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Economic cost of the ‘cure’ is not worse than the disease — here’s why

Policy-making is often about tradeoffs. We have to sacrifice some short term economic gains to protect the environment. We have to wait on longer lines at the airport to make a terrorist attack less likely. Right now, policy-makers at the federal and state level are making decisions regarding the most significant tradeoffs they have ever faced: How much do we curb economic activity to fight the spread of the deadly coronavirus, COVID-19.

For more than a month after experts were recommending a response to the looming threat of the virus, policy-makers did little. In the past several weeks, as the death toll from infections has started to climb, action has been much more rapid. States have ordered businesses shut down. Public gatherings of more than a few people have either been banned or strongly discouraged. This has prompted, particularly among conservatives, a concern that now we are over-reacting to COVID-19.

To be clear, a slowdown in the economy will harm the welfare of U.S. citizens. A loss in income that comes with being laid off from a job that is no longer available increases many types of risks. These include risks to health, risks of domestic violence, and ultimately risks of mortality. So yes, it is theoretically possible to cause sufficient economic harm that it might be of a magnitude comparable to the risks of the virus.

But there are three reasons that this risk should be nowhere near as prominent in policy-maker’s minds as the risk of mortality from the virus.

The first reason is that much of the economic slowdown in response to COVID-19 was happening without government intervention. The National Basketball Association was not ordered to shut down by the government. Nor was Major League Baseball. Airlines didn’t start canceling flights because the government told them to. They took these actions because the economics of their businesses dictated that they do so. Even if the government did nothing, the costs of an economic slowdown would be enormous. What economists call the “marginal” impact of government action is not as large as government critics are making it appear.

Second, government has in its capacity the ability to mitigate the economic damages. Congress is currently debating it’s third bill in response to the COVID-19 epidemic. This bill is intended to help those who will suffer economically from the many disruptions to the national economy. If it is well crafted and money gets to the people who lose their jobs or have their hours cut back and to the small businesses who are most likely to suffer, then the worries about “going too far” in response to the virus will be lessened.

Finally, human beings are by their very nature risk averse. While the average outcome of the COVID-19 epidemic may be “only” tens of thousands of deaths, there are credible estimates that the death tolls in this country could be in the millions. Experts agree that extreme social distancing is the best way to minimize the likelihood of the worst-case scenarios. And the worst-case scenarios of allowing the disease to spread are much worse than the worst-case scenarios of an economic slowdown, especially if we take the types of actions we can take to make that slowdown less painful.

People hate horrible outcomes, and few outcomes could be more horrible than doing too little to contain COVID-19.

As rhetoric heats up about the cure for the virus being worse than the disease, we need to catch our breath and remember the potential costs of the disease. These include not only millions of deaths but many of the same economic costs that the cure of social distancing and widespread shutdowns would bring about.

We can use policy to temper the economic costs. We can’t use policy to bring loved ones back to life.

Stuart Shapiro is professor and director of the Public Policy Program at the Bloustein School of Planning and Public Policy at Rutgers University, and a member of the Scholars Strategy Network. Follow him on Twitter @shapiro_stuart.

Tags Coronavirus coronavirus pandemic coronavirus stimulus COVID-19 economic stimulus financial risk Global recession stock market crash

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