Economic Perspective: Costs and Benefits of Closing the Economy

MARY WALDEN:

“Today’s program looks at the costs and benefits of closing the economy. Mike, in order to contain and control the spread of the coronavirus large parts of the economy have effectively been closed. This situation sets up a typical cost benefit comparison. Has there been any analysis measuring these costs and benefits?”

MIKE WALDEN:

“Well this is very, very hard to do. Obviously on the benefits side of closing down the economy which is all trying to contain the virus, you’re going to save some people from getting sick. You’re obviously going to save some lives. It’s hard to put a dollar value on that, but some economists have tried to do so in terms of if people died they’re not going to work in the future so that’s lost income for the country in terms of lost work.”

“Obviously on the cost side in terms of shutting the economy down, the economy shrinks, we have higher unemployment, et cetera. So, this recent analysis tried to look at that in terms of what would be the appropriate amount of time to shut the economy down such that the cost are weighing equal to the benefits. And what they found in this study was crucially how many infections an infected person would create, and what they found, for example, if an infected person infects less than one other person in the economy then maybe shutting down the economy for seven or eight weeks is optimal.”

“On the other hand, if an infected person infects more than one other person over their infection period then perhaps shutting down the economy for 30 weeks or more is cost effective. So this is where I think it’s very, very important with that social distancing in order to reduce the number of infections. That will help us get the economy back moving quicker.” 

Mike Walden is a William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.