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Is the Cure worse than the Disease?

Last Updated: 14th May 2020

The spread of COVID-19 can be stopped in its tracks by something as low tech as society increasing the physical space between its individuals. But as the world is discovering - this is coming at a huge economic and social cost. Many are rightly questioning if this is worth the economic pain and hardship these measures are inflicting?

Choosing a path

Options Available

There are broadly three roads each government has had to choose from:

1. Herd Immunity
Let the disease run its course, allow the population to develop herd immunity, and attempt to keep the economy running at the same time.

2. Suppression
Lock the entire country down and attempt to freeze industries for a number of months to drastically suppress or even eradicate the disease. Then attempt to unfreeze the economy and hope things pick up where they left off. 

3. Mitigation
Essentially a hybrid model of 1 and 2. Let parts of the economy run, isolate vulnerable demographics, and let the disease work through the population at a pace manageable by the health system with the goal of either achieving herd immunity or finding a treatment - whichever occurs first.

Situation Dependant

Because every country has a different economy and health system, the optimal economic endgame each country can achieve will be different and require unique paths. Countries will consider dynamics such as:

  • What makes up their economy and in what ways are their key sectors going to be affected or unaffected by this outbreak?
  • What are the cost benefits or losses if the outbreak is controlled vs uncontrolled?
  • What are the economic costs if the disease overruns the capacity of their health system or a neighbouring countries health system and how likely is this to happen? 
  • What level of control do they have over their economy? What levers do they have access to? What existing systems and structures are in place?
  • What is the state of their economy? How have key economic indicators been tracking and how healthy are their Balance Sheets? 
  • What are the costs of different solutions, what's their projected outcome, and can the costs for optimal options be funded? If not what can be?
  • What's the value of a life? And should different lives be valued differently?
  • What is practical and implementable on a short timeframe?

Most leaders do not want to see their economies crumble. Modern economies are the engines that perpetuate our health systems, schools and careers. In most democratic countries, politicians are even biased towards economic outcomes as economic performace is a common reason they win or lose elections.

Counting the Costs

To decide if a disease is of concern, and how much it's worth spending to avoid, one of the things economists do is calculate the potential cost. However, this can be difficult as modern economies are complex. Money doesn't just flow from one point to another, it inevitably flows in circles. Because of this, a change to one component, effects the flows to other components, which in turn impacts on other components.

Costs that health and finance economists weigh up for a pandemic include:


Cost of Illness


Cost of equipment required


Cost of medical supplies required


Cost of staffing costs required


GDP losses from disruptions caused by sick workers


From the individual workers inactivity


From the domino effect of broader business impacts created from their inactivity


From reduced activity of friends and family as they shift time towards caring for the sick


Costs of Managing the Illness


Time cost to manage outbreak


Loss of opportunities from achieving other things with the same time and resource


Increased analysis costs


Increased costs to roll out interventions


Cost of Interventions


Costs to businesses


Costs to household income


Loss of taxes


Impacts on imports and exports


Impacts on prices


Impacts on consumer spending


Costs to social services


Being overburdened


Not being able to operate


Cost of Deaths


Cost of GDP lost


Cost of knowledge lost


Cost to health system of frontline workers lost


Costs to families of burying dead / settling estates etc


Trickle on health costs


Increased likelihood to acquire a health issue


Increased severity to existing health issue


Increased fatality rates to other issues


Other trickle on costs


Impacts of reduced education and training

All these variables go up and down depending on which policies you adopt. After running the numbers and weighing up all costs imaginable, economists and all countries have rejected the Herd Immunity strategy and focused on Suppression or Mitigation with most erring towards Suppression. The UK flirted with Herd Immunity in the early days of the outbreak before being confronted by the math and overwhelming professional outcry. So far the Netherlands have been the only country to actively pursue a Herd Immunity strategy which they quickly dialled back to a Mitigation then Suppression approach. Only time will tell which strategies are optimal.

