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Best Time to Reopen? Economists Are Just Guessing

The U.S. is being roiled by the debate over how long to keep stay-at-home orders -- commonly known as lockdowns -- in place.

Best Time to Reopen? Economists Are Just Guessing
A worker turns over an open sign on the door of a store in Quebec, Canada. (Photographer: Christinne Muschi/Bloomberg)

(Bloomberg Opinion) -- The U.S. is being roiled by the debate over how long to keep stay-at-home orders -- commonly known as lockdowns -- in place. Epidemiological experts tend to believe that although some activities can resume, most shutdowns should remain in place until the coronavirus epidemic has been brought under control and suppression regimes -- testing, contact tracing and other preventive measures -- can be put in place. Based on current trajectories, that could take many places another month and even longer for a few. Conservatives, meanwhile, have mostly begun to agitate for immediate reopening. 

The question of when and what to open up is complicated. The uncertainties surrounding the virus itself are one reason. A second is that it requires balancing human safety against economic costs. Proponents of continued lockdown are often horrified that supporters of reopening would sacrifice tens or potentially hundreds of thousands of lives so that everyone can enjoy the usual pre-pandemic comforts. And supporters of reopening rightfully point out that the country makes similarly deadly choices every day without a second thought -- for example, by tolerating cars, which kill tens of thousands a year but are critical to the functioning of the economy.

Enter the economists. Economists are used to dealing with uncertainty and complex systems. They’re also used to the idea of tradeoffs -- among the reasons the profession is known as the dismal science. And modeling the optimal course of action is their stock in trade.

The first major theoretical foray into the topic comes from economists Daron Acemoglu, Victor Chernozhukov, Ivan Werning and Michael Whinston. In their paper, they modified a basic epidemiological model of the disease’s spread to account for the different risks among different age groups. They then placed a value on the loss of a life and assumed that lockdowns eliminated all economic activity for that share of the population thrown out of work.

Naturally, the authors found that the Goldilocks policy lies somewhere between complete lockdown and full laissez-faire. They envisioned a harsh initial period of restriction that is gradually relaxed during the course of several months. Crucially, they found that targeted lockdowns -- keeping retirees at home while letting young people resume normal activity -- were better than uniform policies.

Although that seems like a rather obvious and inoffensive conclusion, this sort of exercise is fraught with peril. For one thing, the authors on the paper are all economists. They chose a disease spread model that doesn’t allow for the possibility that recovered patients lose their immunity before a vaccine arrives and which doesn’t take the shape of human networks into account. An epidemiologist co-author might have provided more confidence that these modeling choices were the right ones. Similarly, the authors assumed that death is the only health cost from the virus, but many survivors seem to suffer long-lasting physical damage.

Second, the authors -- like most economists -- didn’t seem to consider the political difficulties of their recommended policies. An age-specific lockdown might be much harder to enforce than a uniform one. Retirees who considered such a policy unfair might simply violate stay-at-home orders, confident that no one would check their IDs. Age discrimination lawsuits might even be brought to bear.

But the biggest problem with this sort of exercise is the uncertainty surrounding the economic assumptions. The authors assumed that lockdowns were the main cause of reduced economic activity -- that the reason people aren’t shopping and going to work is that they’re not allowed to. But in reality, fear of coronavirus is probably a much more important factor keeping people in their homes. Evidence from surveys, mobility patterns, pre-lockdown restaurant reservation data and the early results of actual reopenings all point toward fear of the disease being a much more important than government diktats.

Best Time to Reopen? Economists Are Just Guessing

Thus, the tradeoff between economic losses and human losses probably isn’t what these economists think it is. Letting up on lockdowns might have little effect; and ending them prematurely might do real harm, allowing the coronavirus to spread while failing to provide most businesses with enough customers and workers to survive. Any increase in infections might intensify the fear, causing even more economic harm.

These shortcomings and difficulties illustrate why economic theorizing is such a limited tool for determining policy in situations like this. A more robust and humble approach is probably to simply compare this epidemic to those of the past to get a rough idea of the costs and benefits of various policies. This is what economists Sergio Correia, Stephan Luck and Emil Verner do in their study of the Spanish Flu pandemic of 1918-19, in which they found that earlier and longer shutdowns of public spaces increased future economic growth rather than decreasing it.

Economists can help guide optimal policy in this crisis. But complex quantitative theories that are heavily dependent on a web of questionable assumptions are probably not the best tools. Instead, economists should use their data-driven empirical toolkit to present policy makers with a general menu of options. That cautious, humble approach won’t always give perfect advice, but it will be less likely to make big mistakes.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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