The economic cost of lockdowns – a closer look

As many countries face their second or even third lockdowns (Germany, Austria, Israel), others (Switzerland, the United States) have done what they can to escape such repetitions. Much of the discussion about this drastic move involves its costs.

As Covid-19 became pandemic in early 2020, most countries opted for a similar set of measures. They implemented social distancing, slowed down the traffic of people in public spaces and eventually put a stop to large amounts of economic activity. While countries structured lockdowns in different ways, they all generally closed some parts of their economies and limited social activities for lengthy periods.

In some countries, for example in China or Italy, the lockdown entailed physically closing points of entrance and exit to certain regions. In others, like France and parts of the United Kingdom, the lockdown included curfews. In countries such as Germany, Austria or Switzerland, lockdowns meant closing all restaurants, entertainment locations and nonessential shops. These measures led to a considerable slowdown or even a halt in communal practices, be they social or commercial.

Countries have also used their lockdowns in different ways due to varying public discussions about their efficacy. Some question if lockdowns mitigate the pandemic or are compatible with human rights. In the economic realm, the main debate is over how much they cost.

Direct costs

Before continuing, it is worth adding a general methodological disclaimer. Here, we will address only the lockdown’s economic cost in the first half of 2020 since the best research and comparable data regards that time frame. Also, this is an exercise in approximation, as is all empirical economics. There are many more factors at play than can be covered by any model. The conclusions of these approximations are to be taken with a grain of salt.

There are two ways to assess the economic costs of the lockdown. One is calculating the fiscal (and possibly monetary) expenditures that governments (and central banks) use to soften the economic impact. Typically, this involves direct aid to affected firms, subsidized credit lines and labor market stabilizers like compensating workers for lost hours.

These costs are cash outflows that can be determined using standard economic accounting tools. This way, we find that in the European Union, for example, the lockdowns have cost around 540 billion euros. This is the sum of the programs set in motion via the European Stabilization Mechanism, the European Investment Bank and the European Commission …

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The economic cost of lockdowns

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