come in we’re open
Recently a number of US states announced their strategies for reopening their region’s economy, including the epicenter of the American outbreak, New York. The difficulty of choosing the right time to do so, from a health perspective, is compounded by the relatively small number of people believed to have been infected, and therefore hopefully immune. Even with the most optimistic stats from Imperial College London, it is likely that a maximum of around 15% of the population have developed immunity, which, in the absence of a vaccine, remains the only real defense available.
From an economic perspective, new research from the American Enterprise Institute, argues that opening up too soon could also harm the economic recovery from the outbreak. It suggests that a more sensible time for reopening will not be until mid-June.
The authors suggest that for a few more months, the economic benefits are greater from controlling the virus than are the costs of closing down nonessential businesses. With any easing of lockdown conditions likely to be gradual, this attempt to limit the spread of infections is only going to continue, otherwise the economic harm from the spread of the virus will outweigh any gain from re-opening the economy.
“I was looking for the date when the cost of keeping businesses shut will become greater than the benefit of containing the spread of COVID-19,” the authors says. “You have to find the moment when the virus is sufficiently under control that it won’t significantly damage the economy before a vaccine or a treatment becomes available.”
Open for business
The analysis compares the economic costs associated with the shutdown with the benefits the shutdown provides to the health of communities. These are considerable, not only in terms of the obvious grief associated with illness and death, but sickness has economic costs, as people are unable to work and require medical interventions.
The author suggests that their mid-June data is fairly optimistic in terms of the likely success of re-opening the economy. The paper says that an uncontrolled spread will see the reproduction rate of the virus hit 2.4, which means that the average person will infect 2.4 others during the course of their illness. The optimistic scenario presented in the paper assumes the existing containment efforts have reduced this to 0.5 by the time the economy reopens.
The paper also presents a more pessimistic scenario, in which our current containment efforts only reduced the reproduction rate to 0.7. In this case, the author suggests the economy should stay locked down until early August.
In both of these scenarios, it will be a gradual re-opening, with various mitigation strategies in place to continue slowing the spread of the virus until a vaccine is available. These are likely to include limiting public gatherings and international travel, encouraging home working where possible, and wearing face masks in public places. If these fail, then another period of lockdown is inevitable.
“In the absence of a vaccine or an effective treatment, a public health intervention is paramount,” the paper says. “This is what we are doing at this time with the lockdown policy of suppression after which we will switch to a mitigation mode until a vaccine or treatment is available.”
Nations around the world are already rolling out their own plans to re-open their economies after the lockdown, with the stakes enormous should they get it wrong. All seem to adopt a far more optimistic perspective than in this paper, so time will tell if they are right to be so.
