, or 500 million human beings. Between the first case recorded on 4 March 1918, and the last sometime in March 1920, it killed 50–100 million people, or between 2.5 and 5 per cent of the global population–a range that reflects the uncertainty that still surrounds it. In terms of single events causing major loss of life, it surpassed the First World War (17 million dead), the Second World War (60 million dead) and possibly both put together. It was the greatest tidal wave of death since the Black Death, perhaps in the whole of human history.


    It is often said that the First World War killed Romanticism and faith in progress, but if science facilitated industrial-scale slaughter in the form of the war, it also failed to prevent it in the form of the Spanish flu. The flu resculpted human populations more radically than anything since the Black Death. It influenced the course of the First World War and, arguably, contributed to the Second. It pushed India closer to independence, South Africa closer to apartheid, and Switzerland to the brink of civil war. It ushered in universal healthcare and alternative medicine, our love of fresh air and our passion for sport, and it was probably responsible, at least in part, for the obsession of twentieth-century artists with all the myriad ways in which the human body can fail.”

    — Pale Rider: The Spanish Flu of 1918 and How it Changed the World (2017) Laura Spinney

    Of course we are far better placed to deal with this pandemic. In 1918 viruses were barely understood and no flu virus was isolated until 1932. Nevertheless, even if you halve the lowest estimate and apply it to this pandemic you are still looking at the possibility (definitely not the certainty) of 1.25% mortality in at least some areas.

    • paul frijters says:

      the analogy with the Spanish flue is of course important. In terms of disruption to the economy, it is the lack of coordinated reaction to the Spanish flu that kept its economic effects limited to the effects of the lives lost. Business was less disrupted, precisely because they didnt know what to do.

      The bigger difference though is who it kills. The Spanish influenza took out a lot of prime-aged people between 18-40. Those people would have expected to live another 40 years. This virus, we now know, is largely taking out those of the over-60s who have other conditions and thus had low residual life expectancy.

      Also, the modellers do not expect a 1% death toll at all, even if the whole population gets infected. More like 0.2%. To explain the rapid spread there must be many people infected running around infecting others who never develop serious symptoms.

      The panic has killed 1% though, already, though these deaths are in the decades to come and not so visibly related to anything but local reasons. This will become a textbook case of how macro economics differs from micro economics.

      As a student of history note that you are about to experience mass hysteria.

      • Alan says:

        As a student of history I’d note that pandemics always give rise to elite hysteria as well as mass hysteria.

        The first outbreak of Spanish flu, at Fort Dunston, Kansas, caused a riot by new recruits convinced that the vaccinations they’d been given had caused the flu.

        My personal favourite among panics happened in Texas in 1860, although that was not an epidemic. Texans convinced themselves that Black Republicans (a political, not racial designation) and slaves were burning down Texas cities. Several hundred alleged Black Republicans were hung or lynched across the state. What was actually happening was that the recently invented phosphorus match was a lot safer in the humid east of the US than in hot, arid Texas.

        Elite reaction to both the Justinian Plague and the Black Death made no more sense than recruits frightened by vaccination and Texans frightened by matches.

        • paul frijters says:

          nice examples and of course agreed though I often find more logic in the hysteria of the elites, who seem to me trying to keep their positions by all sorts of random strategies, often successfully by inventing some total myth. Just think of Trump who is blaming the Chinese for the virus might just get away with it, unfortunately.

          • Alan says:

            I’m not joking.

            I’d contest that Trump can be said to represent an elite reaction. Blaming internal and external enemies for adverse events is very much the mark of mass hysteria, not elite hysteria.

            There are repeated cases, for example, of princes and bishops trying to protect Jews from mass-driven pogroms in the Late Medieval period.

            Ditto the Japanese internment program in WWII. While FDR did approve internment it originated as local decisions by governors, mayors or military commanders and FDR was successful in limiting it to the West Coast. Weirdly enough, despite Hawaii’s huge Japanese-American population only 160 of them were interned as compared to the huge numbers on the mainland.

