In Pandemic Response, Health and Wealth Go Hand in Hand
Data across the globe show there is no better way to speed economic recovery than following public health advice to slow the COVID-19 spread
At the end of September, the world reached a grave milestone: one million deaths from the COVID-19 virus. The magnitude of this death toll is almost incomprehensible; for comparison, it’s greater than the entire population of Washington, D.C.
With shocking mortality comes an economic shock. The Asian Development Bank estimates that the pandemic could cost the global economy $8.8 trillion, another value so high it’s nearly impossible to conceptualize — nearly as high as Latin America’s entire GDP. The World Bank projects that up to 135 million people will be forced into poverty this year as a result of the pandemic and associated economic downturn, including 50 million who will be pushed into extreme poverty. These impacts will hit low- and middle-income countries (LMICs) the hardest, but higher-income countries are far from immune. A survey by the Commonwealth Fund in Australia, Canada, the U.S., and six high-income European countries found about one in five people have been unable to pay for basic necessities due to the pandemic, have been forced to empty their savings, or have taken out loans to afford those necessities.
In light of these devastating economic downturns, some world leaders have tried to jump-starting their countries’ economies by avoiding significant lockdowns even as the pandemic rages on. Sweden, for example, attempted a “shutdown-free pandemic response,” and in America, President Donald Trump has been pushing to reopen the economy since as early as May.
The data, however, show quite definitively that the only way to move toward economic recovery is to address the pandemic first. Research by academics at Harvard’s Kennedy School helps explain why: people are simply scared to carry on with “normal” life while the threat of the virus still looms large. The figure below, drawn from the Harvard study, shows consumer spending categorized according to American states’ lockdown orders, grouping together states that closed non-essential businesses early, those that did so later, and those that never issued such orders.
The graph illustrates several important trends. First, all states across the country saw significant decreases in consumer activity weeks before any lockdown orders were issued. As the pandemic hit, consumers were (rightfully) wary of going out to shop for non-essential needs; consumer behavior, not government shutdowns, sparked the economic downturn. Second, states that never issued orders to close non-essential businesses followed almost the exact same downward trend in consumer activity as those that did close down businesses. Once again, governments pushing for business to continue as usual is not enough to reassure citizens who know they may be risking their lives every time they go to the store.
More data from the same Harvard research paper pinned these trends to more localized impacts of the pandemic. The graph below again tracks changes in consumer spending, but this time mapped against county-level COVID case rates instead of state-level regulations.
Local case rates are a strong predictor of changes in consumer behavior — in counties hardest-hit by the pandemic, spending dropped much more significantly than in counties less affected. Consumers appear to be assessing their personal risk at a very localized level and acting accordingly.
These data illustrate the strong correlation between the public health effects of the virus and the associated economic shock, but they also point toward the path to economic recovery. If COVID-19 case rates are driving consumers indoors, away from work and normal spending habits, then slowing case rates is the surest way to help economies bounce back.
Country-level comparisons soundly support this hypothesis. Countries that controlled the virus effectively have tended to experience far smaller economic shocks than those where the curve has yet to be flattened. Compare Sweden, which has attempted to minimize lockdowns as much as possible, with its Scandinavian neighbors that took a health-first approach. In the second quarter of 2020, Sweden experienced an 8.5% decline in GDP, while Finland and Norway each saw GDP shrink by only about 5%. A difference of about three percentage points may not sound like much, but in the context of a high-income country’s GDP, that difference amounts to tens of billions of dollars.
The same trend holds in the U.S. Despite the Trump administration’s efforts to reopen the economy as quickly as possible, the country experienced a 9.5% drop in GDP in the second quarter of 2020 as COVID cases and deaths continued largely unabated. Compare this to South Korea, which saw a massive, centralized government response to the pandemic, testing about 20,000 people per day, quarantining infected people in dedicated facilities, and mobilizing thousands of healthcare workers for contact tracing. As a result, lockdowns were brief, and the country has seen one of the smallest economic downturns of any country in the world — just a 3% decrease in GDP in the second quarter this year.
Not every lesson from one country’s pandemic response can be applied to another country’s context. There are important differences in government structures, culture, and resources. But all available evidence points to the same broad conclusion: to fix the economy, first fix the pandemic. Easier said than done, of course, but the fact is that governments need not view the situation as a tradeoff between saving the economy and saving lives. Health and wealth go hand in hand.
By Thomas Roades and Debra Winberg
