Economists, both nationally and in Alaska, are frequently asked to assess the economic costs of the steps taken to limit the spread of COVID-19. The economic impacts are huge; the US is experiencing rates of unemployment not seen since the 1930s in the Great Depression. But the benefits of saving lives by reducing deaths due to COVID-10 area also very large. In a recent a working paper, “The Impacts of the ‘Hunker Down’ order in Anchorage,” Assistant Professor Kevin Berry used the concept of the economic value of a statistical life to undertake an approximate comparison of the economic costs (in lost income) and economic benefits (in saved lives) of the Municipal response to the coronavirus outbreak. His work combines epidemiological modeling of how COVID-19 could have spread without the Hunker Down order with the value of a “statistical life”. The results suggest that the economic benefits of saving human lives to date has far exceeded the economic costs in lost income.
There is always unease when economists suggest trying to measure the economic value of human lives or improved human health. But economists argue that people do make expenditures (like installing safety equipment in their homes) that reduce the risk of death, injury, and illness. Economists combine the information on this spending to manage risks with actuarial information on risks averted to calculate the implied value of saving a “statistical life.” For his analysis, Dr. Berry uses the value of a statistical life of $7.5 million, which is the value used by the EPA in assessing environmental protection measures. Dr. Berry calculates that the Hunker Down order avoided an estimated $40.5 billion in economic losses due to mortality, based upon the $7.5 million value of a statistical life. These benefits substantially exceed the estimates losses from COVID-19 restrictions to date, which have been estimated to be on the order of $4 billion in Alaska as a whole.
The costs of Hunker Down are less straightforward. While there is temptation to attribute the entire $4 billion in losses from COVID-19 on the shutdown, cell phone mobility data used by Dr. Berry and others suggests otherwise. Much of the economic losses was likely unavoidable, and due to people’s efforts to avoid becoming sick, or responses to other policies like school and daycare closures. Because of this, attributing the entire $4 billion in losses to Hunker Down ensures a conservative cost-benefit estimate.
Dr. Berry’s analysis concludes with a caveat and a caution. These are estimates based upon results to date, but the long run costs and benefits will depend upon how Alaskans respond as the official Anchorage and State of Alaska restrictions are relaxed. If Alaskans return quickly to their pre-Hunker Down behaviors, then the trajectory of COVID-19 infections and deaths could simply revert to what would have happened without Hunker Down. In that case, the infections and deaths might have been delayed a few months, but the totals would be little affected. If the Hunker Down mandates simply delayed impacts by a few months, then the economic losses sustained would yield almost no economic benefits in saved lives. The residents of Anchorage will make the crucial decisions that determine whether Hunker Down was a wise collective investment or a tragically failed experiment.