The Times Australia
Business and Money
The Times Real Estate

.

government lockdown costs may be exaggerated over COVID-19's direct economic impact

  • Written by Richard Holden, Professor of Economics, UNSW

As a second COVID-19 lockdown looms in New South Wales, there is much discussion about the economic costs of doing so.

But since the start of this pandemic there has been profound confusion in many quarters about the economic cost of the virus compared to the economic cost of lockdowns.

It should come as no surprise that having a highly contagious virus with a significant fatality rate running through the community is bad for the economy.

People are afraid to congregate in public or catch public transport or taxis. People don’t want to spend much money when they have debts to pay and their job might be at risk.

This leads to what I have called a “self-lockdown”. No matter what the government mandates, people cut back on economic activity.

Of course, government-coordinated lockdowns entail an extra short-term cost to the economy. Closing pubs and restaurants means those businesses, for a time, have zero revenue.

Read more: Vital Signs: The evidence that lockdowns work may not be gold standard, but it's good[1]

But how much of the reduction in economic activity is due to the virus, and how much to government lockdowns?

It is crucial to understand this. Because it is the incremental cost of the lockdowns that represents the investment we make in the economy of the future by getting the virus under control. If we think the cost of lockdowns is higher than it really is, we won’t enact them in cases where on balance we should.

Evidence from the United States

The best evidence to date on this matter comes from a remarkable paper[2] circulated in June by University of Chicago economists Austan Goolsbee and Chad Syverson.

To analyse the causal effect of government policy on the US economy during the initial spread of COVID-19, they used mobile phone data to measure foot traffic at 2.25 million individual businesses across 110 industries in the US.

To estimate what proportion of lower foot traffic was due to self-lockdown rather than government-imposed lockdown, they looked at differences between businesses with customer “commuting zones[3]” spanning state or county jurisdictions with different legal restrictions. As they put it:

This leverages two related types of variation: businesses in border-spanning commuting zones where jurisdictions impose shelter-in-place orders at different times (e.g., northern Illinois when Illinois placed a sheltering order on March 20th while Wisconsin waited until the following week), and businesses in commuting zones where a jurisdiction never imposed an order (e.g., the Quad Cities area, where the Illinois towns of Moline and Rock Island faced stay-at-home orders but bordering Davenport and Bettendorf, Iowa, did not).

government lockdown costs may be exaggerated over COVID-19's direct economic impact St Matthew’s Lutheran Church in Niles, Illinois, invites worshippers back on June 25 2020 as gatherings of up to 50 people are allowed under the state’s reopening plan. Nam Y. Huh/AP

Goolsbee and Syverson found total consumer traffic fell by 60 percentage points, but legal restrictions accounted for just 7 percentage points of this. That is, it caused less than 12% of the total effect.

Breaking down the data further, they show fear of infection largely drove individual decisions to reduce activity.

In fact, foot traffic “started dropping before the legal orders were in place; was highly influenced by the number of COVID deaths reported in the county; and showed a clear shift by consumers away from busier, more crowded stores toward smaller, less busy stores in the same industry”.

Strikingly, US states that decided to repeal shutdown orders witnessed recoveries of a similar, symmetric size. This is further evidence of the modest incremental impact of lockdowns relative to the larger impact of the virus itself.

Lessons for Australia

We need to stop thinking about lockdowns as representing the total economic hit we take from COVID-19. The virus itself is hugely damaging. Lockdowns add to that, but come with an important benefit – getting the virus under control.

Early in the pandemic, the Australian Treasury estimated Australia’s GDP would fall 10-12% in the June quarter.

Since Treasurer Josh Frydenberg cited this estimate in his National Press Club address[4] on May 5, many have used it to calculate the the cost of a national lockdown at A$4 billion a week.

That is, Australia’s GDP is about A$2 trillion annually, so a 10% contraction is $200 billion a year, or about $4 billion a week.

But is this really the cost of the lockdown? How much of the estimated 10% drop in GDP for the June quarter is due to the virus and self-lockdown, not government lockdowns?

