Question:
I'm looking for a quick and dirty way to total up the economic costs of Covid-19. Does it make sense to add (1) expected 2020 GDP losses (about $1.6T) to (2) the total cost of the federal Covid-19 response bills (assume for now that it's about $8T??) to get $9.6T at a minimum? In totaling up the cost of the Federal intervention, should we subtract from $8T the additional GDP losses that would have occurred if the stimulus spending had not been made? Also, why can't I find this kind of analysis online? Where should I be looking?Answer:
In short, there are probably many ways that you could get a rough estimate of this and they are all likely flawed in some way or another which makes this a really tough question to answer. Also, we probably haven't fully realized the impact of COVID on the economy; it is likely to have lingering effects.
Covid-19 Costs
I'm looking for a quick and dirty way to total up the economic costs of Covid-19. Does it make sense to add (1) expected 2020 GDP losses (about
$1.6T)
to
(2) the total cost of the federal Covid-19 response bills (assume for now that it's about $8T??) to get $9.6T at a minimum?
The expected change in GDP (loss) will capture the change in GDP in the presence of the federal stimulus bill. An important note is that GDP does not capture transfer payments from the government directly but it will capture changes in consumer purchases/business investments as a result of government transfers.
In other words, you are adding the cost of the federal stimulus bill to the expected change in GDP because you expect that the change in GDP would be much larger had the stimulus not occurred. This seems like a reasonable rough estimate of the cost of COVID to me; although there are likely some issues with it.
One issue might be if there is delay in receipt of government transfers. If there is a lag, the expected loss in GDP may be larger than it should be because people haven't yet received their transfers and thus haven't yet chosen to spend or save them. So you may be slightly overestimating if that is the case because you count the cost of the transfer to the government without realizing the benefit it has had to the change in GDP. In other words, your estimate may be larger than it should be if this is the case.
Another issue (if you want to get kind of abstract) is that GDP doesn't account for the "public health service" we are all generating by staying home -- there is no market for this good, so it's not accounted for in GDP. Justin Wolfers has a piece on this in the NYT: https://www.nytimes.com/2020/05/14/business/social-distancing-gdp-coronavirus.html?smid=tw-share
In totaling up the cost of the Federal intervention, should we subtract from $8T the additional GDP losses that would have occurred if the stimulus spending had not been made?
Presumably the benefit of the stimulus (to GDP) is the difference between GDP losses without the stimulus and GDP losses with the stimulus. Subtracting this from the total cost of the stimulus may tell you if the stimulus was worth it in a sense. Note- this will only actually tell you how the stimulus impacted GDP; it won't account for any other positive benefits the stimulus may have had that don't have a market.
This number may be interesting in and of itself but I don't think this should be used as a measure of the cost of the Federal intervention when you are calculating the economic cost (as measured by GDP) above. At the end of the day the stimulus cost $8T and expected GDP losses in the presence of the stimulus are $1.6T; these are just the costs we are facing and I don't think the counterfactual GDP losses are relevant in that calculation.
Also, why can't I find this kind of analysis online? Where should I be looking?
Here are some articles that may be of interest:
https://www.mercatus.org/publications/covid-19-policy-brief-series/cost-covid-19-rough-estimate-2020-us-gdp-impact - This is probably most relevant to the question you posed.
https://bfi.uchicago.edu/insight/blog/key-economic-facts-about-covid-19/#crisis-cost - There are many articles here but the one most relevant to your question is likely this one: https://bfi.uchicago.edu/working-paper/the-cost-of-the-covid-19-crisis-lockdowns-macroeconomic-expectations-and-consumer-spending/
