January 1, 2009
Recurrent reminders that an international avian influenza epidemic is a real possibility have prompted a variety of public policy discussions. A recent World Bank study estimated that the global economy would lose $2 trillion from an outbreak, or three percent of world GDP. Another report in The Lancet (by the Harvard Initiative for Global Health Group; Murray et al., 2006) largely based on an analogy drawn from the Spanish Flu epidemic of 1918-20 presented various estimates of possible U.S. fatalities. These included a low threshold of 114,483; a median threshold of 297,883; a mean threshold of 383,881; and a high threshold of 744,226. Applying the U.S. Environmental Protection Agency‟s valuation of a statistical life, $5.8 million, these fatalities amount to large imputed dollar amounts: $664 billion; $1.728 trillion; $2.227 trillion; and $4.317 trillion, respectively. These estimates, astronomical though they are, ignore the treatment costs of those who get sick but do not die, quarantine costs, and other disaster management costs. The Harvard loss estimates are also much higher than the values estimated by Meltzer, Cox and Fukuda (1999), who estimated U.S. losses in the range of $71-$166 billion. While The Lancet study argues that a future pandemic might be even worse than in 1918-20, it also accepts that fatalities might be lower because of improved medical management (although the health care system could be overwhelmed), anti-viral medicines, quarantine, and vaccination. Yet, it is probably safe to say that terrorists with an admitted interest in acquiring and using weapons of mass destruction have taken note of these magnitudes as well as the recent reports that the H5N1 strain can be spread by human-to-human contact. The closure of the U.S. to international trade and travel for as long as one year has been proposed as an extreme policy that might be justified by such an extreme threat. In this research we ask whether such extreme measures can be justified in economic terms. We attempt to measure the economic impacts of a one-year border closure. The hypothetical disruptions are obviously severe, well beyond anything that the U.S. economy has ever experienced, and raise additional analytical issues that we take up briefly at the end of this chapter.