The Banking Executive Magazine - February 2022

How Much Has the Pandemic Cost? dilemma: keep the economy open and risk more COVID-19 deaths, or impose lockdowns and destroy liveli- hoods. As the Vanderbilt University economist W. Kip Viscusi points out, one way to simplify the trade-off be- tween the benefits of reducing health risks and the costs of economic dis- locations is to “monetize” COVID- 19 deaths. Using the value of a statistical life (VSL) as the metric, Viscusi found that the cost of COVID-19 deaths in the first half of 2020 amounted to $1.4 trillion in the US and $3.5 tril- lion globally. Although the US ac- counted for 25% of deaths, its share of the global mortality cost was 41%, because richer countries have a higher VSL. An American is valued at $11 million, and an Afghan at just $370,700. If one applies the same measure to officially reported deaths through the end of 2021 – which total about 5.6 million – the mortality cost would be $38 trillion, or 40% of global GDP. If one takes the Economist’s estimate of actual deaths – close to 17 million – that figure soars to $114 trillion, or 120% of GDP. China approached the trade-off very differently from the US, choosing to protect lives with strict lockdowns, even at the expense of greater eco- nomic dislocations. If China had the same infection rate as the US, and the same mortality rate (slightly more than 2.9%), its total COVID-19 deaths would have reached 4.1 mil- lion, rather than the 4,849 it has offi- cially recorded. China’s VSL of $2.75 million implies that this would have meant additional losses of $11.3 tril- lion, or 67% of 2021 GDP. Given that China’s economy has performed relatively well during the pandemic despite lockdowns, it seems fair to conclude that China’s approach led to lower overall costs. In any case, the actual costs of the COVID-19 pandemic are higher than VSL scores indicate. Aggregating mortality, morbidity, mental-health conditions, and direct economic losses, former US Treasury Secretary Larry Summers and Harvard econo- mist David M. Cutler estimate that the US bore losses of $16 trillion – the equivalent of 90% of GDP – in 2020. Despite these high costs, the dilemma faced by a country like the US or China is less stark than that faced by poorer developing economies. With large debts and ISSUE 158 FEBRUARY 2022 the BANKING EXECUTIVE 33