In an otherwise excellent blog post that I recommend reading for its own sake, Cato Institute health economist Michael Cannon writes:
Similar to health insurers, auto insurers are saving money because people are driving less. The Wall Street Journal reports, “Allstate Chief Executive Tom Wilson said mileage was down ‘an unprecedented’ 35 percent to 50 percent across the U.S. since mid‐March, including in states without shelter‐in‐place restrictions.” (That latter part provides a helpful reminder that government affects pandemic response only at the margin.) Less driving means fewer accidents, so claims have likewise fallen as much as 40 percent.
His parenthetical statement is almost certainly wrong. The fact that driving is down by about the same percentage in states without SIP restrictions as in states with such restrictions means that government affects driving at the margin.
Government affects pandemic response in a much greater way. States without such restrictions have not forced people to quit working. And as a result, many people in various businesses in, say, South Dakota, have kept working while people in states with restrictions have been forcibly prevented from working. Both the means and the effects are a huge difference.
By the way, Michael’s mistake is similar to the one that Justin Wolfers made in our debate when he argued that if voluntary social distancing achieved 90 percent of what compulsory lockdowns achieved, they would also entail 90 percent of the costs.
READER COMMENTS
Dylan
May 3 2020 at 1:19pm
I think the claim, not necessarily by Wolfers, but by many other economists is actually stronger than that. If voluntary social distancing achieved 90% of the social distancing part of lockdowns, but at a cost of more than 100% of what the lockdowns are costing.
See this IGM Forum poll of economists which has 80% strongly agreeing or agreeing with the statement “Abandoning severe lockdowns at a time when the likelihood of a resurgence in infections remains high will lead to greater total economic damage than sustaining the lockdowns to eliminate the resurgence risk.”
You can certainly disagree with this, but would be nice to hear you respond to the idea that severe short government mandated lockdowns are economically less costly than voluntary choices that are not coordinated.
David Henderson
May 3 2020 at 2:06pm
Thanks, Dylan.
The question as formulated in the IGM poll is a classic example of question-begging. Look at the wording:
A huge part of my point, which I made at length in my debate with Justin, is that voluntary social distancing got us a lot of the way there. So to say “when the likelihood of a resurgence in infections remains high,” they are implicitly saying that the lockdown reduces that probability well beyond the reduction achieved by voluntary social distancing.
Dylan
May 3 2020 at 4:18pm
Thanks for the response David, agree that the question does implicitly assume a greater effectiveness of severe lockdowns reducing the likelihood of resurgence than less severe measures. And, although not necessary, we can probably think most people associate more severe with government mandated and less severe with voluntary distancing.
I’ve been coming at it from a bit of a different direction though, and not thinking about which approach is more or less likely to flatten the curve, and instead looking at the political and economic implications of each. In the government mandated version, we see the result is massive spending programs to try to both minimize the current suffering as well as the knock-on effects from all the shutdowns. I know you’re not a big fan of these programs, I think they are far from ideal as well, but perhaps still better than the alternative.
If we look at voluntary measures, we still would be shutting down huge parts of our economy, but in a less coordinated way. I think that means it would be more difficult to get political support for the kinds of massive spending programs we’re seeing now. We’d see more businesses closing, more people ineligible for UI, more capital destroyed, and recovering from that would be a long, slow process. If your goal was to try to pause the economy, and then hopefully go back to the “old normal” as quickly as possible, it seems like the voluntary approach would be disastrous.
John Alcorn
May 3 2020 at 4:33pm
Dylan,
I can’t speak for David Henderson, but I share your concern about economic relief during the pandemic. I agree that voluntary social distancing substantially reduces economic activity (but not as much as lockdown does!). But major economic contraction due to voluntary social distancing would justify relief. An example of a simple, fair, efficient keyhole solution in pandemic relief policy is Greg Mankiw’s proposal for temporary social insurance:
(I leave to the economists, whether additional, separate efficient, fair keyhole solutions are feasible for firms.)
My intuition is that reasonable relief policies would be expected, and could be enacted, even without lockdown.
Dylan
May 3 2020 at 8:23pm
John,
That is a great suggestion by Mankiw, and I’d be highly supportive of it, or something like it. And I’m sure that people smarter than me could think of a good approach to helping firms survive voluntary social distancing measures, while minimizing moral hazard. It seems unfortunate that smart, targeted policies like these are rarely seriously considered during any kind of crisis (or even during the best of times), but that doesn’t mean that people shouldn’t loudly advocate for them.
