by James A. Bacon
Having done everything I can to raise the alarm about COVID-19 in Virginia, I’m having second thoughts. Clearly, forceful government action is needed to cope with the most dire public health challenge of recent years. But it’s possible to do too much. We need to think about the trade-offs.
At least two critical perspectives have gone missing here in Virginia. One is the fiscal impact of a sharp recession on state/local government finances. I will address that in a separate post. The other is the impact of an economic downturn on public health. Shutting down society to limit the spread of the disease and save lives also shuts down economic activity. Shutting down economic activity leads to massive wealth destruction and the loss of jobs. And the loss of wealth and jobs potentially could result in… the loss of lives.
As of yesterday, two COVID-19 patients had died. But thousands of Virginians have lost their jobs already as government-imposed social-distancing measures have prompted the shutdown of restaurants, hotels, tourist destinations, hair cutteries, gymnasiums, yoga studios, and more. Lacking financial reserves, many small businesses will never reopen. The Richmond Times-Dispatch suggests today that between 115,000 to 170,000 of the state’s 290,000 restaurant workers could become unemployed. That’s just the first wave.
When restaurant workers lose their jobs, they lose spending power, hurting other businesses. Restaurant vendors lose business. To offset lost rent, shopping-center owners cut trash collection, janitorial services, and landscaping services, all of which puts pressure on another tranche of businesses. Uncertainty prevails. Cash is king. Big businesses put investments on hold. Small businesses try to renegotiate financial terms with lenders. Lenders are overwhelmed by the requests and can’t begin to handle them all. When enough businesses crash and burn, then the banks are in trouble. They curtail lending and… You get the idea.
Restaurants and hotels are only the tip of the iceberg. The following employers announced Friday that they are suspending operations: the Philip Morris USA cigarette manufacturing plant; Volvo’s truck manufacturing facility in Dublin; Goodyear’s tire manufacturing plant in Danville; and Colonial Downs’ Rosie’s Gaming Emporiums. That was just one day’s worth of announcements. Virus-fighting measures have precipitated what shows every sign of becoming a full-blown depression.
The Fed is injecting massive liquidity into the system, and Congress is discussing a $2 trillion spending stimulus. Whether enough money gets to affected businesses fast enough to do them any good is an open question.
Now let’s examine the moral reasoning behind the government action. The goal is to flatten the spread of the disease to reduce the inundation of virus-afflicted patients in hospitals, all for the purpose of saving lives. But what impact will a massive economic contraction have on mortality?
Assume for purposes of argument that the virus-induced recession in Virginia turns out to be as bad as the sub-prime lending fiasco of the previous decade. (It could be worse. I’m trying to use conservative assumptions here.) The annual unemployment rate peaked at 7.1% in 2010. That’s roughly four percentage points higher than unemployment last month. Using these assumptions, an economic contraction could increase unemployment by four percentage points.
In the movie “The Big Short,” the Brad Pitt character famously said, “Here’s a number for you: for every 1 percent unemployment goes up, 40,000 people die.” That particular number is likely a pure Hollywood concoction, but, if it’s even close to reality, it would imply about 4,000 additional deaths in Virginia. How many additional deaths would we see if we took no economy-wide measures to slow the spread of the coronavirus and focused resources instead, say, on isolating nursing homes and boosting hospital capacity? No one in Virginia has an answer. That’s because no one has asked the question. This is not a matter of the Northam administration making well-informed trade-offs after weighing costs and benefits. Driven by panic, Virginia government — like virtually every national, state and local government around the world — is acting as blindly as a herd of wildebeests fleeing a lion.
What does the academic research tell us? The conventional wisdom among social scientists is is that when unemployment rates go up, so does the mortality rate. Job loss leads to stress, anxiety, depression, increased alcohol and substance abuse, and suicide.
“Economic growth is the single most important factor relating to length of life,” said M. Harvey Brenner, who was a visiting professor at Yale’s Department of Epidemiology and Public Health and lead investigator of the largest study of its kind on mortality patterns and the U.S. back in 2002.
“Employment is the essential element of social status and it establishes a person as a contributing member of society and also has very important implications for self-esteem,” said Brenner. “When that is taken away, people become susceptible to depression, cardiovascular disease, AIDS and many other illnesses that increase mortality.”
To be sure, the unemployment-makes-mortality-worse theory does have skeptics. Writing in 2015, Christopher J. Ruhm, a professor at the University of Virginia’s Batten School of Public Policy, found counter-intuitively that mortality rates go down during recessions. “This analysis … provides reasonably strong evidence that the protective effect of economic downturns on physical health is generally not restricted to ‘typical’ business cycle fluctuations, but also extends to crisis.”
In the years since Ruhm wrote, however, the opioid epidemic in the United States exploded. In the popular mind at least, drug/alcohol overdoses and suicides are considered “deaths of despair” — most prevalent in communities suffering economic decline, job loss, and the inability of people (men especially) to maintain social expectations of caring for their families.
To my mind, it seems common sense that job losses are tied to higher mortality rates. But who knows, maybe if people are broke, they smoke less, drink less, consume fewer drugs, and do less stupid stuff. At the very least, the jobs-mortality trade-off is a question we should study in more depth. I, for one, do not take it for granted that our panic-driven policies here in Virginia are the right thing to do. It would be ironic indeed if, in the pursuit saving people from death by flu, Virginian mortality rates actually increased.1
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