Seemingly overnight, much of the world shut down in March and April in order to limit the spread of a virus whose behavior was still very much enigmatic at the time. But this came at a huge cost, as stay at home orders also slowed down the gears and cogs of the economy to a crawl. Everybody knows this virus caused a great deal of economic damage, but how much exactly?
According to a new study by David Cutler, Professor of Applied Economics at Harvard University, and Lawrence Summers, President Emeritus of Harvard University, the total cost of the pandemic in the US alone is estimated at $16 trillion. That’s approximately 90% of the annual GDP of the United States.
Four times more lost output than during the Great Recession of 2008
The estimate aggregates both direct and indirect economic losses on the optimistic assumption that the virus will be contained through vaccination by the end of fall 2021.
Job losses in the country have been unprecedented. For 20 weeks straight, from March until September, more than one million claims have been filed for unemployment insurance every week. In total, 60 million Americans filed for unemployment since the effects of the pandemic began to be felt in March 2020.
Fewer jobs means less disposable income, which means less spending, which in turn affects the bottom line of businesses, so even more jobs are lost when companies default. The Congressional Budget Office estimates a total of $7.6 trillion in lost output during the next decade.
The situation could have been disastrous, much worse than the Great Depression were it not for the federal government, which injected funds back into the economy, buying bonds and issuing stimulus checks to the population worth trillions of dollars. But that’s not all.
Although it might sound inhumane to put a price on human life, economists routinely gauge the economic cost of death and reduced quality of life. In the United States, a so-called ‘statistical life’ is worth around $7 million.
More than 200,000 Americans have lost their lives as a direct consequence of COVID-19 infections. At a rate of 5,000 COVID-19 deaths per week, the researchers estimate that another 250,000 deaths can be expected on American soil in 2021, supposing no working vaccine is distributed in time to the population.
Besides deaths due to coronavirus infections, the pandemic is responsible for indirect deaths as a result of disruptions to the health system. Studies suggest that increased deaths from other causes amount to 40% of COVID-19-related deaths. This means that 625,000 cumulative deaths owed to the pandemic will occur by the end of 2021. As such, the economic cost of all these premature deaths is estimated at $4.4 trillion.
For each death, there are about 7 survivors of severe or critical COVID-19, who face impairment that may significantly reduce their potential lifelong economic output. The researchers estimate the economic loss due to long-term complications to be around $2.6 trillion through the next year.
Additionally, the researchers estimate the cost of mental health problems incurred by the pandemic at $1.6 trillion.
According to the Harvard researchers, a family of four could see nearly $200,000 of their household income lost. Half of this loss is directly owned to COVID-19-recession, while the remainder can be attributed to lost output due to shorter and less healthy lives.
All in all, these costs amount to $16 trillion — more than twice the total cost of all the wars the US has fought since September 11, 2001.
Some of this unprecedented economic damage can be averted throughout the next year by investing in mitigation measures. According to the authors of the new opinion piece, which was published in the journal JAMA, the highest return on investment is from more testing and contact tracing. Every dollar spent on these two measures should return at least $30 in economic benefits. However, currently the US government is investing most in acute treatment.