Read more: The costs of the shutdown are overestimated -- they're outweighed by its $1 trillion benefit[5]

If the Goolsbee-Syverson numbers translate to Australia, then the lockdown cost is closer to A$450 million a week.

That’s still a lot, but a six-week nationwide investment of $2.7 billion to get the virus under control and boost consumer and business confidence was money well spent.

New South Wales premier Gladys Berejiklian New South Wales Premier Gladys Berejiklian on July 15 2020. Dean Lewins/AAP

Berejiklian’s dilemma

NSW Premier Gladys Berejiklian has said she doesn’t want to enact a second lockdown because of the hit to economy.

If the current outbreak can be dealt with through rapid contract tracing, testing and isolation, this may be wise.

Read more: Vital Signs: We're testing 50,000 Australians a day for COVID-19. Should it be 6.5 million?[6]

But if the number of daily cases gets beyond a manageable point, a lockdown might be the only way to stop the spread of the virus.

The best evidence to date shows we cannot have a well-functioning economy with COVID-19 running rampant. That leads to a very costly self-lockdown, regardless of what the government does.

Authors: Richard Holden, Professor of Economics, UNSW

Read more https://theconversation.com/vital-signs-government-lockdown-costs-may-be-exaggerated-over-covid-19s-direct-economic-impact-142710

SME Business News

Launchd Acquires ICMI in Bold Play to Redefine the Business of Speakers and Influence

Australia’s leading speaker bureau acquired by next-gen talent and technology Company, modernising the brand, corporate and event industry April 2025 - Launchd, the business underpinned by a...

Why Your Dental Business Needs Professional Digital Marketing Services

Running a successful dental practice today requires more than just great patient care. In a digital-first world, your online presence plays a huge role in how potential patients discover, choos...

Brand Storytelling: How Video Marketing Can Enhance Your Brand Identity

In the competitive landscape of 2025, building a strong and recognisable brand identity is crucial for standing out in the marketplace. One of the most effective ways to shape and communicate y...

Future-Proofing Your Business with Strategic Defence Insight

In an era marked by rapid technological change, global uncertainty, and evolving security risks, the need for long-term resilience in business has never been greater. Organisations across indu...

The Times Features

10 Ways to Make Money Online and Provide Financial Stability

The possibility of earning money online has reached unprecedented heights. The proper strategy enables anyone to begin earning money. You don't need fancy degrees or special skil...

The Power of Exterior Design: How Facades Influence Property Value

First impressions count when it comes to real estate, and nothing quite sets the tone for a property like its exterior design. A building's facade is more than just an aesthetic ...

The Best Adjustable Bed and Mattress Packages for Comfort

The appropriate bed and mattress are essential for establishing the perfect sleep environment. If you seek a way to upgrade your sleep experience, adjustable bed and mattress pac...

Designing a Modern Home: Features That Will Make Your Dream House Stand Out

Designing your dream home is an exciting journey, and for many, it’s an opportunity to create a space that reflects their personal style, functionality needs, and modern trends. ...

Client Dinners Done Right: Tips for Meaningful Engagement

Client dinners offer more than just a meal—they’re an opportunity to build lasting business relationships in a more personal and relaxed setting. Done well, these dinners can str...

From Classic to Contemporary: 5 Timeless Costumes for Any Party

When it comes to dressing up for a costume party, you want to choose something that is not only fun but also memorable. Whether you're attending a Halloween event, a themed gathe...

Business Times

Launchd Acquires ICMI in Bold Play to Redefine the Business of Sp…

Australia’s leading speaker bureau acquired by next-gen talent and technology Company, modernising the brand, corporate a...

Why Your Dental Business Needs Professional Digital Marketing Ser…

Running a successful dental practice today requires more than just great patient care. In a digital-first world, your onlin...

Brand Storytelling: How Video Marketing Can Enhance Your Brand Id…

In the competitive landscape of 2025, building a strong and recognisable brand identity is crucial for standing out in the ...

LayBy Shopping