Some Economics of Flu Pandemics-Becker

Every century or so, a major flu pandemic (an epidemic with a global impact) occurs. The last one, the Great Pandemic of 1918-19, infected many hundreds of millions of people, and killed about 50-100 million men and women worldwide. The Asian flu of 1957 is estimated to have killed 2 million people, and the pandemic of 1968 killed over 1 million persons. Various false alarms have also occurred, such as the swine flu outbreak in 1976 in the US, where over 40 million persons received flu vaccinations, and 30 persons died from the vaccinations, while few died from the flu itself. Is this swine flu scare the "big one" that has come almost 100 years after the Great Pandemic? If so, what would be its economic cost? So far, less than 1,000 persons worldwide are confirmed to have swine flu -they are mainly persons under age 16- and the death rate is a few percent of those contracting the disease. However, it is still too early to be confident that the effects of this swine flu will be mild or moderate since flu pandemics, including the Great Pandemic, often go through phases, where the first phase is rather moderate, and the next phases are much more devastating. Whatever the course of this flu outbreak, health officials are confident that before long a major pandemic will strike that could wreak devastation throughout the world. Note that flu pandemics involve a huge " externality" because infected individuals have limited incentives to consider the likelihood of infecting others when deciding how much contact to have with other individuals. This externality justifies a significant public health involvement in trying to control the spread of flu during a pandemic. Consider the cost of a modern flu pandemic with the impact of the Great Pandemic. Fifty million deaths in 1918-19 constituted about 2.8% of the world population at that time. Since world population has grown twofold since then, a flu pandemic at this time that killed 2.8% of all people would take about 150 million lives. This is a staggering number. It can be converted into an equally staggering monetary value by using findings on what people are willing to pay to avoid fatal health and other risks- what economists call the statistical value of life. It is estimated that this statistical value of life for a typical young adult in the United States is about $5 million. This means that a young person would be willing to pay about $500 for a decrease of 1/10,000 in the probability of dying at each age, and $1000 for a decrease in the probability of dying of 1/1,000. To get a monetary value of the aggregate cost of another such great pandemic, we assume that the comparable statistical values of life in other countries equal $5 million times the ratio of the per capita incomes to the US per capita income. For example, the statistical value of life for a typical young person in a country with half the per capita income of the US would be $2.5 million. Then if we assume that the same percent of the population would die from such a pandemic in all countries, the total cost of a pandemic equal in severity to the Great Pandemic would be over $100 trillion. This is such a huge amount that it is hard to visualize. It dwarfs in magnitude the effects of such a pandemic on world GDP, the economic effects that are usually calculated. A study published in the science magazine Lancet in December 2006 by Murray, et al estimates that a modern pandemic of equal virulence to the Spanish flu that caused the Great Pandemic would kill not 150 million persons, but about 60 million people. They also claim that these deaths would be very much concentrated in poorer countries. Using Murray, et al's calculations to adjust my estimate of what people of the world would be willing to pay to avoid such a pandemic would reduce the estimate from $110 trillion to about $20 trillion. The number of deaths from such a virulent flu might well be proportionately less than that caused by the Spanish flu because of important developments in the world health care system. On the one hand, the explosion in world population since 1919, the growth of cities at the expense of the countryside, and the development of air travel that led to much greater movement of persons across national boundaries imply that the spread of flu among people has become a lot easier. Offsetting these changes are others that make it a lot easier to contain the spread and severity of flu pandemic. Public health officials can more quickly isolate and identify the genetic composition of different flu strains than they could during the Great Pandemic. Officials of different countries are also in much greater contact with each other, and can collaborate to partly quarantine the epicenters of future pandemics. Perhaps the most important development in recent decades that would save lives during a future pandemic are vaccines and antiviral drugs, such as Tamiflu. Vaccines might be produced quickly enough to inoculate huge numbers against new flu strains, even highly virulent strains. When taken early enough, the antivirals can greatly moderate the course of an illness and speedup recovery. The US and the European Union apparently have large enough stocks of antivirals to treat about 16% of their populations-the US supply covers about 50 million persons- while Japan has even large drug supplies relative to its population. The poorer countries of Africa and elsewhere are the least prepared to fight a major pandemic. Of course, new flu strains may emerge that cannot be treated by the known antivirals. And bioterrorists may be able to produce and spread highly deadly viruses of all kinds. At the same time, however, drug companies are better prepared than even a few years ago to ramp up production of old drugs, and to develop additional drugs to fight new flu strains and other viruses that are not treatable by present drugs. I have indicated that the vast majority of people are willing to pay a lot to gain protection against deadly flu viruses. This is why it would be desirable to greatly increase the stockpile of drugs and vaccines even if the probability of another pandemic were low, and its nature not known. For example, the expected worldwide cost in terms of willingness to pay to avoid the risk of another great pandemic that had a one in hundred probability of occurring during the next twenty years would be approximately 1/100 x $20 trillion, or about $200 billion. This cost would justify sizable increases in world spending on antiviral drug and flu vaccines.

