Wednesday, May 13, 2020

Evolving Choices about Easing the Shutdown

I'll just say up front that the question of exactly when to ease the stay-at-home orders and shutdown in response to the coronavirus is a hard one, and I don't have a firm answer. But here's a framework for thinking through the tradeoffs.

Here are a couple of figures from Joseph Pagliari in a short and aptly-titled essay," No one has all the answers for COVID-19 policy: The trade-offs are evident, but the costs involved are ambiguous" (Chicago Booth Review, May 4, 2020). 

The horizontal axis is the total length of the stay-at-home orders. The vertical axis measures human and economic costs. The dark blue line shows that the effect of the stay-at-home order at the start has a relatively big effect on reducing COVID-19 costs (including both health costs and costs of delivering health care). However, a short stay-at-home period of, say, a couple of weeks, would have imposed a relatively small level of "Quarantine-related gross costs" shown by the black line. As the stay-at-home period gets longer, the marginal benefits to improved health are somewhat lower, and the the quarantine-related costs start rising. Government can take some actions with spending and lending to reduce these quarantine-related costs, so that "net costs" are the green line rather than the black line--but the costs still rise.

Now, combine the cost lines to get a picture of "total cost." At the start of the pandemic, the total costs were mostly the COVID-19 costs. But at some point, the quarantine-related costs get large.

Some comments:

1) These figures obviously have a high level of generality. There are no numbers on the axes! One might plausibly say that we aren't at either the extreme left or extreme right of the diagram, but where we are in the middle is unclear. There's also no presumption in the figure that the social goal should be to choose the length of the stay-at-home order where total costs are lowest, or where the dark-blue and light-blue lines cross. Any decision would have to place a value on the health benefits being received, and that value isn't shown here. A substantial degree of humility is appropriate both for those imposing stay-at-home and shutdown orders, and also by those opposing them.

2) Some people object to having human and economic costs on the same scale. I strongly disagree. I remember the aftermath of the Great Recession when monthly unemployment rates were 9% or  higher for more than two years. If anyone had said at that time, "Well, these are just economic costs, not all that important compared to actual human costs," they would have been pilloried--and rightly so. The unemployment rate for April 2020 was 14.7%, and it may well be higher in May. Dismissing this as "an economic cost" seems benighted.

It's easy enough to find studies showing direct economic costs of an economic slowdown. As one example, a couple of foundations--the Well Being Trust and the Robert Graham Center--published a report on "Projected Deaths of Despair from COVID-19" (May 8, 2020). Making projections over the next decade, they write: "Across the nine different scenarios, the additional deaths of despair range from 27,644 (quick recovery, smallest impact of unemployment on deaths of despair) to 154,037 (slow recovery, greatest impact of unemployment on deaths of despair)." I don't view these estimates as definitive, but they do illustrate that the quarantine costs are not just a matter of lower incomes, but are tightly connected to tens of thousands of additional deaths, as well.

Moreover, there are lots of health effects that these estimates don't take into account, like the  children who are missing meals because the schools are closed, or not receiving vaccinations because of the stay-at-home policy focus, or whose families are falling into poverty. From an international perspective, the United Nations published a "Policy Brief:The Impact ofCOVID-19 on children" (April 15, 2020). It points out that 188 countries around the world have interrupted school, which affects 1.5 billion children. It also points out that the economic effects of the pandemic and the shelter-in-place rules are going to tip tens of millions of children around the world--most in countries that lack substantial social welfare programs--into extreme poverty. Rates of infant mortality and maternal mortality seem certain to rise. The tradeoffs of stay-at-home policies many not look the same across all countries of the world.

3) Some people will feel uncomfortable with the shape of  the curves in the diagrams. Why do the COVID-19 health care costs fall, while the quarantine costs rise? Actually, the shape of the curves is based on the idea that the government has at least a decent sense of what it's doing. A supporter of government actions presumably believes that an effort was made to choose approaches that started off with the biggest gains to health and the smallest costs to the rest of the economy. Critics of government actions might counter with claims that the gains to health have been modest, or that other policies could have achieved similar gains with smaller quarantine costs to the economy.

4) One reason why quarantine costs rise is that if the stay-in-place had lasted only a week or so, then having people return to their previous jobs would have been relatively easy. But many parts of the United States are now in their ninth week of stay-in-place, with talk of another month or two to come. You can't just put the economy on hold for a few months, and then flick it back on like a light switch. I've seen news stories talking about how as government rules are loosened, workers can then return to their jobs. But after a few months, many of them will not have jobs to come back to. Moreover, my guess is that job openings and hires will plummet in the next few months, as firms struggle to find their feet. 

