Milton Friedman Society
The Opportunity Cost of the Pandemic
By Nicolae Cretu
The covid-19 pandemic gave rise to a plethora of conflicts and mixed feelings among the population and the political elite. Media fueled hysteria, subsequent confused reasonings and the categorical trend to label anyone who dares to criticize the measures taken by the government to somehow control the ongoing crisis as an atrocious idiot discouraged adequate public discussions on the matter. Believe it or not, the government interventions designed to manage the pandemic are irresponsible and might make things worse. Moreover, these errors are not of retrospective fashion. One does not need a PhD in social sciences to see why.
In pursuance of truth, it makes sense to ask ourselves two simple and essential questions. What makes a government intervention reasonable, and what is the opportunity cost of such interventions. The common sense suggests that since the government has no economic resources that it does not obtain from its body of citizens, it has a reason to intervene only when the effect of its action will benefit all citizenry. In other words, only when it can allocate resources more efficiently than the citizens themselves otherwise would. To make matters simple, governmental intervention is justified in the areas where it has a comparative advantage over aggregate voluntary action. For example, if the government efficiently restricted a textbook monopoly, it would increase the total welfare. In the contrary case, when the criterion is not satisfied, the government will generate a welfare loss and a coercive redistribution of resources. Besides that, we should cautiously analyze the benefits and the costs of a government intervention, including the opportunity cost, which is the hidden cost of missed benefits when not utilizing resources in other ways which might be more efficient yield-wise. The opportunity cost concept is easily depicted using a real-life example.
Suppose that we have a city with many competitive carwashes, and the workers are considered to be underpaid. Assume that the unions exercise political pressure on the public administration of the city, asking for a higher minimal wage. At first sight, a higher minimal wage implies a higher level of wellbeing for workers working on the lower segment of the salary spectrum. Yet, all else unchanged, the total welfare of the workers may decrease. Why? The employers view labor as a profit generating input. Since the cost of labor increased while the revenues are pretty much unchanged, the carwash owners are incentivized to decrease the number of workers to such an extent that it would allow them to arrive at a profit maximizing input combination. Carwash workers operating at the low salary will be paid more, but there will be less workers employed, workers who were willing to work at the previous wage. While the policymakers were confident about the visible effects of a wage rise, they did not observe the hidden cost: a higher unemployment level. If they really cared about the welfare of the workers, they would utilize their decreeing power in other ways.
In our case, the government seems to be interested in two factors, in the death toll and in the severity of economic loss generated by both the pandemic and the issued restrictions. The government engaged numerous means to control the spread of the virus, such as mask mandates, lockdowns, tailoring the public healthcare system to the dynamic evolution of the pandemic. It justified its actions by prioritizing the death toll to the economics loss, and the main goal of the imposed measures was to control the hospitalization rate, so the healthcare system would manage to treat all patients and avoid overheating until the vaccine is ready. A remarkable feature of the governmental action consists in the fact that no prominent public figure has ever talked about the opportunity costs of narrowing the economy and the public healthcare industry to covid-19 patients. The public attention is focused mostly on the benefits the small covid-19 risk-group will receive in the short run. The diversion of resources has some catastrophic long-term effects regarding avoidable illnesses.
“The number of deaths due to the disruption of cancer services is likely to outweigh the number of deaths from the coronavirus itself. The cessation and delay of cancer care will cause considerable avoidable suffering. Cancer screening services have stopped, which means we will miss our chance to catch many cancers when they are treatable and curable, such as cervical, bowel and breast. When we do restart normal service delivery after the lockdown is lifted, the backlog of cases will be a huge challenge to the healthcare system.” Says Richard Sullivan, the director of the King’s College London Institute for Cancer Policy. He stipulates that due to the redirection of medical resources in the eUK, the number of avoidable deaths from cancer will increase in the long term. For instance, people who could have lived 15-20 years more will only live 4-5. Obviously, a delay in the early detection of cancer will increase the death rates. According to UNICEF, up to 1.2 million children in Third World Countries could die due to the decreased healthcare access caused by the diversion of healthcare resources to covid-19 patients. “The modelling, by researchers at the Johns Hopkins Bloomberg School of Public Health and UNICEF, found that child mortality rates could rise by as much as 45 per cent due to coronavirus-related disruptions, while maternal deaths could increase by almost 39 per cent.” According to a report from the UN, "While it is too early to assess the full impact of the lockdowns and other containment measures, at least another 83 million people, and possibly as many as 132 million, may go hungry in 2020." The negative long-term effects of starvation and malnutrition are unpredictable but are clearly terrifying. Currently, about 25000 people lose their lives because of hunger and related causes every day.
What can be said of the actual effect of the governments’ attempt to manage the crisis? Does it lead to a better allocation of resources that governmental inaction, while accounting for hidden costs? No. The governments sacrificed the economic growth and the personal freedoms for an unspecified risk, while completely neglecting opportunity costs of such actions and the overall long run effects. If the benefits outweigh the apparent costs, the decision maker must nonetheless estimate the opportunity costs. Most of the governments did not, indicating that the prevalent form of political organization is flawed.