OUAA Might Increase U.S. Deaths 5.6% Per Month But Save $135 Billion GDP

There is intense debate about the likely impact of the “Opening Up America Again” (OUAA) guidelines the White House published last week.  Most of the tools to assess the impact are forward-looking epidemic models where assumptions have been modified to accommodate eased restrictions.  I want to propose a complementary approach—backward-looking econometric analysis of the large number of Covid-19 policy experiments taking place across the globe.

The full analysis would involve two-stage estimation, where the first-stage models new cases as a function of population characteristics and intervention types, and the second stage models deaths per Covid case as a function of things such as population health, access to medical care and quality of medical care.   I don’t have access to the data to do the full analysis, so I’m going to conduct a simplified two-region comparison that provides a preliminary answer.  Its role is to be provocative, so policy-makers quickly call for the full analysis.

The simplified analysis compares Sweden and Los Angeles County (LA County).  Sweden was chosen to represent a lax regime, because of the attention it has drawn. LA County was chosen for the restrictive regime, because it is more restrictive than either California or the U.S. which subsume it. Both Sweden and LA County are developed economies, and coincidentally, Sweden and LA County have the same population, 10.2 Million.  Despite these similarities there are vast differences which a fuller analysis would accommodate.

To set the stage, we compare the two Covid policies. A table at the base of the article provides greater details, but to summarize, LA County’s “Safer at Home” policy has closed all schools, all non-essential government, all bars, all restaurants (except for takeout), all non-essential retail, all recreation, and most painfully, all parks, beaches and trails.  People are not to gather except in the home, and are encouraged to wear masks when they do venture out.

By contrast, Swedish shops, bars and restaurants are still open, as are most schools, and aside from the warning that those over 70 or at high Covid risk should avoid social contact, individuals have discretion to conduct activities as they see fit.   

Stage 1: Covid Cases Could Slightly More Than Double From Adopting Swedish Policies

In the interest of providing results quickly, the first stage is simplified even beyond its restriction to two regions—it only examines two variables.  The analysis takes all cities within Sweden and LA County for which population, land area and Covid data were readily available online.  

The figure below compares the two variables: population density on the horizontal axis to Covid probability (as of April 14) on the vertical axis.  Each orange dot represents a city within Sweden; each blue dot represents a city within LA County.  For example, the uppermost blue dot is Rinkeby-Kista, which has a population density of 9400 people per square mile, and 5.84 Covid cases per 1000 people.  

You can immediately see two things. First, population density doesn’t seem to matter much (the blue and orange lines don’t rise much with density. Second, for any given density, Sweden has 2.3 times higher likelihood of Covid (the distance between the two lines).

The figure also allows you to see how much adding other city characteristics like education and social habits, might explain.  There’s admittedly a lot to explain, particularly for outlier cities, like Rinkeby-Kista in Sweden, with 5.8 cases per 1000 population, and West Hollywood in LA County, with 2.8 cases per 1000 population.  

Having said that, the preliminary conclusion is that relaxing the LA County policies to those in Sweden, might increase Covid cases by a factor of 1.3.  There is reason to believe this estimate might be on the high side for the U.S. as a whole:

·     Other parts of the U.S. have less restrictive policies than LA County, so there will be less to “open up”.

·     People in the U.S. are now acutely aware of the Covid threat, as well as how to minimize it, so they might self-regulate as government regulation eases.  This is particularly likely if people know that “opening-up” is tied to decreases in Covid.  

·     The conclusion that Swedish policies have 1.3 higher Covid risk than LA policies assumes the only thing different between the two sets of cities is the policies.  If other things, like Sweden’s lower temperatures affect Covid, then the increased risk from the policy change would be less than 1.3.

Stage 2: Doubling Covid Risk Increases U.S deaths by 5.6% per Month for 6 Months

To assess the impact of the increased Covid risk under OUAA, we will assume the probability of dying from a confirmed case of Covid stays the same.  So replacing Sweden’s lax policies for LA County’s more restrictive policies, would increase Covid deaths by a factor ofs 1.3.  Multiplying 1.3 times the IMHE estimate of 60,000 total Covid deaths under the current policies, yields 78,000 additional deaths under OUAA, or 13,000 per month over each of the 6 months the current outbreak is expected to last. Comparing 13,000 new Covid deaths to the 233,000 that normally occur in the U.S. each month, means OUAA would increase the death rate by 5.6% for each of 6 months.   It’s possible deaths would increase by less than that, since the people most at risk from COVID have underlying health issues, that might have taken their lives even if they hadn’t contracted Covid.  

By comparison, heart disease takes 54,000 lives per month (4 times the level of additional Covid deaths), and will do so in perpetuity without new treatments.   

Economic Tradeoff

The economic tradeoff then compares the cost of restrictive policies to the 78,000 lives potentially saved by them.  This requires a “counterfactual”—what would happen if we hadn’t implemented the restrictive policies, because the economy wouldn’t have continued on its prior course—the whole world has been affected by Covid.  To gauge this, we look again at Sweden.  Note that the U.S. and Swedish economies are vastly different on numerous dimensions.  Sweden for example is far more dependent on trade—its exports comprise 46.8% of GDP, versus 12.2% for the U.S.   Thus, it will feel the global impact of Covid to a greater extent than the US would.

With that as caveat, Sweden’s economy appears to be fairly resilient to the Covid threat.  While US retail sales fell 8.7% in March versus a month earlier, Sweden’s actually increased 0.2% (8.9% difference). Similarly, while US manufacturing output fell 6.3% versus a month earlier, Sweden’s only fell 0.4% (5.9% difference).  These differences are for a single month, and for a select set of indicators, but an estimate of 7.4% of monthly GDP ($1.8 trillion) for the months of restrictions seems reasonable, implies $135 billion in foregone GDP per month.  The rough tradeoff then is a 5.6% increase in deaths for $135 billion decrease in GDP in each of the 6 months of the outbreak.   

In addition to the $810 billion cost to the economy is the personal cost to citizens of being confined, and the financial cost of being unemployed for the 22 million people who have filed new claims over the past 3 weeks.

Summary

While this analysis is illustrative at best, it shows what additional insights could be gained by complementing forward looking epidemic models with backward looking econometric analysis. The econometric models should do a better job of assessing the impact of policy interventions, because they isolate their impact from the set of ongoing policy experiments.

If a fuller set of econometrics achieves results similar to those here, we might expect the number deaths to increase by 5.6% per month for 6 months under OUAA.  The likely economic benefit would be $135 billion higher GDP per month, lower unemployment and greater personal freedom.  

Comparing Covid-19 Policies: LA County Versus Sweden

Table Sources:

Los Angeles County Safer at Home

Sweden’s guidance