            • paul frijters says:


              plenty of examples of elites doing just that, and often quite rationally, but sometimes going from bad to worse. Emperor Nero was always suspecting some god was not toeing the line he wanted, and had his soldiers “attack” the sea, bringing home barnacles and other such spoils. The hysterical conspiracy stories of the nazis are another case in point. Certainly elite hysteria.

              I guess we’d have to start defining hysteria and see where we think its distinct from uneducated or permanently deranged.

              I must say the hysteria here in London is catching a bit. Making me somewhat jittery too.

              • Alan says:

                Its a very fine distinction, but neither of the examples you mention are actually elite leaders.

                Hitler is easy, he was a demagogue without much education who reflected mass fears about Jews, Communists and others. Trump, despite his wealth, is not all that different.

                • paul frijters says:

                  ah, well then you have just defined yourself into a very unusual box in terms of what you think of as elite hysteria. We’ll just have to agree we define these things differently and hence might both be right in our own way.

                  btw, I used to think the worlds’ biggest loss of life were the famines in China in the 19th century, effectively due to the system not able to keep functioning when the Brits succesfully challenged imperial power. You know about that period. What’s your take?

      • desipis says:

        “More like 0.2%.”

        “The panic has killed 1% though”

        I’d like to see your modelling as I think you have these numbers roughly backwards.

        Most data I’ve looked at suggests a ~1% fatality rate assuming adequate treatment and a ~70% of the population infected to reach herd immunity. That’s a 0.7% population loss. Fatality rate will likely be higher if the medical system becomes overloaded.

        On top of that china reports of 5% cases requiring ICU and ventilators. Given the rate of spread we’re looking at an Italy style problem of lack of ICU and ventilators in many countries including Australia. If that results in the death of the overflow patients we could be looking at something like a 3% fatality rate / 2% population loss in that case. That’s high enough that if the government is seen as sitting on its hands or significantly favouring the economy over lives, we won’t be facing economic collapse, we’ll be facing political collapse.

        A bigger problem is your estimates of lost economic value being based on the stock market values. Stocks are a poor indication of the lost value. The economy will quickly recover once the pandemic subsides, however at this time it’s quite uncertain who will benefit from that recovery. In many industries (e.g. hospitality, tourism) the pandemic will very likely cause many businesses to go bankrupt and the banks/creditors to lose out. During the recovery it will be new businesses, using cheep government credit who drive the growth and represent economic value. It will be built on the physical infrastructure, technology and human capital that hasn’t be lost (sans population loss). This gain will no go to the current shareholders and so it’s not reflected in the current stock prices, but it is real economic value that society will rebuild very quickly.

        • I think you would also need to look at who the winners and who the losers are. How is the affected by the tendency for capital over recent decades to get a much greater share of added value? Could the changes to benefits etc precipitated by the panic, lead to a more equitable society post Covid 19?

  2. Nicholas Gruen says:

    Hi Paul, as you know I read this in draft and suggested that a critical consideration is the contain/extinguish question. If we’re only containing it and seeking to manage the process so as not to overwhelm the hospital system, then your argument seems worthy of consideration.

    But if you aggressively go after extinguishment all the disruption can be over in a matter of weeks. You might have 20% less economic activity during that period and then you keep your country a ‘safe zone’ with very strong border controls – suffering some further economic loss and that’s it.

    Isn’t it?

    • paul frijters says:

      nope. The point is that during your months (not weeks: no-one expects this to be over in weeks) of aggressive containment you do immense damage to the economy worldwide which will take many years to undo. The importance of keeping trade going was not only the lesson of the Great recession, but also the lesson of Eastern Europe in the 1990s: after the collapse of the Soviet unnion the constituent states and companies stopped trading with each other. After a surprisingly short time, whole chains of supply get destroyed because some element in the chain went bankrupt. It took them about 20 years to get back to the level of economic activity they were before the collapse. That is how important trade relations are.

      So in terms of taking “time off” it is all about the scale.

