Two weeks ago, I engaged in an on-line debate with economist Justin Wolfers of the University of Michigan. I argued for the proposition that “The U.S. economy should be liberated from governments’ lockdowns right away.”

My impression from my reading of economists’ work on the issue before the debate is that mine was, and still is, the minority viewpoint. That’s stunning. Forty-five governors chose to curtail a huge amount of economic freedom based less on evidence than on untested models. That’s not the usual methodology economists use when deciding what kinds of government policies to advocate. Yet here we are.

Justin Wolfers was a worthy opponent and a clean debater. I won, and in an unusual way. Normally in the Soho debates, of which this was one, both sides get votes from the previous undecided. But this occasion was different. Before the debate, 49.21 percent of the audience voted for my side and 31.75 percent for Justin’s, with 19.05 percent undecided. That’s kind of typical; when it’s a libertarian versus a non-libertarian in front of a disproportionately libertarian audience, the libertarian (me) starts with an advantage. But after the debate, 61.90 percent of the audience, an increase of 12.70 percentage points, voted for ending the lockdowns and Justin’s case for retaining them earned him 26.98 percent, a drop of 4.76 percentage points. That fall is what’s unusual.

Still, Justin made points that are worth responding to at greater length. Here’s my case for ending the lockdowns, with numbers appropriately updated, along with my responses to his main arguments.

The lockdowns have caused enormous destruction. Some economists quite reasonably expect the unemployment rate in May to hit 20 percent. Other economists have estimated that second quarter GDP will fall by 35 percent on an annual basis. Although voluntary social distancing on its own would have led to large increases in unemployment and large drops in GDP, a reasonable estimate is that the government-enforced lockdowns, combined with absurdly high federal subsidies to unemployment insurance, have caused over half of the increase in unemployment and over half of the drop in real GDP.

U.S. GDP in 2019 was $21.4 trillion. So a spring quarter with zero growth would have given us a GDP of $5.35 trillion. A 35-percent drop on an annual basis is 9 percent this quarter, a drop of $482 billion. If even half of that is due to the lockdowns, that makes $241 billion.

There’s also a loss in health. The Wall Street Journal noted that state governments have ordered medical providers and patients to delay so-called “non-essential” appointments. Not just elective plastic surgeries, but also hip and knee replacements, mastectomies, and preventive screenings including mammograms, colonoscopies, and melanoma checks have been cancelled. Remember that we were told in March that the reason for the lockdowns was to “flatten the curve.” The idea was that roughly the same number of people would get sick but the health care system wouldn’t be overrun. That curve is flat—and low. Ironically, this has resulted in furloughs of health care workers and could even cause some hospitals to go bankrupt. Judged by the initial goal, the lockdowns succeeded by early April. Yet state governments have taken their sweet time getting rid of the lockdowns.

Those are some of the economic and health losses, but I’ve left out another huge loss: the loss in our economic freedom.

Justin Wolfers, other academics, and I are lucky. The activities that are part of our livelihoods—teaching, research, interaction with colleagues—are ones that we can do online from our homes. It’s not nearly as much fun, but our livelihoods aren’t close to being threatened. But people in retail stores, restaurants, and factories are not so lucky. Many of them have lost as much as 100 percent of their livelihoods. Classical liberals and libertarians have often been charged with not caring about the working class. That charge never stood up to scrutiny, but it is especially clear, now, that we who advocate the right to make a living are the true defenders of the working class.

Wolfers readily admitted the costs of the lockdowns, but his main argument was that these costs are worth the benefits. To estimate the latter, he assumed that without the lockdowns, one million lives would have been lost and that with them, only 60,000 lives would have been lost. He then multiplied the 940,000 lives saved by $10 million per life to get $9.4 trillion and rounded up to $10 trillion. His point was that this is a huge multiple of my estimated cost of $241 billion.

There are two problems with his estimate. The first is that his estimated number of deaths without the lockdowns is too high. It’s based on a model of exponential spreading of the coronavirus in which people passively let it spread. But what if people have enough fear that they engage in actions to reduce the risk? Do we see that happening? We certainly do. That’s why the distinction between voluntary social distancing and lockdowns is so important. Voluntary social distancing, which the majority of Americans were engaged in before the lockdowns, allows for creative ways of keeping businesses open and workers and customers relatively safe. So voluntary social distancing gets us a lot of the way to slowing the spread of the disease.  

The second problem with Wolfers’ estimate is his assumption of a $10 million value per life saved. This is the economists’ usual estimate of what we call the “Value of a Statistical Life.” A standard methodology for computing the VSL is to estimate the risk premium that workers earn for taking jobs in risky occupations. A typical number is an extra $1,000 annually for taking on an added 1-in-10,000 chance of dying in a year. If 10,000 workers are each paid to take on that added 1-in-10,000 risk, then the “expected” number of deaths (expected in a probabilistic sense, that is, the probability of death multiplied by the number at risk) is 1. So economists multiply that $1,000 by 10,000 workers to get the “Value of a Statistical Life.” The result: $10 million.

When I taught that concept in my cost/benefit analysis course, it was always in a context where a few lives were saved or lost. It breaks down when we’re talking about a million lives. I didn’t realize that until I read a post by economist Luigi Zingales of the University of Chicago. He estimated how much GDP we should be willing to give up to save 7.2 million people from dying of COVID-19. His 7.2 million lives lost is grossly overstated. But that’s not the point. What if it were true? He showed, using an apparently conservative $9 million per life saved, that we should be willing to give up $64.8 trillion, which is three years of GDP. The Zingales estimate amounts to an unintentional reductio ad absurdum. If we cut GDP to zero for three years we would do … what? Grow gardens and, in most of the country, live in very cold houses in the winter? In that case, over 100 million lives would be lost, which is 14 times his 7.2 million estimate. When your model tells you that because of the high value of life, you should be willing to give up 100 million lives to save 7.2 million lives, there’s something wrong with your model. Wolfers did not have an answer for that. The bottom line is that for a large number of lives like one million, a $10 million value of life is far too high.

