Businesses bankrupt. Workers on furlough. Schools and universities shut for months. Cancer treatments postponed or cancelled. Travel restrictions. Problems with domestic abuse, loneliness and mental health. The costs of lockdown are many and high even before the astronomical bill to the tax payer has been issued. That many of these initial costs are not monetary but physical and mental ones paid for by those caught on the wrong side of the restrictions has of course not hindered the repeated claim that lockdown is placing lives over money. That is of course before the real fallout from the economic destruction hits. Many will testify to the fact that the cost of mass unemployment is far from limited to the monetary. But the monetary damage is bad enough. Back in July, a study by former Bank of England policymaker David Miles suggested that lockdown had cost at the very least £200bn. As the country descends into further lockdowns, the bill continues to mount.
The toll of the pandemic response has exploded already large public deficits. In August alone, the UK government borrowed £35.9bn bringing the total for the 5 months from April to £173.6bn or almost £35bn/ month. For comparison, at the height of the financial crisis in 2009, the UK borrowed around £13bn/ month.
Just the Job Retention Scheme cost taxpayers more than £35bn between April and August and the scheme will run to mid October. Its successor, the Jobs Support Scheme is much more modest in scope but is still expected to cost hundreds of millions of pounds per month. On top are schemes designed to compensate hospitality and other struck sectors in locally locked down areas. Add to that other measures of support for businesses, mainly in form of subsidized or guaranteed loans. The various loan schemes put in place for businesses struggling under lockdown could cost up to £27bn as many will struggle to repay the debt.
But while the direct costs of the various support schemes are easy to identify, many other costs of lockdown are more subtle. Take education. Schools closures could lead to future loss of earnings, as pointed out by the IZA Institute of Labour Economics, who assumes that one additional year of schooling results in an 8% increase in future earnings. British researchers predict a 3% loss of earnings for pupils caught up in the pandemic or up to £900/ year throughout their working life. Many will be paying the bill for lockdown for the rest of their working lives.
Those who graduate in the coming years will of course face an even bigger problem, namely finding a job at all. The Bank of England estimates that unemployment will rise to 7.5% by Q4 2020. They expect this to be the peak as many will be reemployed as restrictions are eased. But while the MPC concedes that unemployment is likely to remain higher for a while, the Bank does not estimate the effects on employment in the medium to long term. Others have. FocusEconomics Consensus Forecast panelists expect the unemployment rate to average 6.1% in 2020 and 6.3% in 2021. This compares to a jobless rate of 3.8% in 2019.
How much will this all cost? In 2007, an analysis of official data by the House of Commons tried to account not just the costs of benefits paid to the unemployed, but also the taxes they and their employers would pay if they were in a job. The analysis came up with an annual cost of £61 billion for an estimated ‘real’ unemployment figure of 5.2 million, suggesting an annual cost of around £13,500 per unemployed in 2020 prices, which yields a figure of upwards of £10bn annual cost per percentage point increase in unemployment. This figure doesn’t account for erosion of human capital, increased mental health problems, crime, alcoholism and other derived effects.
Quantifying the cost of the coronavirus response is truly an impossible task. The unintended consequences include distorted capital allocation, expansion of Quantitative Easing programmes and the spectre of inflation, as we discuss here. But that doesn’t mean it cannot be put into proper perspective.
The aim of lockdown was always to save lives. And it turns out we do know what life is worth. NICE, the body in charge of approving medical treatments in the NHS, generally consider a QALY (Quality Adjusted Life Year) to be worth £20-30,000 – yes, the welfare state DOES indeed put a price on human life. But how many lives will lockdown save?
The notorious and flawed Imperial model which became the scientific foundation for the UK’s strict lockdown predicted 510,000 deaths in the UK if a strategy of ‘herd immunity’ was pursued. The model has been heavily criticized. One estimate put the number of lives saved by the first round of lockdowns in the spring of 2020 at less than 6,000 in England and Wales. But assume we take that 510,000 estimate at face value; if one QALY is worth £30,000, then a justifiable cost of extending 510,000 lives by an average of one QALY would be around £15bn.
How many life years the average Covid casualty loses is of course speculation but the average age of a UK Covid fatality is 82 years. Now consider that the average life expectancy for an 82 year-old is 7.2 years for men and 8.4 for women – this is of course generous as we know Covid fatalities are often suffering from other underlying health conditions . A simplistic calculation would be to use these estimates for life years saved (disregarding the quality adjustment in QALY, which is a big assumption) to get a hurdle rate of around £70bn for lockdown to be cost-effective (some will undoubtedly object to the concept of an economic hurdle rate for saving lives but this is the reality of a public health care system). This is admittedly very simplistic and highly unscientific but it is also far below any reasonable estimate of the cost of lockdown.
Ignoring such economic considerations, Boris Johnson has said that the without lockdown deaths would simply be ‘too high’, implying that the several hundred thousand deaths no lockdown might cause is unconscionable. Considering that the annual number of deaths in the UK is around 6 million, hundreds of thousands of additional deaths is of course meaningful but how many of those 6 million deaths seen in any normal year could be prevented if society was willing to incur costs at a level commensurate with what lockdown is costing us?
One counter argument is that letting the virus ‘rip through society’ (as lockdown zealots like to phrase it) would also lead to widespread economic damage. But this is not a disease that ravages the productive part of the population. The mortality rate is estimated to be as low as 0.3% and much less for young people with no underlying conditions. A study done in the UK in June suggested a woman aged 30–34 would have a 1 in 70,000 chance of dying from Covid-19. And since over 80% of fatalities had pre-existing medical conditions, the study estimates a healthy women in this age-group to have a less than 1 in 350,000 risk of dying from Covid-19 during the peak of the pandemic. That is around 1/4 of the normal risk of an accidental death over a similar period. This is a disease that kills the old and infirm. That the economy should ground to a halt because of fear of a virus with such low mortality risk is simply not plausible. Indeed, the argument that lockdowns could help the economy seems to be based on the assumption that no lockdown now means more draconian lockdown later.
Another argument is that herd immunity is not achievable. Health Secretary Matt Hancock has implied as much. But this is not true, as has been pointed out by scientists. We do indeed have herd immunity against the common flu but every year people fall ill to new strains of the virus which we have no immunity or vaccine against. Should this pattern be repeated for Covid-19, lockdowns are even more preposterous as they would have to be repeated every year when a new strain reared its head. If herd immunity is indeed not achievable, we would have to learn to cope without temporary measures such as lockdown anyway.
There are of course many ways to try to estimate the costs and benefits of lockdown. But coming up with an economic calculation to justify the public health response using similar metrics as the ones used daily in the NHS is clearly difficult. The costs are undoubtedly to be counted in the hundreds of billion of pounds. And such an economic calculation is of course disregarding the human costs, whether it be the cost to mental health, suffering due to lack of medical care, domestic violence or the psychological costs of mass unemployment. Is lockdown worth it? The answer surely must be No.
Of course, the highest price for lockdowns may be the one paid by our personal freedoms. Not just the suffering brought on by months of authoritarian crackdown but the political precedence that has been set. Across the world, governments have proven willing to dispense with what some may naively have thought were indispensable civil rights and populations have largely backed them. This is a cost that cannot be quantified but may live on to haunt future generations. Lockdown is a damaging, draconian and completely disproportionate policy response to Covid-19. Society may pay the price of acquiescing to it long after even the colossal economic bill has been paid off.