      A village can lock down for a month with little effect on its economic potential, the world economic system cannot. Essentially what happens is that “time off” is a negative shock for to the network of trade relations. A small shock is easily buffered as new networks get created fast. A very big shock and the ability of the networks to regrow is heavily damaged.

      That damage is what is reflected in the stock market. 2 weeks or even 2 months of no activity would be unnoticed on the markets if all that then happened was a kind of “being in stasis”. What has actually happened is that some 5-10 years of activity has been wiped out.

    • paul frijters says:

      let me try to explain the nature of these business relations in an international context and why temporary disruption at the local level is ok but mass disruption is not.

      It’s a bit like 10 people living in different countries being involved and necessary for making a lasagna. One person makes the cheese, another the pasta, another the bechemel, another the mince, another the tomato, another does the cooking, etc. In an optimised system these 10 people work together seamlessly, everyone deliver the ingredients to the cook at just the right time so as to optimise the number of lasagnas they make together.

      If one person gets ill, its not a huge problem. The lasagna can be made with a slightly different cheese, a slightly different tomato, etc. Stocks of the ingredients last a while. Lasagna production would slow down, but only temporarily. If two “sit out” for a while, its not the end of the production line either.

      Yet if, say, 4 are out of production for 2 months, there is not enough slack in the system for the others to adjust. Lasagna production as a whole comes to a standstill and the other 6 start to do something different. The cook finds another job, the pasta maker starts making confetti, the mince maker starts driving taxis, etc. When the 4 recover 2 months later, they find the production line for lasagna has disappeared. The people they worked with are now doing something else, less productive, and the team is gone as everyone has new responsibilities. So the 4 who were expecting to pick up their old trades find there is no demand for their production anymore and have to switch too. All 10 are much poorer than before and only after several years do new teams of lasagna makers emerge.

      In the meantime, the lower production all round has meant 2 relatives of the original team are dead because of lower all round economic activity preventing good sewage works from being installed.

      It’s not a perfect analogy, but it tries to capture the nature of disruptions to integrated multinational supply chains: the whole chain can only take so much disruption after which it unravels entirely and even the possibility of reassembly is gone. Huge externalities.

      • Nicholas Gruen says:

        Thanks Paul,

        You’re not cutting off trade. You keep trade up as much as you can. You’re super serious about not spreading the disease. You close your border except to countries with a lower infection rate than you and only then providing you’re confident it doesn’t create a way for people to enter the country from elsewhere. You order everyone to work from home and make exceptions for food, health and other essentials.

        You move the infection rate (R0) from 2.5 or higher to below 1. People recover or die, in six weeks or so there are very few cases – and hopefully almost all of them are identified and quarantined.

        You return to live as normal within your green zone, prepared to have full people movement with all other green zones and adopt zero tolerance elsewhere.

        So the level of disruption at home is contained to the initial six week short sharp shock plus whatever impact it has as a result of ongoing travel restrictions.

        This would not impose large supply degradation in the longer term. The analogy with the Eastern block is over the top as they suffered huge disruption and the need to transform their technologies and systems. There were anti-commons or thickets of old soviet property rights getting in the way of the market emerging.

        So it’s very different. I agree that you could experience such a phenomenon if things went on for six months, though things would bounce back over a period of six months to a year I would think (but that may be over-optimistic).

        • paul frijters says:

          I do suspect that is the right way of thinking about it, ie the question “what could we do better next time and what kind of institutions would we need for that”.

          Part of the problem is that our economies have been very intertwined and optimised to be very dependent on immediate and reliable delivery. The system couldnt cope with much disruption. That’s another thing to think about: how to prevent similar fragility returning after this crisis?

      • But Paul, what if all this coordination is not producing something useful and tasty like Lasagna, but products and services that are destroying our world. I know you think climate change and ecological breakdown is overstated by doomster scientists, but I don’t think you have the expertise as far as I am aware to make this judgement.

        So you may be wrong and they may be right, so the unravelling of economic activities that are harmful to humanity may provide the space to reorganise the economy so it is not destructive to humanity. Certainly it could remove many vested interests that delay action. Maybe destruction of our currently destructive economy is what we need for longer-term survival.