Both Wolfers and I agreed that the coronavirus presents us with a classic example of a negative externality. People care about getting the disease but they might not care enough about spreading it.

So what should be done? The good news is that those who are nervous about the disease can choose to isolate. No one is making them come out or, at least, no one should make them come out. Take the elderly, among whom I count myself and my wife. (Don’t tell her I said that!) We are at the greatest risk. Of the deaths that the CDC attributed to Covid-19 up to April 28, 79% were of people 65 and older. Moreover, nearly all of the hospitalized coronavirus patients in the New York area had at least one chronic condition and 88 percent had two or more. The strategy for substantially reducing deaths from Covid-19 seems clear: Older people, especially those with co-morbidities, should stay home. Fortunately, a very low percent of people age 65 or more work outside the home, and so that is easier for them than for younger people.  

When I made these points in the debate, Wolfers responded that he and his family should be able to go to a public park and not have to risk getting the disease from others. His is a valid point. But during the debate, he made another point that undercuts his response. He argued that employers who open up should be held liable if one worker gives the disease to another because, he said, the employer is the “least-cost avoider.”

The least-cost avoider is the entity that has the least cost of avoiding a harm from an externality. It’s often hard to tell how someone got the disease and it’s not at all clear that the employer should be liable. Wolfers responded that workers and customers don’t have deep pockets but employers do. The idea that there are millions of employers with deep pockets is absurd. Apple, Facebook, Microsoft, and Alphabet (owner of Google) do. But even in normal times a large percent of employers have shallow pockets and those are no doubt shallower after 6 to 7 weeks of lockdown.

Yet the Wolfers invocation of the least-cost avoider principle got me thinking. If you’re an older person with co-morbidities, who is the least-cost avoider: young people or you? It’s probably you.

And measures like the New York state government’s requirement that nursing homes readmit people who have tested positive for COVID-19 not only fly in the face of least-cost avoidance but also are cruel. In 23 states that report fatality data, deaths in nursing homes account for about 27 percent of overall deaths from the virus. On April 23, New York governor Andrew Cuomo defended that regulation. But wasn’t the extreme regulation New Yorkers have been under meant to limit the spread, not to spread it further? Applying the least-cost avoider principle would have allowed nursing homes to protect their residents from those with the virus.

Compare the imperfect market outcome with the imperfect government outcome. To show that the state governments improved the situation with their lockdowns, we would have to show that the additional safety was quite large relative to costs. We know that the costs were huge. What we don’t know is the additional benefit. We can’t just assume that the flattening of the curve happened because of the lockdowns. As noted, much of the social distancing occurred before the lockdowns. What’s the marginal effect of the lockdowns? A fundamental principle in economics is that we should think on the margin. That’s missing from the cost/benefit analyses that most economists have done of the lockdowns. They fail to separate the effects of the lockdowns from the effects of voluntary social distancing.

Lockdowns are an instance of centralized planning. Governors, with apparently little thought, decided which businesses were essential and which were not, without ever giving criteria that made sense. In Michigan, for example, Governor Whitmer saw the sale of lottery tickets as essential, but her order did not allow people to buy paint, visit their cottages, operate motorboats, or hire someone to take care of their lawn. Her priorities seemed to reflect those of a narrowly focused prosecutor, which she actually had been, rather than of someone who cared a lot about Michigan’s citizens. California’s Governor Gavin Newsom imposed the same rules for rural counties that he had on San Francisco and Los Angeles. This is despite the fact that, as of May 5, 30 California counties had 3 or fewer deaths, 16 counties had zero deaths and 4 counties had zero cases. Newsom is using a sledgehammer rather than a scalpel. That’s what governments do.

The biggest mistakes in this whole episode are due to central planning. Early on, the CDC, rather than let coronavirus test kits from the World Health Organization do the job, insisted on producing its own and then produced a defective product. That lost us a month, which, with a fast-moving disease, is an eternity. Then, as the New York Times reported in a first-rate investigative report, the FDA prevented Dr. Helen Chu in Washington state from using samples to test for the virus. When she went ahead anyway, despite the FDA’s prohibition, Dr. Chu found COVID-19 present in a young man. The FDA told her to cease and desist. And of course the FDA has slowed down both tests for the virus and approvals of drugs that might help.

If the lockdowns are ended immediately, will there be more deaths than if the they were not ended forthwith? Probably. But that won’t be enough to declare that ending the lockdown was a failure. The reason is that there are tradeoffs between deaths and other parts of economic well-being—tradeoffs that we recognize in every other part of our lives. Given how badly state governments and the federal government have handled the situation, we should be free to act on our own information and make our own tradeoffs. Do we have perfect information? No one does.

Lockdowns are immensely expensive financially and medically, and exact a painful cost on economic freedom. The lockdowns have undoubtedly reduced some deaths, but voluntary action should get a chunk of the credit. The government is making one mistake after another. And yet through all this we’ve flattened the curve. Let’s allow the American people—the majority of whom have acted cautiously and rationally with social distancing and other behavioral changes—to act as they see fit.   


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