Comments

[Travis, Family Resources]

Someone here has the misconception that the powers-to-be plan on containing pandemics, just as most have the misconception that the people who created the controlled demolition of the worlds' economy, now plan on repairing the economy.

Not to be rude, nor disrespectful, but someone here needs to stop reading corporately controlled medias, or they will continue believing that Al Qaeda is a threat to the people who live under the control of the corporation known as THE UNITED STATES of AMERICA and that Iran is the bad guy.

[Jack]

Becker's method of estimating the costs is a bit puzzling.

"To get a monetary value of the aggregate cost of another such great pandemic, we assume that the comparable statistical values of life in other countries equal $5 million times the ratio of the per capita incomes to the US per capita income. For example, the statistical value of life for a typical young person in a country with half the per capita income of the US would be $2.5 million. Then if we assume that the same percent of the population would die from such a pandemic in all countries, the total cost of a pandemic equal in severity to the Great Pandemic would be over $100 trillion. This is such a huge amount that it is hard to visualize. It dwarfs in magnitude the effects of such a pandemic on world GDP, the economic effects that are usually calculated."

........... where does he get the $5 mill worth of life? From wrongful death awards?

......... as a practical matter few would have that much, even those with most "insurance" coverages. In nation of "half the ......... income" it would be yet harder to raise such funds.

...... then in the case of flu how would that amount be spent? Even, were it available, under pandemic conditions, a week or month in intensive care would top out at $50k -$100k or so.

As a practical matter in a "2.8%" pandemic such care would be available to very few. But I fully agree with his conclusion that it would be wise to invest in anti-virals, vaccines.......... and preventative measures.

Perhaps a good start is a strong memo from management to stay home at the first sign of symptoms; looks like a few lost days even on a false positive or a bit of feather-bedding is a bargain!

[Jim]

WOW!!! Think of the stimulus value of 100 trillion spent, not to mention millions fewer people to demand social services. This could be a governmental resuce plan.

[Jimbino]

On the other hand, most of the flora and fauna of the earth would rejoice if half the human population disappeared overnight. And a young child's life and a old fart's life must be "worth" a whole lot less than $5M, though Medicare and Medicaid will happily pay more than that to keep either alive for two more weeks.

We learned from the 9/11 disaster that a poor, single, orphaned, childfree person's life is worth a whole hell of a lot less than that of a married insurance broker family guy with 4 kids polluting the atmosphere.

Indeed, I would pay a lot to someone who could put birth control in all the world's water.

[smibliosmedo]

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[Puher]

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[Puher]

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[FORCASTGLOBALECONOMY.COM]

It is an exaggeration to claim such a large damage from the flu pandemics. If we take the figure of 20 trillion dollars for 60 million lives seriously, Chairman Mao's Great Leap Forward and The Great Cultural Revolution should have already wiped out 20 trillion dollars from China's wealth that is almost 5 times today's GDP of China per year!