One other point that I think is worth remembering, is that when the crisis first hit, there was still some hope that containment was viable, and that if we could do a hard lockdown immediately, we could still follow the path of South Korea or China. That’s proven too optimistic, and a policy that was designed with the goal of trying to lock everything down for 1 month, and then be able to return to something more like normal, is not going to be appropriate for a world where normal is still a long ways off.
John Alcorn
May 3 2020 at 4:17pm
Dylan,
As background evidence about contagion, a study by Nicholas Banholzer et al., “The estimated impact of non-pharmaceutical interventions on documented cases of COVID-19: A cross-country analysis,” finds that school closures and shelter-in-place orders (lockdown) do little to reduce the number of new cases: “the mean effect size for school closures is among the lowest across the policy measures considered in this study.[…] lockdowns have only a small added value.” (p. 14) Several new studies now confirm this finding. (See references at Arnold Kling’s blog.)
To your question: See preliminary data at the Wikipedia entry, “Coronavirus Recession,” Table, Summary of National Impacts. The “annual effect on GDP” is estimated at -2.3% for Sweden, which has rejected lockdown. The figures are much higher for other countries in the region (Norway = -6.0%, Netherlands = -7.0%) and for the large European ‘lockdown nations’ (Italy = -7.0%, France = -5.3%, Spain = -6.0%, UK = -4.7%). However, Sweden has suffered substantial increase in unemployment (7%), and falls in the middle of this group in the unemployment-increase metric. I’m not competent to assess the quality of the data.
I encourage you to consider also broader ramifications, one political, the other economic. Lockdown substantially increases risks of political strife, because of contention about coercion—and then renewed contention and uncertainty around exit from lockdown. Lockdown delays economic adjustment (shifts in investment, products, employment patterns). These, too, are real—and I suspect major—costs of lockdown.
Dylan
May 3 2020 at 4:41pm
John,
Thanks for the reply and the link to the paper. I look forward to reading it, but note that my argument does not rest on the assumption that mandated NPIs rdo much to reduce the spread of the disease. Instead I’m concerned with the political and economic impact of mandated closures.
I agree that lockdowns delay economic adjustment, but I think in this case that’s a good thing. A temporary severe shock can cause businesses that were viable in January, and may be viable again in June, to have to permanently close their doors. Beyond the personal tragedy for the business owners, their employees, their suppliers, and their customers, it’s also a huge brake on the economy. It’s also not clear to me that the economic adjustment into the “new normal” would be all that swift, given the disagreements about what that will look like. I work with a bunch of startups, and nothing is getting funded that requires any kind of bet on what the world will look like more than a couple of months in the future.
John Alcorn
May 3 2020 at 5:01pm
Dylan,
Thanks for your reply. Perhaps it crossed in cyberspace with my other comment (4:33 pm)? My intuitions are that lockdown greatly exacerbates uncertainty, and that economic contraction caused by voluntary social distancing would occasion somewhat different relief policies, perhaps striking a better balance between relief and adjustment. And there would be less coercion and political strife.
John Alcorn
May 3 2020 at 5:10pm
And see Arnold Kling’s proposal for credit-line relief. See also Tom Giovanetti’s discussion of credit-line proposals in WSJ, March 26.
Alan Goldhammer
May 3 2020 at 6:07pm
@John Alcorn – I read about 40-50 preprints a day for my newsletter. I’ve pretty much given up on reading modeling papers unless there is something special in the abstract. There are as many papers in favor of extreme social distancing as there are showing it does not matter. Israel has a very low mortality rate compared to other countries and if you broke out the ultra-Orthodox population it would be even lower (they don’t seem to care for social distancing). My sister lives over there and is a professor at a local university. They have extreme lockdown and the only reason to go out of your flat is to the pharmacy or the store. For Passover, the military blocked all the major highways and roads so nobody could even think about going to friends and relatives. Two of my sisters children live in the same town and were not even permitted to walk over to her house. So this is one example where compulsory distancing appears to work.
John Alcorn
May 3 2020 at 6:21pm
Dr. Goldhammer,
I am reading widely about pandemic policy, and find that papers that find lockdown strongly suppressive usually ignore private adaptation—voluntary social distancing, and restructuring of commercial establishments, workplaces, and so on—by individuals and organizations. In other words, the studies usually have naïve ‘all else equal’ and ‘exponential spread’ counterfactuals.
robc
May 5 2020 at 1:53pm
In another thread, I posted from a 2008 World Bank study that was looking at possibilities of future pandemics.
It suggested 0.7% (world gdp loss) for a 1968 Hong Kong Flu sized pandemic.
2.0% for 1957 Asian Flu.
4.8% for 1918 Spanish Flu.
