A STUDY has been doing the rounds since early April which argues that in poor countries the price of a lockdown is larger than the benefits to be gained from it. The lead author of the paper is an economist of Bangladeshi extraction at Yale, who has plenty of experience working in developing countries and is no stranger to the lay of the land here. Khurram Husain in The Dawn
I first came across the study when it was being circulated in mid-April by people from industry, particularly those who were busy lobbying the government for easing the lockdown restrictions. It was subsequently cited in a few opinion pieces published in newspapers, and most recently was invoked by Planning Minister Asad Umar in his televised talk with the press in which he presented a bevy of arguments in support of easing the lockdown.
It is useful to examine this study carefully, because doing so gives us an idea of how (some) economists approach questions of pressing and urgent public importance, and the limitations of the tools that they use.
The study in question is called The Benefits and Costs of Social Distancing in Rich and Poor Countries, and it is authored by Zachary Barnett-Howell and Ahmed Mushfiq Mobarak, both highly credentialled and published economists at Yale. It begins by asking whether “shuttering the economy for weeks or months and mass unemployment are reasonable costs to pay?” in return for “flattening the curve” of Covid-19 cases. In order to answer their own question, the authors have to first render both the costs and benefits of a lockdown into a comparable unit. The economic costs are measured in dollars, whereas the health benefits of a lockdown are measured in lives saved. So the question arises: how to compare these two quantities — lives and money — with each other?
To do so, the authors deploy a widely used model in the economics literature called the Value of Statistical Life model. What VSL does, quite literally, is tell us the dollar value of human life in different contexts. It was used originally in more limited contexts to help policymakers with complex judgements in cases where a particular policy imposed an economic cost in return for a vague health benefit. One example might be setting air quality standards.
But with the passage of time, the VSL model began to be used in contexts far more complicated and more pressing than any in the past. One example is climate change, where a number of economists from prestigious universities have used the model to argue that the benefits from the mitigation efforts to curb carbon emissions that scientists are calling for are not worth the economic costs that they will impose. Simply put, they argued that the likelihood of climate change turning out to be a catastrophic event was small, and making massive investments in foregone output today to avert an event that was probabilistically miniscule was not worth the cost.
The VSL at stake did not justify the massive investments required to curb greenhouse gas emissions to a two per cent increase by century end. This debate was sparked in 2006 when the Stern Review, put out by the eminent UK economist and public servant Nicholas Stern, argued that such an investment was now a matter of existential importance for mankind to make. Those who opposed him either took issue with his projections of the economic losses that climate change would impose, or invoked the VSL model to argue that the foregone economic output was larger than what was purportedly being saved.
It took 16-year-old Greta Thunberg to cut through the Gordian technicalities into which the ensuing conversation fell. “People are suffering, people are dying, entire ecosystems are collapsing,” she exclaimed in her famous address to the UN in September 2019. “We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth. How dare you!”
Today, the economists are back, armed with their VSL model, telling us that the dollar value of the lives saved as a result of the lockdown are worth less than the foregone output in developing countries, and they specifically mention Pakistan as one example.
For the US, for example, they say 1.76 million lives will be saved through aggressive interventions, and put the total value of these lives at $7.9 trillion. This easily justifies a $2tr stimulus along with whatever economic losses result from a closure of the economy.
It is worth asking, they argue, “whether similar mitigation and suppression strategies are equally valuable in low- and middle-income countries”. When they compute the VSL for countries like Pakistan and Nigeria, they find that the amount is so low that it makes little difference to have a suppression strategy. “In comparison to US losses, the dollar costs of uncontrolled Covid-19 in large countries such as Pakistan or Nigeria look miniscule.”
So they’re basically telling us that we are investing precious foregone economic output to save lives that are not worth saving. Among the reasons why the Covid-19 loss is lower for a country like Pakistan is the “higher base VSL” in the US.
They don’t give the dollar figure, but in a graphic they show that the “total VSL lost” for the US ranges from $25tr to just under $1tr depending on the severity of the suppression measures. For Pakistan, Bangladesh and Nigeria, their model shows the total VSL lost to be near zero across the range.
Economists have a hard time speaking plain English, especially when they are attaching dollar values to human lives. It is worth asking this pair to explain in plain English how the base VSL is higher in the US. And the irony is that this argument is being used to justify an easing of the lockdown in the name of the daily wagers themselves, the very people whose lives are found to be not worth saving!
No comments:
Post a Comment