Application Exercise 1l: Cost-benefit analysis
1. Some of the costs associated with lockdowns include unemployment and business closures, as well as the educational problems (or neglect) as students are forced to endure online learning. In addition, the lockdowns negatively impacted upon the physical and mental health of individuals as they were isolated and faced limits on their ability to exercise (e.g. attend gyms) and socially engage. The IMF also notes that ‘lockdowns per se have large impacts on economic activity, and these impacts will be felt in suffering for years to come until our economies recover’.
2. Benefits of lockdowns include the deaths that were averted by reducing people’s exposure to the virus. At best, this was 25,000 deaths averted but the professor notes that it was likely to be much less than this.
3. Wellbys (or wellbeing years) and ‘quality-adjusted life years’ (QALYs) are used to measure welfare gains when making decisions about how nation’s allocate scarce resources. In terms of the costs of lockdowns, the use of these measurements (particularly Wellbys) takes into account the impact on mental health and suffering as well as the ‘value of the deaths’ (e.g. the loss to society of a 20 year olds death is greater than the loss from a 70 year olds death).
4. This is because the lockdowns contributed to a major economic downturn evidenced by negative growth in real GDP (e.g. a recession the first six months of 2020) and the associated loss of jobs and incomes. More specifically, the lockdowns saw borders remaining closed and trade, tourism, arts and education sectors ‘taking huge hits’.
5. The benefit-cost ratio would be calculated as 0.028 (1/36).