[Apostille]

Hi.. this is a very informative post

[Jim]

If 3% of Americans were ill enough to require hospitalization from the flu, each of the 6000 hospitals in the US would have to admit an average of 1666 patients. Since the average hospital bed size is somewhere around 150, this might represent a problem, not to mention that many of the care givers would be ill and unable to function. In Europe, it would be even woese. On any given day in the UK, there are 1 million people waiting to get into a hospital. Rationing you say?

[runescap gold]

Just wanted to say HI. I found your blog a few days ago and have been reading it over the past few days.

[Wm Whitaker]

In King County Washington in the winter of 2008 there were several days during Jan. and Feb. that the incidence of flu was so great that no beds were available in any hospital or emergency room in the county. Consequently acutely ill patients regardless of their illness were directed to the counties bordering Seattle to the north.

To date the number of deaths from the highly publicized avian flu, and Saars earlier this decade and this current round of swine flu are much less than the annual death toll from "common influenza".

Public health should be less enamored with the sensational and more attentive to the common. Sound economic as well as health policy is much better served by such a mundane but imminently sensible practice.

[EquiisAutisticSavant, J.D.]

With all due respect to everyone on this blog, why debate the economics of the swine flu epidemic and not the more significant so-called "autism epidemic ?" I am a diagnosed prodigious savant person with high functioning autism, both in art (see my URL and go to Gallery for savant art and law school savant doodles) and in the law. Denied bar admission for 20 years for no reason other than fear of admitting anyone with autism can really be a lawyer, resulting in lack of access to those of us who "Think in Pictures," our Nation is about to embark on selecting a new Supreme Court Justice from yet more left-brain linear thinkers who only use half their brain -- the left part, instead of nominating and confirming our first Michaelangelo in American history to the Supreme Court -- a person diagnosed with autism.

If President Obama is looking for "the best and brightest," why would anyone who is not counted among the membership of the 30 or so prodigious savant geniuses in the world be selected ?

The tragedy of the autism epidemic, as compared to the swine flu epidemic, is our continued failure to nominate and confirm a diagnosed prodigious savant person with autism (and a Juris Doctorate degree !) who can and does use both halves: the left and right parts of the brain -- all and not part of the entire visuo-spatial and polyglot language parts of the whole human brain

And if the autism epidemic must continue because we only presently have a left-brain Supreme Court, then it is my considered autistic opinion we should ask Congress to establish a counterpart right-brain "Thinking in Pictures" Supreme Court corollary.

[marcello]

I agree with Prof Becker, but we have to consider market failures. In the case of antivirals we know that they are effective, at the best of our knowledge, against a pandemic flu, but public authorities face ambiguity about pandemic occurrence and they have to face huge cost now. WHO recomends at least antivirals for 25-30% of population in every Country. LDCs do not have money to buy them and supply capacity is given. What about a failure in supply side, not enough supply able to face the suggested stockpile of antivirals, and in demand side, high price prevents stockpiling of antivirals? Is there the room for a liability to make generic producers able to increase the supply at an administrated price?
Vaccines are a public goods, but there is a given capacity of production at most the global capacity is one and half bl. of doses. The supply is not elastic and firms are risk averse as a consequence they produce a new vaccine if and only if they have a market risk sharing. There is ambiguity about the possible outbreak of a pandemic flu as prof Becker says, than how to overcome this shortage? What about a trust fund public and private financed by an hypotecated tax on medical sales to finance production of vaccines for global and neglected diseases?

[Jim]

Jack,

I agree with most of what you said but be careful where your drugs come from. Check out the site below.

http://www.acsh.org/news/newsid.1774/news_detail.asp

[Jack]

Jim, thanks! As a VA patient I'm not tempted, nor forced by circumstance to bootlegging my prescriptions. And Ha! assuming a functioning market, if WE make the pills here surely they SHOULD be cheapest here.