        • paul frijters says:

          Hi Henry,

          I dont think climate change is over-stated at all. I have always bought the mainstream scenarios of the IPCC, with a paper in 1999 using their estimates in the journal Climate Change.

          What is true that I am far less pessimistic about whether climate change is all bad, and I see huge opportunities for humans to start to add to Nature, rather than only worry about protecting it. We can and should fill the oceans and the mountains with life.

          The idea that the destruction of human wealth and life we are now seeing is a good thing because it means less pressure on other animals and plants on the planet is simply one I reject. I am with the humans.

  3. Scientists say mass tests in Italian town have halted Covid-19 there


    It sure looks like very widespread testing and resultant selective isolation of individuals, rather than ‘ isolating an entire nation’ is the best most efficient most cost effective approach.

    • Nicholas Gruen says:

      The initial post I put up on this – which simply related what a correspondent had sent me – still holds up reasonably well. Its main point is that containment works and works well.

      However, I’m not sure those comments were right to suggest a relatively low key approach. That hangs on whether a ‘high key’ approach could kill the whole thing off (at considerable but very short term cost).

      • The costs of very widespread testing etc would be large ,however it looks like it could work, which is more than can be said for alternatives that are very costly and less likely to work.

        From what I’ve read without a high key approach one infection could after a month equal 240 new infections (and in the next month 240 x 240 – grim maths. )
        In contrast under the Korean model one infection is after a month four or less new infections.

        Effectively ,treating the ‘whole population of a nation’ rather than focusing on those who are the major vectors seems to me to be a poor strategy.

    • desipis says:

      Unfortunately for Australia that horse has bolted.

      Looking at what the Asian countries that learned from the first SARS outbreak, there are a number of things that all need to be done to a sufficient level to contain a highly infectious virus like sars-cov-2.

      1) Widespread and freely available testing.
      2) Tracing peoples movements through GPS tracking on everyone.
      3) Strictly enforced isolate for anyone at risk including travellers.
      4) Strong hygiene norms including everyone wearing masks while in public and frequent hand-washing.

      Australia currently lacks the political will, social will and functional capacity to implement even one of these things to a sufficient level. Based on current growth rates in Australia and trends overseas the virus will spread way faster than we’ll be able to grow out capacity to contain it. If the government had moved hard and fast in February we may have had a chance. Maybe we’ll pull off a China or South Korea for the next one.

  4. davidsligar says:

    I like the implication of this argument that reducting government revenue is killing people. Everyone in recent decades who has advocated for, or was complicit in, reducing reducing tax rates below the peak of the laffer curve has aided and abetted mass slaughter. Tax cuts have a cost “measured in blood.”

    I wouldn’t set it up like this myself, but if one wanted to be consistent with the analytical framework and rhetoric in this piece, that’s what you’d do.

    • paul frijters says:

      I have been saying exactly that for many years now.

      Indeed, life expectancy in the US is 78 now, instead of the 82 it would have been with a proper health service, as in Australia. A government health service is way cheaper and more efficient than a private one, so I indeed am one of those people who openly says that failing to set up a US version of the NHS costs lives. Probably for about 2% of GDP via taxes (replacing 6% GDP private spending so actually making everyone money) they could have had a life expectancy of 82. 4 years extra life is equivalent to 5% more life, or about 7 million full lives in the US.

      Way cheaper than 1.5 million per saved life, incidentally, even in the US.
      Angus Deaton got the Nobel Prize for saying much the same via his “Deaths of Despair”. So I am in good company. Good public services indeed save lives.

      It is of course partly about tax levels and also about efficiency: the US has a lot of highly inefficient spending. Health is the prime example, but crime and the legal system are also incredibly wasteful such that much of government spending is useless. Deliberately so of course, essentially because of rent-seeking in the political sphere, but that’s a debate we needn’t go into here (read “game of mates”).