One of the initial papers examining this came from Imperial College which sought to compare the effect of different control measures on expected loss of life. It estimated a Herd Immunity strategy would lead to 40 million global deaths, whilst a mitigation approach could halve this down to 20 million. They found a Suppression approach could bring this down further to 1.3-9.3 million deaths depending how quickly countries responded.

A paper from Cambridge University estimated a mitigation model where core and non-core workers are separated from each other, but no lockdown measures put in place, would result in a 30% reduction to the US economy. Modelling of suppression measures showed an economic reduction of 15-30% depending how strict those measures were.

Herd Immunity

Although no country has pursued it, some media outlets and online communities have advocated for a Herd Immunity strategy. Yet the results of the math can be daunting. To achieve Herd Immunity requires a minimum percentage of the population to become infected. This number depends on what the R0 of a contagion is measured to be. Whilst the specific R0 for COVID-19 is unknown, it is currently estimated to be around 2.6. To achieve Herd Immunity you would therefore need to confirm infection of approximately 60% of the population. Some estimates have this as low as 50% or as high as 80%.

Australian Example

In a population of 25 million people like Australia, if we rely on a case fatality rate of 1-2%, and a conservative hospitalisation rate of 10%, we could expect at least:

  • 15 million people would need to be infected before herd immunity theoretically kicked in
  • 1.5 million hospital beds would be needed to stop fatality rates blowing out, (Australia started the outbreak with just 2,200 ventilated beds).
  • Even if we assumed we had a bed and ventilator for everyone to keep the fatality rate within the 1-2% range, we would pay for our herd immunity with 150,000 - 300,000 deaths. 

This would mean in just four months Australia would experience a conservative death toll likely to be at least double every death in every war Australia has ever fought combined. 

A further concern with the Herd Immunity strategy is around the immunity component itself. We don't yet know if a person can get re-infected from COVID-19. With the tests on this to date inconclusive, this means a herd immunity strategy could not only result in a high number of deaths, but a month or year later could result in a second wave of deaths. In addition to this, because we don't yet know what the long term health impacts of COVID-19 are, this strategy ensures the infection of at least 60% of the population to a virus with unknown long term consequences.

The herd immunity strategy seems to combine an unnecessary loss of life, with unnecessary economic hardship, with unnecessary exposure to additional risks. This is why not just the World Health Organization health economists, but also economists from the World Bank, International Monetary Fund, World Economic Forum, and United Nations Department of Economics and Social Affairs and all major universities have rejected a herd immunity strategy.

Balancing the Cost


As health impacts grow exponentially, so do economic impacts. Whenever health significantly decreases, so does an economy. And when an economy significantly decreases, so does health. The two are intertwined. This is why The World Bank suggests one of the most valuable things developing countries can do, for economic reasons, is implement health principles like Universal Health Coverage. Some would think it's a curious recommendation from a financial institution usually more focused on selling loans, but the World Bank understands that one compounds the other, which compounds the other and so forth. If we were to graph the potential unmitigated impacts of COVID-19 for both health and the economy, it might crudely look something like this:

Without Intervention

Left to run its own course, a pandemic follows the 'epidemic curve'. Graphing crude economic impacts alongside shows that without any interventions on the health side, the economic side experiences its own crash, followed by sluggish growth, which can also have its own health impacts over time.

With Intervention

To prevent this for COVID-19, economists around the world have used similar principles. The first has been to reduce the epidemic curve by slowing social and economic activity. Whilst this causes an economic hit in the short term. It reduces COVID-19 health impacts and costs in the medium term. Which in turn, reduces the total economic cost over the long term.

To make this work, stimulus measures are added to minimise the brunt of the immediate economic impacts in order to allow individuals and businesses to maximise productivity in the long term.

When these steps are done well the approach can:

  • Centralise a large percentage of economic costs with the government and away from individuals, households and small to medium businesses,
  • Influence the socialisation of costs across different parts of the economy to allow the strongest parts of the economy to take most of the weight whilst protecting vulnerable areas,
  • Reduce disease spread to avoid high health and economic costs, and
  • Buy time to allow health and economic capabilities, capacity and insights to accumulate.