But! if we do "believe" in globalism and import foods from everywhere that we eat on a daily basis surely we can import drugs, safely, from Europe, the UK, Japan, Canada and others, each of which have longer life spans than the US while spending just over half as much for health care.

[Roy D. Schickedanz]

We live in a society where the mass media directs our understanding and knowledge of what is happening in our world, driven by entertainment more than anything else.

No doubt, the recent swine flu outbreak was over blown having governments and the public running around with their heads off.

Carrying wolf will present a serious problem of dealing with real thing when it happens.

Roy D. Schickedanz

[Anonymous]

شات صوتي

[Anonymous]

Excellent book; thanks for writing it.

Other than one paragraph on page 273, you didn't talk much about the budget deficits which really began early in the Reagan Administration, and averaged between $200 and $400 billion a year through Reagan and Geoge HW Bush. Of course, these continued on George W. Bush. You focus on the increase in the federal deficit (from roughly $1 trillion in 1980 to close to $10 trillion in late 2008). In addition to the negative impact this deficit has on our ability to deal with the current recession, as a follower of Keynes, I would argue that the Republican administrations artificially stimulated the economy for many years, and that this also contributed to the bubble in both housing and investments.

Another factor that has concerned me for years, and is evident in the auto industry, is one of excess productive capacity in many industries (e.g., commercial real estate, obviously housing, many types of manufactured products). This overhang of excess capacity worries me in terms of the timing, magnitude and shape of any economic recovery.

In comparing our current situation with the Great Depression (which I remember as a child), one big difference is the number of two-income households today compared to the 1930s. Unemployment is bad, but it seems to me that there is often at least one wage earner in the family. In my view, this somewhat mitigates the impact of high unemployment on working-age families.

Finally, and this has nothing to do with the main thrust of your outstanding book, I was not surprised but a little disappointed that you accept the arguments for man-made global warming. I am a Democrat who tried to analyze the arguments, pro and con, earlier this year, and concluded that the case had not been made for man-made global warming. If you are interested in our analysis (my brother who was with EPA for 30 years is a co-author), I would be glad to send it to you.

Again, thanks for your service to our country, both on the Federal bench and as a writer and analyst of the economy.

Dean C. Coddington ([email protected])
8282 South Peninsula Drive
Littleton, CO 80120
303-794-3055

[Anonymous]

Jailed for Drawing Cartoons!!!!!!!!

http://www.cartoonsbyirfan.com/mid_day.php
Ever heard that before?

Read it now: Mid Day Contempt Controversy : Cartoonist Irfan & 3 of his colleagues were sentenced for four months by Delhi High Court over making a cartoon on former Chief Justice of India'.

Cartoon is the most visible democracy index.

However, Cartooning had sent 4 Mid-Day journalists to jail for 4 Months! Incredible, isn’t it?

Cartoons – loved by all the ages are not mere disfigured sketches in black & white, but rather are more alive than the most of the living groups.

Cartoons – have got the power to speak truth in the most humble way!

Cartoons – don’t fear to be like or disliked, they are very honest in their manner and they mirror the real complex life in simple and plain manner.

Cartoons on the Former Chief Justice of India YK Sabharwal sketched by Irfan Khan of Mid-Day newspaper raised many eyebrows, which was showing the peoples’ view of Sabharwal’s dealing. The whole Mid-Day team was held guilty and sentenced to four months' imprisonment. The issue brought the media around the world together in protest. The case is still pending in the Supreme Court of India.

I bet now you would you like to see more of him, so go ahead and entertain yourself with all matters of mind explained through simple cartoons! You are welcome in the world of Cartoons by Irfan!

Click here to read all…

……… and the fight continues in Supreme Court of India till date...

[Anonymous]

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[Anonymous]

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[Anonymous]

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[Anonymous]

Swine flu has dealt a major blow to Mexico's already battered economy. Many popular tourist destinations have shut down and some commerce has come to a halt.that is the economic impact Flu Pandemics caused....:(ED Hardy,ED Hardy

[Anonymous]

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