Pandemic Economics
Ever since the coronavirus got away from Wuhan the pandemic was almost inevitable. The question many are asking now is – how to deal with it to reduce the effects of the pandemic on the economies of the world. But you need to remember “Pandemic economics are different than normal economics”.
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A Century Since The Last Pandemic
Once the pandemic started it was certain that not only will it hit hard the health of people and hospitals but it will also hit the economy on all levels. In almost all countries where debate is possible people are debating how exactly to deal with it. Some people prefer preventive measures – because of all we do not know about the coronavirus – and people who prefer measures that would have a lesser impact on the economy. Interestingly, these debates rage all across the political spectrum, different levels of education, socioeconomic situation, and interestingly even different health experts have different opinions.
If we are going to be honest, we haven't had a real pandemic for a long time. 102 years since the last pandemic. The last large pandemic hit humanity at the end of World War 1 when the Spanish flu went on its journey of doom. In some ways, COVID-19 is actually similar to the Spanish flu but in other ways it is different. What is ironic is the fact that because we do not have a vaccine we are using almost the same tools we used in 1918.
Economical Health
Three economists – Sergio Correia from the Board of Governors of the Federal Reserve System, Stephan Luck from the Federal Reserve Bank of New York, and Emil Verner from the Massachusetts Institute of Technology decided to take a look at the ideal way of solving the pandemic – from an economic point of view. In their analysis they came to a pretty clear conclusion that is nicely summarized in the name of the study “Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu”.
Correia, Luck, and Verner used historical data from the US Centers for Disease Control (CDC), historical data from the US Census Bureau, and bank statistics from the publication Annual Reports of the Comptroller of Currency.
The authors used available data that described how the Spanish flu raged in the United States in the years 1918 and 1919. This data indicates that cities that reacted to the pandemic quicker and more firmly, preferring human lives before their economies have seen larger economic growth. Cities that introduced social distancing and other pandemic measures earlier and where these measures lasted longer showed lower unemployment rates and better functioning economies compared to the cities with the opposite attitude. Such cities showed a long period of higher unemployment, lower production, lesser bank loans, and fewer goods sold overall.
Verner vigorously points out that cities that introduced more severe measures against the Spanish flu had a bad time economically. If anything, the analysis shows the exact opposite. The authors of the study are convinced that the trade-off between anti-pandemic measures and economic activity is mostly just an illusion. This is because the pandemic itself is quite destructive to the economy for many different reasons. Not only does it directly affect sales during the pandemic it also changes the future behavior of those that lived through the pandemic. It would be not only cruel to let the pandemic rage through the streets of our cities but it would also be naive to expect nothing will change about the economy in that circumstance. The pandemic will hurt. But we should not make it worse for us.
What needs to be remembered is the fact that there are differences between the Spanish flu pandemic from 1918 and the COVID-19 pandemic. And the authors of the study realize it as well. The structure of the economy in 1918 was very different. The Spanish flu killed many people in the productive age which certainly also carried economic effects. And just the difference in scale and the number of people ultimately killed by the Spanish flu compared to COVID-19 is abysmal. It is obvious we can't just take historical data and extrapolate what will happen today.
Yet, Correia, Luck, and Verner are convinced that the core dynamics of the Spanish flu pandemic is usable for us. At least so we can learn from it and not repeat the mistakes people back then made. So, we should remember - Pandemic economics are different than normal economics!
Sources:
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3561560
- http://news.mit.edu/2020/pandemic-health-response-economic-recovery-0401
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