Covid-19: sacrificing lives does not mean saving the economy

by | Jan 2, 2021 | Economy & Markets

A study of 45 countries shows those who have contained the virus also tend to have less severe economic impacts than those that haven’t. Saving the economy does not mean sacrificing lives, writes Michael Smithson. Containing Covid versus saving the economy is a false dichotomy.

There is no doubt the COVID-19 crisis has incurred widespread economic costs. There is understandable concern that stronger measures against the virus, from social distancing to full lockdowns, worsen its impact on economies.

As a result, there has been a tendency to consider the problem as a trade-off between health and economic costs.

This view, for example, has largely defined the approach of the US federal government. “I think we’ve learned that if you shut down the economy, you’re going to create more damage,” said US Treasury Secretary Steve Mnuchin in June, as the Trump administration resisted calls to decisively combat the nation’s second COVID wave.

But the notion of a trade-off is not supported by data from countries around the world. If anything, the opposite may be true.

Data from 45 nations

Let’s examine available data for 45 nations from the Organisation for Economic Co-operation and Development (OECD), using COVID-19 data and economic indicators.

The COVID-19 statistics we’ll focus on are deaths per million of population. No single indicator is perfect, and these rates don’t always reflect contextual factors that apply to specific countries, but this indicator allows us to draw a reasonably accurate global picture.

The economic indicators we’ll examine are among those most widely used for overall evaluations of national economic performance. Gross domestic product (GDP) per capita is an index of national wealth. Exports and imports measure a country’s international economic activity. Private consumption expenditure is an indicator of how an economy is travelling.

Effects on GDP per capita

Our first chart plots nations’ deaths per million from COVID-19 against the percentage change in per capita GDP during the second quarter of 2020. The size of each data point shows the scale of deaths per million as of June 30, using a logarithmic, or “log”, scale – a way to display a very wide range of values in compact graphical form.

If suppressing the virus, thereby leading to fewer deaths per million, resulted in worse national economic downturns, then the “slope” in figure 1 would be positive. But the opposite is true, with the overall correlation being -0.412.

The two outliers are China, in the upper-left corner, with a positive change in GDP per capita, and India at the bottom. China imposed successful hard lockdowns and containment procedures that meant economic effects were limited. India imposed an early hard lockdown but its measures since have been far less effective. Removing both from our data leaves a correlation of -0.464.

Exports and imports

Our second chart shows the relationship between deaths per million and percentage change in exports.

If there was a clear trade-off between containing the virus and enabling international trade, we would see a positive relationship between the changes in exports and death-rates. Instead, there appears to be no relationship.

Our third chart shows the relationship between deaths per million and percentage change in imports. As with exports, a trade-off would show in a positive relationship. But there is no evidence of such a relationship here either.

Consumer spending

Our fourth chart shows the relationship between deaths per million and percentage change in private consumption expenditure. This complements the picture we get from imports and exports, by tracking consumer spending as an indicator of internal economic activity.

Again, no positive relationship. Instead, the overall negative relationship suggests those countries that succeeded (at least temporarily) in suppressing the virus were better off economically than those countries adopting a more laissez-faire approach.

National wealth

As a postscript to this brief investigation, let’s take a quick look at whether greater national wealth seems to have helped countries deal with the virus.
Our fifth and final chart plots cases per million (not deaths per million) against national GDP per capita.

Log(deaths per million) by percentage change in Q2 2020 private consumption.
If wealthier countries were doing better at suppressing transmission, the relationship should be negative. Instead, the clusters by region suggest it’s a combination of culture and politics driving the effectiveness of nations’ responses (or lack thereof).
In fact, if we examine the largest cluster, of European countries (the green dots), the relationship between GDP per capita and case rates is positive (0.379) – the opposite of what we would expect.

It’s not a zero-sum game

The standard economic indicators reviewed here show, overall, countries that have contained the virus also tend to have had less severe economic impacts than those that haven’t.
No one should be misled into believing there is zero-sum choice between saving lives and saving the economy. That is a false dichotomy.

If there is anything to be learned regarding how to deal with future pandemics, it is that rapidly containing the pandemic may well lessen its economic impact.

This article was first published in The Conversation

ABOUT THE AUTHOR

Michael Smithson

Michael Smithson

Michael Smithson is a Professor in the Research School of Psychology at The Australian National University in Canberra, and received his PhD from the University of Oregon. He is the author of several books including Ignorance and Uncertainty (1989) and Statistics with Confidence (1999). Michael's other publications include more than 170 refereed journal articles and book chapters. His primary research interests are in judgment and decision making under ignorance and uncertainty, statistical methods for the social sciences, and applications of fuzzy set theory to the social sciences.

2 Comments

  1. Avatar

    Similarly trashing the environment does not lead to a stronger economy, but the opposite.

  2. Avatar

    It maybe that I have a touch of the Aspergers syndrome about me, but my rational mind is convinced that a funtioning economy depends on there being a healthy and sufficiently wealthy general population.
    That is something which appears to have escaped the reasoning of many of those who we have elected to govern us.
    If the hoi polloi is sick, broke and hungry then the circulation of money, i.e. the ‘economy’, is significantly slowed.
    Restricting wealth to the few at the expense of the many creates circumstances where the many are left devoid of the means to provide for their wellbeing, health and other necessities of life, and thus limited in their capacity to contribute to the ‘economy’.
    Ergo: Inadequate health and other services, poor quality or non existent shelter for the impoverished, excessive work demands in return for inadequate incomes, restrictions on the availability of adequate education, etc. etc.
    There is a distinct lack of logic infesting our governments, commercial enterprises and financial managements.
    ( I was about to include religions in the latter sentence, but religion has no logic, it being entirely a matter of evidence-free belief. )

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