      Australia is a more interesting case. Despite the widespread rorting, it still has good basic services: welfare, police, education, and a national health service. It has been reduced but I think compulsory voting has saved it from the fate of these services in the US. That is why health, crime levels, social security, sanitation, roads, etc., are way better in Australia than the US. Even now. Government spending to GDP is for instance still 36% in Australia, not much below the lower range seen in EU.

    • Jeremy says:

      Minor nitpick: highest point on the Laffer curve would not be the highest point on societal well-being. The Laffer curve maximizes for government revenue, and the closer you get to its peak the more you’re trading off reductions in GDP for tax revenue.

      And if you reaaaally want to get into it, there are questions about how much the US prioritizing economic growth has benefited the rest of the world. We in Canada undoubtedly receive cheaper drug prices because of the US’s ability to subsidize cost.

      • davidsligar says:

        Lives saved thru government revenue is the relevant metric in this piece.

      • paul frijters says:

        yes, and there are other benefits from growth, such as more technological improvements that might pay off in the future, and a greater resource base for wars and such.
        But in some kind of intertemporal sense being close to the top of the Laffer curve is indeed where wellbeing maximisation makes you think of as the point to go to. Or at least such thoughts can be found in the latest handbook on wellbeing cost-effectiveness (though admittedly only in footnotes).

        And David is right, the life-value of government expenditute is the key metric here. Although even in times before large government, greater wealth and life expectancy were positively related. More buffers. Government has been able to supply some large things individuals cant. Sewage works, infrastructure, clean water systems, locally clean energy systems, etc..

  5. davidsligar says:

    To be clear, in this piece panic refers entirely to actions taken intended to stop the spread on coronavirus – as opposed to animal spirits in the financial market? Your view, as I read it, is the markets are responding rationally to “panic” that inhibits real economic activity?

    • paul frijters says:

      the panic certainly is a kind of animal spirit, but this time not the one in the financial markets but in human society. I indeed do see the market reaction as the rational response (unlike, say, 2007 in which case you might say the markets caused the wider panic. This time it reacted to it).

      So with panic I am thinking of the huge changes in behaviour by large numbers of individuals. The hoarding, the demands to cancel schools and work places, the cancellation of all events, the obsession with this infection at the expense of all other activities and concerns, the lack of perspective in the reactions, etc.

      Crowd behaviour par excellence.

  6. Nicholas Gruen says:

    I still haven’t got any answer to my question about containment v extinguishing the virus – locally at first and then expanding those zones that have got rid of it. If one can extinguish it – even locally – then one can resume business as usual except for interdicting travel in and out of safe areas.

    • Nicholas
      Re extinguishing.
      The Koreans have to date done about 300,000 tests of which about 8000 have proved to be confirmed cases- they even have ‘drive through’ testing stations open to anybody who feels the need.
      Because of the possibly high percentage of people who have the virus and are potential vectors but have no symptoms, at all, sustaining that kind of rate of testing until a vaccine is available , I think would be essential to any hopes of extinguishing the virus.
      As an approach the Korean-Singapore- Taiwan models would not be cheap, but it surely would be better overall and it might even reduce the so costly globally high levels of panic-paranoia .

    • Paul Frijters says:

      that is a question about whether there are different approaches to how to fight virus infections that could have been taken that would not have had these devastating economic effects.
      Simply put, I dont know. Perhaps. John Walker says South Korea is the example. This is the sort of thing the health community will discover and hopefully learn for next time. Even then, containing the panic is a totally different thing to containing the virus.

  7. Paul a question for you ( or anybody how has a head for stats).
    If you live long enough ,everybody dies of something or other . Old age is the ultimate terminal disease.
    If deaths of people aged 75 + were excluded from the calculus what would the mortality figures for CV19 look like?

    • paul frijters says:

      these kinds of things the modellers already know to some extent, though they make all kinds of fine distinctions between the mortality rate of those infected, the mortality rate of those detected, the mortality rate of those detected that show up at the hospital, and of course the population wide mortality rate.


      has a lot of basic info on this.

      Probably a better way at looking at this rather than the numbers of those dying is how many years of life are lost. Given the dominance of individuals with pre-existing serious conditions amongst the fatalities, the lost years are rather low but I dont want to give you a back-of-the-envelope number because of the sensitivity.

