Researchers claim that social distancing creates $8 trillion in economic benefits

Social distancing puts space between people.

When people who are infected with the virus stay away from others, they can’t pass it to anyone else.

That is clear and this is why governments from around the world have closed schools, universities, banned public gatherings, ordered nonessential businesses to close.

While instant impact on the economy is devastating as many people have lost their jobs due to the shutdown, some argue that the shutdown is actually benefiting the economy in the long run.

Researchers at the University of Chicago claim that social distancing could ultimately save the United States $8 trillion.

Michael Greenstone and Vishan Nigam, in a working paper on the university’s Becker Friedman Institute for Economics’ website, base their estimate on a simulation of the spread of COVID-19.

That model, from Imperial College London, projects social distancing could save 1.7 million lives between March 1 and Oct. 1.

„It is natural to consider social distancing like any of hundreds of policies that aim to reduce the risks that people face. As just one example of such policies, governments pay for guardrails on the side of roads,  because they increase survival rates in car accidents. A policy like social distancing similarly increases survival rates. To convert the main benefit of social distancing – reducing the mortality impact of COVID-19 – into dollar terms, we turn to the value of a statistical life (VSL)“, explained the researchers in their paper.

As they explained, VSL is a tool from economic theory which is now a standard ingredient in the cost-benefit analyses that undergird decision-making by the United States Government, and scores of foreign, state, and local governments.

In principle, the VSL measures how much the average US citizen is willing to pay for a reduction in the probability of death.

 „There are two reasons, one theoretical and one practical, to use the VSL to capture the benefits of social distancing policies. First, the VSL captures the full benefits an individual expects to derive from her own life, including from leisure, time with friends and family, and consumption of goods and services. The  legal system often relies on individual’s remaining lifetime earnings, but such a measure fails to capture many features of what people value about their life, including their consumption of non-market goods like leisure time spent with family members. Our approach is a standard one: US federal agencies such as the EPA and Department of Transportation have used the VSL for many decades to evaluate a long list of policies in a variety of domains (transportation and environment are two common areas). These policies, like social distancing, have benefits measured in lower mortality but costs measured in dollars; the VSL allows the US  government to compare the two, rather than neglecting that which cannot be valued“, explained the researchers.  

After calculating VSL for social distancing policy they concluded – topline  result  is  that  social  distancing  is  projected  to  reduce  COVID-19  caused  fatalities  by  1.76 million by October 1 and that this is worth $7.9 trillion.

As Greenstone and Nigam said for Fortune.com, even if the virus ultimately proves to be less aggressive than models suggest, the benefits remain.

HOW VALUE OF A STATISTICAL LIFE IS CALCULATED?

„It is one statistical life, which is a reduction in mortality rates equivalent to saving one life on average. For instance, suppose the average American is willing to pay $10,000 to avoid a 0.1% chance of death, then the VSL is equal to $10,000/0.001 lives saved or $10 million per statistical life saved. So, a policy that is expected to save 1 life has $10 million in social benefits“, explained the scientists.  

You can read their paper HERE

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