There’s No Trade-Off Between Lives and the Economy
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As the plague year of 2020 lurches to a close it’s worthwhile revisiting one of the biggest policy mistakes of the pandemic—the attempt to preserve economic growth by minimizing restrictions that might hurt the economy. I wrote about that in May in a Bloomberg Businessweek cover story focusing on President Trump. “Will some people be affected? Yes. Will some people be affected badly? Yes,” Trump told reporters during a factory visit on May 5. “But we have to get our country open, and we have to get it open soon.”
By now it’s clear there’s no necessary trade-off between lives and livelihoods. A country can have both. Two economists for Bloomberg Economics, Scott Johnson and Tom Orlik, hit that point in a graph that plots Covid-19 deaths per million population vs. the level of gross domestic product in the fourth quarter in comparison to its pre-pandemic trend.
China, South Korea, and Japan are in the top left of the graph. They’re on the left because they have a minuscule number of virus deaths per million, and they’re near the top because their economies are running almost as fast as before Covid-19. China is the best in both respects, with the lowest death rate and the least harm to growth of any major economy.
In the loser’s corner at bottom right sit the United Kingdom, Mexico, Spain, and Argentina, with high death rates and lots of economic damage.
If there really were a strong trade-off between lives and the economy, neither the good cluster nor the bad cluster would exist. Of course, not every country fits into one of the clusters. The U.S., France, and Italy are intermediate cases, with far more lives lost than China but not as much economic damage as the U.K.
Australia, India, and Indonesia are a different type of intermediate case: fairly low death rates, fairly serious economic damage.
Write Johnson and Orlik: “Governments acting on the false hope that a little more growth could be purchased at the expense of a few more virus cases often ended up with precious few more jobs but a lot more contagion.”
Among democracies, ones that are rated highly by the World Bank for “government effectiveness” tended to do the best job in simultaneously fighting the pandemic and preserving growth, the Bloomberg economists found. South Korea, Japan, Germany, Australia, and Canada are highly rated in government effectiveness and have a high score on Bloomberg’s composite rating for saving lives and livelihoods. Mexico and Argentina are weak on both measures. The U.S. is in between.
“Worryingly,” the authors write, some of the best performances were recorded by countries that rate low in democracy: China, Russia, Turkey, and Saudi Arabia. They have three explanations: Some of the countries, particularly Russia, might be misreporting data; China learned from its brush with SARS in 2003; and all four countries “have relatively small service sectors–helping shield them from the virus’ impact.”
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