  8. Paul
    Another take on this from a Christian ( you might even agree with some of it :-)

  9. Nicholas Gruen says:

    I still don’t think I’ve got an answer to the question I asked about extinguishing the virus and working up a virus free world from ‘green zones’. John Daley makes the case.

  10. Kevin Carlson says:

    This was already brought up in another comment but received no response-the idea of taking the drop in the stock market’s value, then extrapolating to the value of all worldwide capital via a simple ratio, then describing that extrapolation as a “conservative” estimate of the real economic damage caused so far by the crisis, seems really hard to defend. If, for instance, it turned out that this was all a huge overreaction and governments all loosened up in April, then by July we might well have recovered 30 or 40 of your $50 trillion claimed lost value-quite miraculous, but then what of the 10 million deaths that are all supposed to be in the long-term future? You have to argue that the financial market collapse (1) somehow reflects a real, sudden drop in the value of essentially all capital worldwide and (2) somehow that drop is irrevocable. I see no argument for either of those claims.

    • paul frijters says:

      Hi Kevin,

      I am indeed saying its reasonable to think the stock markets are rather good at estimating how much value has been lost. Note that the value of companies reflects the value of the many capitals going into them (human, physical, reputational, networks, etc.). The stocks include those on houses, on labour-intensive industries, etc. Still markets pretty much everywhere and down the lined crashed at least 25% so I think its not to bad to take it as a proportionate estimate.

      Why do I say conservative? Because the value of forms of physical and financial capital in the world is already well over 200 billion (stock markets are but a small part). That is not counting all the human capital. So the reason I say conservative is that whilst the markets have gone down maybe 30% now on average, the total value of all capitals, ie the expected value of streams of goods and services, is probably closer to 300, 400 trillion. So I only need to say that has reduced 15% to make the 50 billion.

      Another way of saying this is that world GDP is about 85 trillion. If I take a stand on average discounting in the markets, investments, etc. (say 5%, an often used figure), then discounted world GDP would be twenty times 85 trillion. One then gets 50 trillion reduction from a 4% reduction in total factor productivity. Pretty much any way I slice the reductions we now see in markets (including for labour) will get me more than that. The expected 2% reduction in world GDP for this year and next already gives me that if there is no catch-up after that.

      So whilst I of course agree there is no certainty about looking into future values, the assumption that markets are not stupid on this point (nor the economists making projections of world GDP) make my guess on the conservative side.

      Lets turn it around: what is your estimate?

      • Kevin Carlson says:

        I would say that “investors are reliable at not panicking en masse during an unprecedented crisis” is a very bold defense of the efficient market hypothesis. I would be less willing to criticize expert predictions of global GDP decline, and it is clear that there’s a high chance of a worldwide recession for the next years.

        However I would certainly expect a catch-up after an exogenous shock like this, especially given the number of rich governments that seem to be committing strongly to preventing too many businesses being unnecessarily destroyed. For instance, there seems to be strong evidence of such a return to trend after the 1918 epidemic, though I certainly haven’t studied this closely, see this link (pdf).

        As for the request to put my money where my mouth is, I would frankly estimate a negligible number of excess deaths over the next fifty years due to reduced economic growth during the coronavirus pandemic, at least under optimistic assumptions about the responses by governments avoiding excessive concentration of major industries. But that’s really a separate issue from your position of a stock market collapse having a relatively precise correspondence to irrecoverable loss of long-term expected well-being in the population.

        • Kevin Carlson says:

          Sorry for the problems with the link-I don’t seem to be able to edit my previous comment.

        • paul frijters says:

          Hi Kevin,

          I am not saying investors are incapable of panicking, or that markets are not prone to bubbles bursting. They are, and I have argued so in the past. But they are also where big money makes tough calls on where they expect money to be made. They are basically good at reading the effects.

          Moreover, as I said, economic forecasters are predicting the same thing, and not merely on stock market indicators. Several industries are going to be hurt or even extinct from this. Aviation, tourism, hotels, and several long integrated supply chains.