Evaluating if it's worth it

Is the cure worse than the disease? It seems difficult to make a case that shows a herd immunity strategy is good for either health or economic outcomes. Which suggests that the disease is certainly worse than no cure. But if some form of cure is beneficial, how can we tell if an intervention is over the top or not? It depends what the goal is. Once a government has gotten an outbreak under control, they must choose from two paths:

1. Eradication

Eradication means working towards no one in a country or state having the disease. Once the disease is eradicated, the risk of infection and spread is removed and domestic life can return to normal. Whilst disease spread continues outside the country, the only major intervention needing to remain is strict border controls to prevent reinfection from occurring.

The economic case for eradication suggests that this results in significant medium and long term benefits. Whilst it requires an intense short term economic hit, it then allows the economy to return to normal functioning as quickly as possible. Economic impacts would still be felt from the international implications of COVID-19, but it would enable domestic markets to resume relatively unaffected. Some argue this would actually strengthen domestic markets and innovation as demand for local products and services may increase.

A report from the Group of Eight estimated a 50% increase in economic output over an 18 month period from pursuing an eradication approach compared to a 'living with COVID-19' approach [1]. It's a strategy that's seen as ideal by many, but potentially difficult to achieve. This is because a few of the basic requirements are:

  • Strong border control capacity
  • Strong testing and disease surveillance measures
  • Strong population support for the goal.
  • High population compliance to strict lockdowns, social distancing and quarantine requirements.
  • Strong communication, trust and leadership from a variety of community leaders.
  • Ability to afford the economic impacts estimated by the time it will take to achieve eradication.

If this is the goal, policies can be evaluated by how quickly the number of new daily cases is decreasing. This rate helps estimate the total time the economy will need to remain shut down. Because the economic costs of a shutdown grow with time, if the estimated time remaining is longer than the economy can support, this policy could be more costly than it's worth.

2. Living with COVID-19

Because there is currently no successful treatment for COVID-19, if eradication is not possible or desired, then states will have to learn to live with COVID-19 in the population.

This means dialling the Effective Reproduction Rate up or down as desired. Factors that will influence how well a country can do this have been discussed previously.

The goal with this strategy would be to keep the number of active cases within what the health system can handle and limit the economy in line with this number. By increasing the capacity of the health system, governments can then also increase social and economic movement.  

The argument for this approach comes in three forms. Practical, Social and Economic:

For many countries they have no choice. For example, if a country can't control their borders, or they have to many initial cases, or a weak testing regime - then living with COVID-19 could be the only practical option.

Many cultures will reject prolonged isolation for social reasons. This could be because they have a high social or relational culture. Or because they have low compliance and respect for government authorities. If a population is unlikely to adhere to the strict constraints needed for eradication, then it can turn that strategy into an expensive endeavour.

The level by which different countries will need to limit their economies to control the Effective Reproduction Rate will vary. For some countries it may work out better to marginally limit their economy for the long term than take a larger short term hit.

If this is the goal, policies can be crudely evaluated by comparing the number of active cases against the health systems capacity, and then seeing how much economic efficiency can be generated from this. In many ways it's like sailing a boat. You set your coarse and then trim all the different settings on the boat to be as efficient as possible whilst supporting that course.

Which path is right?

Unfortunately, economic and social prices will be paid whether pursuing Herd Immunity, Eradication or Living with COVID-19. Which option is the most optimal will vary greatly and because countries health systems, economies and cultures are so different, care should be taken when comparing different approaches and outcomes.

As with most analysis surrounding COVID-19, there is much we don't know. Financial economists aren't used to thinking about these problems and health economists have only ever studied the economics around pandemics of this scale theoretically. No doubt there will be much to learn on the other side.

Is it a big deal?

Economically COVID-19 is a crisis in and of itself that will likely be larger than the Global Financial Crisis. Whilst some industries remain relatively unaffected, most are experiencing a significant downturn with some even being unable to operate. On a positive front, the pandemic is increasing innovation in many sectors, and it will be interesting to measure the net impacts of this in years to come.