5) The diagrams above suggest a very real possibility that it will be sensible social policy to dramatically ease the stay-in-place and the lockdown policies while the number of cases and deaths from coronavirus remain substantial.  I sometimes read and hear comments from people that we need to keep the stay-at-home and lockdown policies in place "until there is a vaccine," or "until there is a treatment," or "until we have universal testing and contact tracing." I'm sympathetic to the all-American desire for a techno-fix that makes all this go away. But the most optimistic timelines I've seen for a vaccine or a sure-fire treatment are measured in months, while the pessimistic timelines are measured in years or "never." I'd like to see more testing, but rearranging our lives, work, schedules, and personal interactions based on a series of test results isn't going be simple. Those who want to wait for a techno-fix need to face the question of whether they are perhaps willing to wait years, and what health and financial costs society and the economy will bear in the meantime. Personally, I am quite confident that the right policy is not to keep the stay-at-home and shutdown policies until the COVID-19 line hits zero, while ignoring other costs being imposed.

6) Political figures often seem to have a habit of re-fighting the previous battle and becoming stuck in place, which would be an unproductive approach here. Say that you have been arguing for a shutdown, or in fact have been implementing a shutdown, and have been receiving lots of criticism for doing so.  There's a natural human/political tendency to form sides--those favoring shut-down and those opposed. People on your side support each other. Phrases like "blood on your hands" get used. Even though the situation is evolving, sides get stuck in place. This would be deeply counterproductive. When the time comes to end the shutdown, it doesn't mean that it was wrong to start it in the first place, and it's not some admission that "the anti-shutdown forces were right all along." It just means that knowledge and conditions have evolved.

7) Although our knowledge about the coronavirus remains frustratingly inconclusive, we do seem to know a few things. For example, it seems clear that the high-risk scenarios for transmission in involve indoor settings, where people are closely-spaced, that also lots of talking, singing, or yelling. Examples include workplaces with people in close quarters, especially if they involve needing to yell over loud sounds; big group events including weddings, funerals, bars, concerts, and church services; and institutional living from nursing homes to prisons. Conversely, the transmission scenarios seem quite low for those who are outdoors, or loosely spaced, or walking by people without talking. We also know that the health risks are much greater for those who are elderly or whose systems are immuno-compromised in some way, and the risks are near-zero for children and for healthy younger people. We know that you can help to protect yourself by taking Lady Macbeth as your role model for hand-washing, and that you can help to protect others by pulling something over your mouth, especially if you've got a cough. This knowledge has some obvious implications, like placing a very heavy emphasis on limiting transmission in nursing homes. 

8) Many people, including me, are not great at thinking about risk, and perhaps especially about low-level risks. But in a broad sense, we should be able to agree that activities with low risks of transmitting the virus should be treated differently than activities with a high risk.   sometime sread and hear comments that the stay-at-home and lockdown should be intensified in every direction, usually backed up by a what-if story: "Sure, it's just some teenagers playing tennis, but one of them might be a carrier who breathes on the ball, and then the other person touches the ball and their own mouth, and then that other person takes the virus to their grandparents in the nursing home, and then dozens of people die." It could happen, of course. But you can draw up a doomsday scenario for pretty much every setting in which someone leaves their home for any purpose, and whether there's a pandemic or not, the costs of strict rules that seek to eliminate every low-probability doomsday scenario are just too high.

9) James H. Stock has written a useful paper "Reopening the Coronavirus-Closed Economy" (May 2020, Hutchins Center Working Paper #60, Brookings Institution), with some general guidelines. Jim emphasizes four points:
  • Non-economic NPIs play a critical role in getting people back to work. There are important non-pharmaceutical interventions that, while individually limited, collectively hold the potential to substantially reduce the spread of the virus. These include social distancing; testing, contact tracing and quarantine; wearing masks; and having adequate personal protective equipment for workers in jobs that are unavoidably high-contact. None are a silver bullet, but collectively they can reduce the probability of transmission outside the workplace and thereby make room for getting people back to work and back to something more closely resembling normal economic activity.
  • Low-contact, high-value workplaces should be reopened quickly, and returning workers must feel safe. Many jobs are either low-contact or can be made so by suitable modifications of the workplace. In some cases, those modifications are low cost, like encouraging work-from-home, while in other cases they might entail some productivity reductions to facilitate worker distancing at work. When coupled with low-contact forms of transport to work, such jobs can be reopened quickly.
  • Some high-contact activities might need to be suspended indefinitely. Certain high-contact activities might require a hiatus until a vaccine and/or effective treatment is developed. These include both economic activities (for example, live fans at professional sports) and activities with less or no economic component.
  • Avoid a second dip that could induce severe long-term damage to workers and the economy. While reopening the economy is urgently needed, doing so in a way that leads to a second wave of deaths and a subsequent second shutdown could result in damage that is lasting and profound. Such damage has largely been avoided to date because of federal fiscal support and aggressive actions of the Federal Reserve. There are reasons to be pessimistic, however, that these levels of support would either be available or as effective in a second wave of deaths and closings, which could lead to those temporarily unemployed now becoming long-term unemployed without a job to return to, waves of bankruptcies, and severe strains on credit markets.