          History is also important here. We have seen before what happens when countries stop trading with each other for a couple of months. 1929, the collapse of the Soviet trading block (which I extensively studied: why do you think I feel so certain that this is such a serious issue?). The economic disruption both cases lead to social strife and quite large loss of life.

          So I have history, economic forecasters, the stocks markets, the literature on the GDP-life expectancy, and the evidence on the destruction of industries we already see on my side. I took very conservative numbers to go from a 30% stock decrease and a 2% growth reduction this year to 50 trillion in expected total loss. If I’d have taken the middle estimates (for instance factoring in normal growth in the discounted numbers), it would be closer to 150 trillion.

          But you feel confident the economic disruption will have minimal effects.

  11. Ben Finn says:

    I think a happiness economics approach is useful here. From my back-of-envelope calculation, the harm to lives (unemployment, hardship, anxiety etc.) from a recession might be larger than, but of similar order of magnitude to, the loss of life. Detail is in footnote 7:

    • Ben Finn says:

      That said, reading your article and thinking more about it, the fairly limited effect on happiness the last recession had doesn’t show the long-term effect on life expectancy it may have had. So maybe many more well-being adjusted life years (WALYs) have been lost, and continue to be.

    • paul frijters says:

      Hi Ben,

      you are preaching to the converted. I wrote a handbook on wellbeing (=happiness) in policy making and many of the numbers for the effects of policy on length of life above are lifted from that work. I teach this stuff at LSE.

      Yes, the last recession didn’t affect happiness much in the UK. But it did (for 12 months) in the US and there there was indeed a follow-up longer term effect via the ‘deaths of despair’ (lower life expectancy, substance abuse, etc.). The key here is unemployment which hardly went up in the UK and much more in the US. A recession without unemployment is much less bad for happiness. Unemployment in turn is all about disruptions in trade flows. In that sense what is happening now is probably worse than the disruptions prophesised for Brexit.

      Also, good on you to have a go with calculating some reasonable numbers for effects of this. We need much more of that.

      • Ben Finn says:

        Thanks – I’m just an amateur, so my thoughts are pretty worthless really!

        But out of interest, do you know why global life satisfaction has declined since 2011? (Not just in the US, though the World Happiness Report 2019 suggests it’s mostly in the very biggest countries.) Is it longer-term fallout of the financial crisis? In which case, why did global life satisfaction return so quickly to normal in 2010/2011 before falling again?

        • paul frijters says:

          well, you have good instincts for this stuff.

          The world average is down mainly due to India. Alongside its growth there has been a destruction of social life there. Also, the last few years have seen increased ethnic tensions as the growth slowed and the politicians started to play groups off each other.
          Nothing to do with the financial crisis. Northern Europe enjoyed an almost continuous increase since 1995. Not quite so the US. And of course now all bets are off.

          • Ben Finn says:

            Thanks again.

            FWIW running some more numbers I see how smallish effects on life expectancy caused by downturns could be as bad, or much worse, than loss of happiness.

            I see that the growth rate of global life expectancy peaked in 2008/9 (coincidence?) and has been falling since. Had it instead continued to grow at the same rate, life expectancy would now be 0.21 years higher. That’s 1.6 billion extra WALYs, or 22 million whole lives.

            I don’t know how much (if any) of that slowdown was due to the 2008 financial crisis – casual googling offers various explanations – but the total is not a small number.

            • Ben Finn says:

              Sorry, 1.6 billion extra life-years (not WALYs).

            • paul frijters says:

              life expectancy has been leveling off everywhere. 83 is the max which you get in places like Italy (perhaps no more!), Spain, Japan.
              We dont think its lack of money. Rather, we seem to be reaching the limit of how old people get via optimising circumstances. Whilst life expectancy has gone up, the maximum length of life has not. So whilst there are now more people above 100, the oldest person who ever lived has been dead over a decade and the new “oldest people” are several years younger. As a rule of thumb, from the age of about mid 90s, the chance of dying every subsequent year is about 50%. That means of the 1000 people making it to 100, only one reaches 110.
              To get even older we need technological breakthroughs. Reverse ageing, gradual replacement of tissue with young tissue, etc. Lots of scenarios and research, but not real breakthroughs yet.

