Lockdowns save lives. But how many and at what cost?

“Numbers show lockdown is a no-brainer” screamed a Nine headline last week. Meanwhile Crikey last month published an article by health economist Luke Slawomirki suggesting that the “light-touch [lockdown] approach has sacrificed a lot for little economic benefit”.

Let’s take a closer look at these findings.

As a cautionary note, any calculation of the economic benefits of a lockdown are fraught with sweeping assumptions, but we’ll use the best real data we can find and be very conservative with our assumptions.

First, we need to consider the main benefit of the lockdown — that is, of course, lives saved.

The difficulty here is the COVID-19 death rate varies wildly between countries. In Singapore, the infection fatality rate (IFR) is around 0.05%, due to a strong health system and the virus largely hitting younger migrant workers.

By contrast, the UK has a far higher IFR, likely upwards of 0.50%. The UK’s case fatality rate, which only considers those who actually tested positive, has dropped from 6% during the first wave to 1.5% in August.

As for Australia, while we have one of the best public health systems, Victoria showed our aged care sector is far from world class. Based on UNSW blood sampling, Australia’s IFR could be as low as 0.04%, but we’ll be far more conservative and assume an IFR of 0.30% — a mid-range between Singapore and the UK.

The other big assumption is the herd immunity levels — that is, at what point does the virus naturally stop spreading. Sweden seemed to indicate that it needs around 10% of the population to have developed antibodies.

Based on those assumptions, we can estimate that if Australia took a light approach like Sweden (social distancing, reducing super-spreader risk, closing universities) then we would have had approximately 7500 deaths.

But let’s be ultra conservative and double that estimate to 15,000 deaths. (Liam Mannix at Nine assumed 18,000-25,000 deaths, which is a far higher death rate than Sweden and hard-hit Florida suffered).

Next, we need to work out the value of the incremental lives saved by a hard lockdown. Bear in mind that even with a lockdown, upwards of 1000 Australians will die of COVID-19 in 2020, not to mention the lives that are lost are as a result of the lockdown; through increased depression, failure to present for testing of other illnesses like cancer, and the impact of forcing an economy to shut down (this week, Forbes reported that the pandemic could force more than 100 million people into poverty).  

There are also some positive externalities from the lockdown, like reduced road fatalities and less pollution. But we’ll stick with 15,000 as any estimate of externalities is fraught with uncertainty.

The average age of someone dying of COVID-19 is 81. This means that COVID-19, on average, strips four years of life from its victims.

The Australian government’s best practice places a value of $4.9 million on a human life.

However, COVID-19 doesn’t usually cost a whole life; it costs on average, four years. So the actual cost — using the government’s accepted “quality-adjusted life year” (QALY) approach — is closer to $50,000 per year. We’ll assume the value of each life lost to COVID-19 is $200,000.

That means the approximate savings this year from the lockdown in Australia is $3 billion (bearing in mind, that’s taking a high estimate of fatalities; if we assumed a Singapore-fatality level, the cost would be less than $1 billion).

Incidentally, this is where Slawomirski and Mannix both got it wrong, when they both used the full value of a life, ignoring the fact that COVID-19 (on average) kills people aged 81. This is very different to the Spanish Flu which brutalised both young and old.

That’s the relatively easy calculation though. Estimating the cost of lockdowns is incredibly fraught.

One method is to look at the relative drop in GDP as a way to assess the cost of lockdowns. For example, New Zealand’s GDP fell by 12.2% in the June quarter compared to only 8.6% for Sweden. Australia’s GDP in June dropped by 7%.

GDP alone however is a flawed measure. This is because Australia, for example, had one of the world’s largest stimulus packages, spending hundreds of billions of dollars to bring forward demand. However, Sweden, which recorded a similar GDP level spent a fraction of that amount (US$31 billion) on stimulus.

While this spending is a cost to future generations (who will need to pay interest on the borrowing), you also wouldn’t deem the entire spend a waste — the debt is cycled through the economy leading to some genuine demand creation. 

That said – the comparison to Sweden is apt. Despite recording a similar drop in GDP, Australia spent almost $200 billion more than Sweden this year (let alone the forecast $1 trillion in planned deficits). The benefits of the lockdown in terms of the value of lives saved (according to the government’s own QALY metric) was around $3 billion (conservatively, it could have been far less).

Conservatively thinking, we spent around $14 million per life saved. Worst case, we spent more than $100 million per life saved.

Some would no doubt say, “Well, we saved people’s lives so damned the cost.” The problem? The money spent locking down the economy could have been spent saving other lives. A lot of lives.

That’s why governments use measures like QALY to determine which pharmaceuticals to fund. Every time we spend money on something, we’re taking away from other things.  

The most important skill of any leader, be they politician or CEO, is allocating scarce resources. Our leaders have chosen to lockdown a country and use our limited resources to save around 14,000 lives that would have been taken by COVID.

UNICEF estimates that more than 400,000 people die every year from malaria — more than half of those victims are aged under five. The cost to prevent a young child from dying of malaria? About AU$5,000. 

So next time you claim you support a lockdown to save lives remember this: the lockdown has saved a single 81 year old (with pre-existing health conditions) for every 2800 five year olds who die of malaria.