Scott Sumner thought that last number was low, as we expect more safety in the 21st century than 100 years ago.
With Sweden being at 2.3%, he might be right (I think COVID-19 is much more similar to the first two than to the Spanish Flu). Although Sweden didnt do nothing, they cancelled large gatherings and closed universities, IIRC. So even their number would be higher than the “voluntary only” approach…but its probably a good estimate.
john hare
May 3 2020 at 1:57pm
Minor nit on auto insurers. They need to have high payouts to justify high rates. It is easier to justify $50M in profits when paying out $1B than when paying out $100M. I doubt insurance companies are as anti-payout as many lawyers would have one believe.
Alan Goldhammer
May 3 2020 at 6:08pm
They also make a lot of money on the float as Warren Buffett is so fond of pointing out.
AMT
May 3 2020 at 3:37pm
I agree that they could very well be different, but do you have any way of estimating how much the costs vs benefits differ from social distancing vs lockdowns? Is it 90% of the benefit for 50% of the cost? 80% of the cost?
Perhaps you can compare different states or counties based on when they implemented lockdowns, but it would probably be hard to disentangle the effect from lockdowns from how much people are social distancing, which also would be a function of the perceived risk. I would think that people’s efforts at social distancing would also be correlated with how strictly the local government is restricting various activities.
MarkW
May 4 2020 at 6:14am
I don’t know how anybody would put actual numbers on the counterfactual scenarios, but the great disadvantage of the lockdown approach is that it prevents businesses from innovating to operate safely with social-distancing. We have had construction projects shut down. Are you telling me construction workers could not possibly operate with distancing and mask-wearing? Many already wear masks for reasons of dust and fumes. The same goes for landscaping services. How about restaurants operating outdoors — perhaps putting tables in their parking lots if necessary? Vacation rentals are shut down right now in my state — what on earth makes them inherently unsafe? Most of the time when I do a vacation rental, I never see anyone outside my group (we just get a key code). I’m sure there are many more examples of locked-down businesses that could have been operating safely all along with some appropriate changes, but our governor has made that legally impossible. I’d argue that there is much more economic damage from mandatory, across-the-board lockdowns than there would be from voluntary distancing combined with business innovations to keep customers and employees safely distanced and protected.
David Henderson
May 4 2020 at 8:52am
Yes. Thanks, Mark.
These are the kinds of things I have in mind. I talked about one or two during the debate. In a radio talk show on Saturday, I suggested that if local authorities would suspend the restriction on restaurants having tables on public sidewalks, we could have a lot of outdoor dining in the Monterey Peninsula area.
At the anti-lockdown demonstration that Lawrence Samuels and I organized in Monterey last Friday (we had at least 130 people–yay!), I talked to a woman whose hairdresser friend is being prevented from making a living. Her friend had told her that in her training to be a hairdresser she had learned more about how to deal with people who are contagious than the typical Costco worker knows. Good point.
By the way, you’ll notice in the photo above that we did fail on getting people to distance socially. I would say that only about 40 to 50% of the people wore masks.
AMT
May 4 2020 at 3:27pm
I think it has almost nothing to do with “innovating.” Only someone in marketing would use such a meaningless buzzword when in this context saying they “innovated” simply means following general CDC guidelines like requiring workers to wear masks and stay 6 feet apart, and wash their hands often. Or Walmart throwing up a 2×3 sheet of plexiglass near the cashier that does practically nothing to protect anyone, and is simply a feeble attempt to check the box to say “hey look, we’re doing SOMETHING!!” In a lot of cases it’s about as much “innovation” as was involved in Apple’s attempt to patent the rectangle. “Hey, we put restaurant tables in different locations so they are spread out more,” just isn’t innovation.
Except for disagreeing with that term, I definitely agree with the principle that it would be possible for many businesses to operate reasonably safely, so a total lockdown goes too far. I believe instituting lockdowns is defensible initially because you’re able to do something very quickly without getting bogged down on the details, and the marginal cost and benefit initially could easily be positive. But thinking about how to fine tune restrictions to be more efficient is certainly optimal (although I can imagine a very frustrating, long-lived bureaucratic fight over the precise details, because I doubt governments would leave the rules vague and flexible, similar to what I put in bold above.). But if it turns out we can all just wear masks and that makes us safe enough, then that’s the only rule we should have to follow.
MarkW
May 4 2020 at 9:56pm
Innovations don’t have to be high tech. One of the most important innovations of the 20th century was nothing more than loading all cargo in a ship into standard sized boxes (which could also be loaded onto train cars and trucks) – an idea that was both utterly dead simple and world transforming.
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