          • Nicholas Gruen says:

            Idle thought on Northern Europe: I wonder how much of Norther Europe’s success was, like Germany’s on the back of being on the right (net exporting) side of the Euro’s deflationary trap?

  12. The AFR has just published a update on the virus and how its impacts on younger people were seriously underestimated. Its behind a paywall but it can be summed by its first few paragraphs:

    Two major miscalculations about COVID-19 have had cascading effects in shaping how governments around the world grapple with a once-in-a-century pandemic.

    The first mistake was to underestimate the number of younger people who will die from the novel coronavirus; the second, discovered by the Imperial College research team in the UK, was to underestimate the number of COVID-19 patients who will need to be hospitalised.

    The policy considerations that flow from these mistakes are complex. It is the difference between the UK’s initial mitigation policy, that sought to protect the elderly but let the virus sweep through the rest of the population – “a nice big epidemic” as UK government’s scientific adviser Professor Graham Medley put it; and more drastic steps for immediate containment, which the Imperial College team advocates in a hastily reworked report released last Monday.

  13. Paul Nicholas
    I chanced upon this prayer this morning :

    Remain Wise and Discerning

    Lord, I want desperately to take your Word to heart, but a tsunami of negativity and fear engulf me. My thoughts wander to worst-case scenarios. I need your insight to diligently untangle truthful facts from embellished hysteria. I ask the Holy Spirit to guide me in filtering out what I should avoid listening to or considering. Infuse me Lord with discernment and wisdom. Give me clarity of mind and heart.

    Guard my mouth that I don’t spread gossip or hearsay to alarm others. Help me to exhibit love, joy, peace, forbearance, kindness, goodness, faithfulness, gentleness, and self-control. Like the apostle Paul, may I learn the secret of being content in all circumstances, knowing that I can do all things through you who gives me strength to fulfill your desires.
    Praise you Lord, Amen.

    • Nicholas Gruen says:

      Sorry to be rude John, but what a delicious amalgam of modern pop lingo and Anglican pre cup of tea schmaltz.

      Certainly the first prayer I’ve seen to mix “worst-case scenarios” with “love, joy, peace, forbearance, kindness, goodness, faithfulness, gentleness”.

      Is there a prayer of thanks to the Lord for the virus – for the thousands of people being waterboarded to death?

      I say this as a non-believer, but someone whom – as I think you know – has a lot of respect for religion.

      But as far as I’m concerned, religion has to be dedicated to vivifying our experience of life by looking the truth in the eye, by engaging with our fears, with the other. Not by dreamily paying homage to a bunch of soapy, soupy abstract nouns.

      A lot of what passes for religion in the world is, for me, a kind of anti-religion. That’s most evident amongst US evangelicals who moralise about faithfulness to family values while voting for the publicly adulterous Donald Trump over the apparently (maritally) faithful Hilary Clinton. But it’s also true in a more subtle way of a lot of religion amongst those who cleave to it to provide them with safety that they’re good, acceptable people. For me anyway, religion isn’t worth much if it isn’t reminding us that truth and right make radical demands on us.

      Reminds me of wandering round St Pat’s (Catholic) cathedral in Melbourne to watch some priest say to a bunch of bewildered Catholic school girls “try to be more like Jesus”. Talk about lame. Did Jesus of Nazareth wander round, zoned out in his robes saying such inane things?

  14. David says:

    Assume a can opener.

    To paraphrase. How to manage a Pandemic? First assume no wide spread community anxiety. Then what you do is….

    The whole point is to manage community anxiety first then assess the possible options. Before any trade offs can be made it was necessary to get the death rate from Covid19 into some steady state. Nothing much could be achieved while there was a poorly understood exponential growth in deaths from this new disease.

    Its then a case of managing risk instead of uncertainty.

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