It might be a provocative and unethical article. Making decisions that can have serious consequences requires having as much information as possible about the implications of each alternative.
In the face of the Coronavirus pandemic (Covid19), most countries have chosen human life as the element to protect at all costs. Countries such as Spain had an absence of sufficient protection materials and tests. Therefore, for its implementation, the path selected was the confinement of people.
This has a severe economic impact, of which there is already some data. In the first quarter of the year, economies like France or Germany report a hit of 4% to 6% of GDP. When the data of April and May will be known, we will most likely see impacts closer to 10% or worse.
The alternative to protecting human life at all costs was not the only option. We could have chosen to protect the economy at all costs or a middle way. In a Socratic exercise, I dare to highlight both the human and economic consequences of wanting to preserve the economy at all costs.
The Economic Value of Human Life (“EVHL”)
All the efforts of “advanced” societies lead towards containing the pandemic by protecting human life and putting it before anything else. This is mainly because today’s society understands that human life is priceless. However, if we try to put an economic value to it, how much would human life be worth?
And of course, I am not the only one who has thought about this. Tim Harford, in his article “How do we value a statistical life?” already introduces provocative notions about the value of human life. He cites a 1950 US Air Force study recommending to value pilots’ lives at zero. Or Nobel Prize winner in economics Thomas Schelling commenting that when the breadwinner in a working family died, his family would miss him and his income. Engineer Ronald Howard proposed a unit of measurement called “micromort”, which is something like a one-in-a-million chance of death. The US Environmental Protection Agency values life at approximately $10m, or $10 per micromort (one per million) avoided.
I am going to propose a different angle on the valuation of human life. A Human Resources director told me that the economic value of someone is equal to their replacement cost. The first thing, therefore, is to quantify the economic value of each potential death. Even knowing that no method is necessarily accurate, I dare to propose that the intrinsic economic value of a person is equal to the present value of the income he or she has left to contribute. In other words, it would be the annual contributive value of each Spaniard of contributing age (contributive per capita income) multiplied by the number of years left to contribute (contributive life).
Spain’s GDP is approximately 1.25 billion (Spanish) euros (2019), giving us a per capita income of just over 26,500 euros. We do not all contribute the same, but since we are talking about statistics, ranges and approximations, we could assume that this GDP is generated by people of production age, or contributory population (not to be confused with active population). That is, between 16 and 70 years of age, approximately. In that age range, there are 33.16 million people in Spain. Therefore, the contributive per capita income (RPCC) in Spain would be about EUR 37,500.
Once the RPCC is determined, the Economic Value of a Human Life (EVHL) in Spain would be the multiplication of this RPCC by the difference between its age and the maximum contribution age, which we could put at 70. Thus, the economic value of an average Spaniard when born in tax terms would be about 2 million euros (the difference between 70 and 16 years old (54) multiplied by the RPCC (37,500 euros)). An American, applying the same method, would be worth about 5 million dollars. His EVHV decreases with age. A 30-year-old would be worth $1.5 million, a 40-year-old $1.13 million, a 50-year-old $750,000, etc.
COVID19 Death Estimates
Having established EVHV, the next step is to determine how many could die if we did absolutely nothing. Let’s go to the worst-case scenario, assuming that 100% of the Spanish population is infected, and we can make adjustments later. We would be about 46.7 million Spaniards infected (census 2018). Let’s imagine that we don’t stop working, or going to the movies, or doing anything we were doing before the pandemic. Given the speed of the virus spread, it would be understandable that everyone would be infected throughout this year.
Of the infected population, unfortunately, a percentage would die. We have taken the existing data of mortality rate by age. We know how many total people in each age range. Therefore, if all Spaniards were infected, the expected number of deaths would be 930,766. Almost one million deaths from coronavirus.
This would be the maximum value within a range that could go from a very benevolent estimate of 15% of the population to a rating given by countries like Germany of 70% of the population.
Economic Value of COVID19 Deaths and Impact on GDP
Let’s estimate the deceased economic impact using the value of their lost future income flows. Let’s assume that a Spaniard disappears without immediate “replacement” by another person of the same characteristics. We then could assume that his or her contribution ceases to exist from the moment of his or her disappearance until he or she has died in other circumstances, statistically speaking (expected life of about 82 years).
If it affected 100% of the population (distributed by age range and death rate), some 930,000 people would die, the total impact would be 144,583 million euros, 11.62% of Spanish GDP. The result comes from multiplying each death in an age range by its EVHV according to age.
From there, we can establish more or less conservative scenarios. The German Chancellor sets this infection rate at around 70% of the population. If this were the case, approximately 32.5 million people would be infected in Spain, some 650,000 people would die, and the impact on GDP would be 8.13%.
If it were 15% of the population, 140,000 people would die, and the effect on GDP would be 1.75%.
The dilemma of choice
In economics, it is not a question of absolute better or worse, but instead of relative better or worse. Compare between two alternatives and see which is better or less evil. I want to mention three renowned economists quoted in an article by Rebeca Gimeno (March 29th): José Emilio Boscá, Javier Ferri (University of Valencia and FEDEA), and Rafael Doménech (the University of Valencia and BBVA Research). They establish scenarios based on the measures taken by the government, which reach an impact on GDP of almost 8%. In my opinion, and unfortunately, they are going to fall short. Given the data already known from the first quarter in France and Germany, and taking into account the particularities of the Spanish economy, the scenario chosen by the government will probably lead to figures of between 10% and 14% in GDP this year with the number of deaths likely to be above 25,000 people. I hope I am wrong.
At no time have we introduced an ethical or moral component. Nor the social duty towards the most disadvantaged. Neither the impact in this particular case towards the people who have given us life cared for us and made us what we are today.
However, the decision-makers need to have all possible angles from which to look at this pandemic. No measure is without negative consequences. There are comments in media highlighting the pain of surviving the pandemic just to dye of hunger later on. Implicitly, this comment introduced the economic aspect back into the equation. Still, I have not seen any explicit attempt to quantify the impacts of prioritizing one or the other alternative (or combination of them) from the economic and mortality point of view.
Protecting the economy at all costs is very radical, but going the other extreme can have dire consequences in the medium term. A dynamic option based on a combination of protecting people, understanding the economic cost, and adjusting measures to minimize adverse outcomes would be the best alternative. I wanted to introduce the dark side of the equation. Presenting all equation elements is the only way we can judge the measures taken, and those who took them.