Examining the coronavirus’ economic costs

In recent weeks, the outbreak of the coronavirus has commanded the world’s attention, presenting a new and pressing threat to global public health. Experts across fields are scrambling to minimize the impact of the respiratory disease known as COVID-19 on individuals, medical systems and the global economy.

“What you see is that big parts of the Chinese economy have shut down,” said Chang-Tai Hsieh, the Phyllis and Irwin Winkelreid Professor of Economics at the University of Chicago Booth School of Business. “You think about the basics of getting workers to companies and companies getting their goods out: The travel restrictions are just making that very, very difficult.”

A leading scholar of economic growth and development, Hsieh joined a Feb. 20 panel discussion which explored the impact of the coronavirus on the global economy. Hosted by the Becker Friedman Institute for Economics, the panel also featured Yanzhong Huang, director of Seton Hall’s Center for Global Health Studies; Assoc. Prof. Emily Landon of UChicago Medicine; and moderator Eliza Barclay, Vox science and health editor.

Global estimates suggest more than 75,000 people have been diagnosed with the virus, and more than 2,000 have died. The Chinese government has employed a number of strategies to try to prevent the spread of coronavirus, including strict travel restrictions and local quarantines.

The UChicago conversation focused on how to analyze the costs and benefits of actions like travel restrictions and quarantine—especially in the face of catastrophic forecasts and innumerable unknown factors.

“In the beginning, you don’t know anything,” said Landon, the executive medical director of the Infection Prevention & Control Program at UChicago Medicine. “The best bet, in the beginning, when you have few cases, is to contain. At all costs, contain.”

Landon noted there is a point in the spread of a disease when it’s no longer worthwhile to try to contain, and efforts are better directed toward a mitigation strategy. However, knowing exactly when to draw that line can be difficult. To complicate matters, early data available to decision-makers are typically unreliable.

“Numbers are tough in epidemics,” Landon said. “The same people who are supposed to count the sick, the recovered, the exposed, and the dead are those who are supposed to make the rules about who should go out, who can’t, and who is at risk… And then oftentimes, these are also the people who have to take care of the sick.”

Huang called for a transition to a mitigation-based strategy based on the current available data, but added that such a step is not yet politically feasible in China.

“Despite advancement in biotechnology, so far, we still believe that the silver bullet to containing the virus is this centuries-old instrument: cordon sanitaire—quarantine,” he said.

Huang also noted evidence that the quarantine has slowed the spread of the virus to unaffected regions, regardless of its potentially costly economic effects. Less clear is the effectiveness of the quarantine in affected regions like Wuhan or Hubei.

Citing a previous World Bank study, he cautioned that 90% of economic losses during any outbreak arise from public reaction: “Panic is always bad for the economy, right?”

—This article first appeared on the Becker Friedman Institute website.