Coronavirus: the cost of saving lives and its effect on the economy

It's a brutal calculation. After all, aren't we told that life is priceless?

But politicians faced with hard choices need a way of measuring how much damage it's worth doing to the economy in order to save the lives of people, some of whom might not have lived that long anyway.

It's a very hard calculation but governments make it all the time. They put a value on life when they allocate money to new medical treatments for fatal illnesses.

The economist who has done the fundamental work on which the federal government relies is Dr Peter Abelson.

He told this paper that he calculates the value of an Australian's life at about $4.6 million.

That's a kind of an average, taking into account young and old, rich and poor. It's for the average person on the imaginary aircraft which crashes.

Dr Abelson looks at life expectancy, expected earnings and a raft of other factors to put a figure which the government can use when it's making life and death calculations.

If you take the average age of the people dying from COVID-19 as 79, Dr Abelson reckons on the basis of the evidence that they might have expected to live for another ten years if they hadn't been struck by the virus.

That puts the monetary value of the life which each deceased person has lost by dying early at about $2 million.

On that basis, Dr Abelson thinks the public money spent so far has been worth it in terms of lives saved compared with the loss of economic output.

He thinks we have averted an "American situation" of substantial loss of life and not paid too high an economic price.

We can estimate what would have happened if the government had done nothing and just let people die. On this scenario, one estimate puts it at about 90,000 people who would have died early.

But the government didn't let that happen. It closed down businesses and opened the public coffers.

Treasurer Josh Frydenberg says the ongoing lockdown is costing the economy $4 billion per week.

Professor Peter Robertson of the University of Western Australia reckons that the cost of saving the lives of those 90,000 Australians who might have died in the do-nothing scenario was about $150 billion or eight per cent of the country's product.

"By comparison, at $4 billion per week, the economic cost of the first month of restrictions amounts to a little under one per cent of gross domestic product."

The balance sheet of cost and benefit is clear: We've lost one per cent of our national output with the lock-down to preserve eight per cent of our output in terms of lives saved (if you put the money value on them).

"Spending many times that much to avoid a health crisis that could cost eight per cent of gross domestic product, and perhaps much more, seems reasonable," Professor Robertson said.

It keeps having to be made as we move on. The government has to keep assessing the cost to the economy of saving lives - how much shut-down to save how many lives.

The big gain so far is that the health system hasn't been overwhelmed but now numbers of cases are falling, should we worry about the economy a bit more? The federal government isn't saying so explicitly but that is clearly its rationale.

The prime minister put it in his characteristically folksy - and powerful - way: "We've got to get out from under the doona at some time.

And if not now, then when?"

Should we take the brakes off and accept a rise in casualties? Or should we keep sitting tight, waiting for a vaccine and losing output from the economy while we wait?

Professor Robertson thinks continued lock-down could cause a "double tragedy": "Without a plan to exit and with no vaccine, we could find ourselves having spent eight per cent or more of gross domestic product in lock-downs and still face the threat of a national epidemic.

"Waiting for a vaccine could become like having yet another go on the pokies - without a commitment to exit, you end up broke with nothing else to spend. At the moment, the restrictions are justified in financial terms.

"But rising economic and social costs mean we will need an exit strategy. This may simply mean learning to live with COVID-19.

"With that end-game in mind, taking a cautious peek out from under the doona, soon, makes sense."

Of course it isn't.

Professor Robertson makes the point that rescuers don't make dollar and cent calculations before launching the lifeboat.

"When the lone British sailor Tony Bullimore was rescued from the Antarctic Ocean by the HMAS Adelaide in 1997, the nation celebrated as he emerged from under the hull after four days trapped in winds of up to 160 km per hour," he said.

The cost of rescuing the 57-year-old was $10 million dollars. Too much? Too little?

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And none of us put a value on those we love. Life itself would be worthless without them. But governments have to.

If the economy opens up and we start mixing with each other again and your grandmother then catches the virus, you might feel it's not a price worth paying.