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The costs of lockdown could far outweigh the benefits

Posted by on July 8, 2020 in Blog, Economy, Health | Comments Off on The costs of lockdown could far outweigh the benefits

The costs of lockdown could far outweigh the benefits

Radical leaders such as Jacinda Ardern in New Zealand and Nicola Sturgeon in Scotland have gained plaudits through their relentless focus on eliminating Covid-19.

But this comes at an obvious economic cost. Tourism is some 15 per cent of New Zealand’s GDP, and major destinations such as Queenstown in the Southern Alps have been devastated. Here in the UK north of the border, Scottish businesses are increasingly frantic about the economic damage done by the rigorous lockdown.

Health experts and epidemiologists have not helped. They have remained firmly enclosed in their own silos of expertise, unable or unwilling to see the broader picture.

But good policy is not made in a vacuum. A key concept in economics is that of trade-offs.

An obvious health related example is road accidents. As a society, we trade off the 1,800 deaths and 250,000 injuries a year in road accidents against the benefits of using vehicles.

Trade-offs between alternatives have always been central to our economic policy and political debate. Lockdown is no different to any other policy. It has both benefits and costs.

The benefits of lockdown were never in doubt: the policy was intended to save lives. But there is now increasing awareness of the potential economic costs. Ironically, some of those most shrill in favour of lockdown are now crying out for jobs to be saved.

David Miles, an Imperial College economist and former member of the Monetary Policy Committee, along with two medical specialists published last week a valuable assessment of the overall costs and benefits of lockdown.

Miles argues that we must normalise how we view Covid-19. Its costs and risks are comparable to other health problems, such as cancer, heart problems and diabetes, where governments have made resource decisions for decades.

The lockdown is a public health policy, and Miles and his colleagues value its impact using the standard tools developed by the National Institute for Health and Care Excellence to guide healthcare decisions in the UK public health system.

A key concept in this is QALYs — quality of life adjusted years. Essentially, the benefits of any policy in terms of QALYs are compared with its costs.

Economists have developed a broad consensus on the value of saving a single quality of life adjusted year. Macabre though it may seem, some metric like this is necessary in order to have any meaningful assessment of the costs and benefits of different decisions.

Miles’ conclusions are stark. The estimate of lives saved by lockdown in his analysis is deliberately chosen to be the one at the very top end of the range of such estimates. This way, his team cannot be said to be underestimating the benefits of lockdown.

Even so, in the authors’ own words: “we find that having extended the lockdown for as long as three months consistently generates costs that are greater — and often dramatically greater — than likely benefits”.

Gerard Lyons and I warned in early April that, while it was necessary to introduce lockdown, it needed to be relaxed rather swiftly because of the costs it would entail. The work of Miles and his colleagues confirms, in impressive detail, this view.

As published in City AM Wednesday 8th July 2020
Image: Playground by Jlbirman1 via Wikimedia CC BY-SA