History has a way of repeating itself, so much can be learned from looking to the past. Many have compared this pandemic’s effect on the economy to the great recession of 2008. Certainly a fair comparison as that is the most recent extreme case of economic stress we have faced nationally and globally. But as no two occurrences are identical, there are many important distinctions between today’s pandemic and the great recession.
This Covid-19 pandemic is an external hit to the economy, whereby the recession of 2008 was internal. It was the economy that caused it, the financial crisis in 2007 and the European debt crisis in 2008. That’s a bit of good news in my view. Since these causes were so different, I wanted to learn what impact the Spanish flu of 1918 had on the U.S. and global economy. Despite being nearly 100 years ago, it is the most recent and similar large-scale health emergency to affect the U.S. and the world so I thought it would make for an interesting comparison to today. Unfortunately, world events at the time, namely the ending of World War I, make direct comparison difficult, but some observations can be gleaned for perspective on today’s situation.
I Googled “1918 economic growth” and found two studies, one produced by the St. Louis Fed in 2008 titled Pandemic Economics: The 1918 Influenza and Its Modern-Day Implications, and another produced by the European Commission Directorate General for Economic and Financial Affairs in 2006 titled The macroeconomic effects of a pandemic in Europe – A model-based assessment. Both studies point out that the economic effects of the 1918 epidemic were not widely studied because the focus was on World War I, and because economic data sources were not as robust as they are today, especially at the state level. But both papers did mention a particular study completed in 2003 by The Centre for Economic Policy Research (CEPR) titled The Economic Effects of the 1918 Influenza Epidemic. Since it was mentioned in both papers, I read it also.
I read all three, but I am not an economist and I’ll admit some of the table presentations were a little confusing, so I would encourage your own reading and interpretation, but I did notice some fact patterns that may be applicable to what we are facing today.
Prior to the 1918 flu epidemic, two other pandemics had similar death tolls, the Plague of Justinian in 541 that lasted about one year, but had recurrences for decades, and the plague, also known as Black Death, which occurred in 1348 and lasted about three years.
The Spanish Flu of 1918 outbreak was first recorded in March 1918, but death totals were within “normal” flu ranges, so it gained little attention. A second wave occurred in August 1918, as troops were returning home from World War I, with peak death levels in October and November 1918. A third wave occurred in early 1919 but was somewhat geographically contained to countries in the southern hemisphere. Perhaps the biggest difference from the normal flu was the death age pattern, rather than afflicting the very young and very old, a large percentage of deaths also occurred in the 10-44 year-old range, prime working age.
Another observation from the CEPR study was the U.S. map of per capita death rates, which appears to largely mirror the current map of so called “hot spots”, including California, New York, and many states in New England, with less occurrence in the middle of the country. While little direct study was conducted for the reasons stated previously, anecdotal evidence would indicate that while many businesses closed, and the economy suffered significant negative consequences, there was not the coordinated and mandated approach to business closures that are being implemented today. To me, the positive takeaway is that even without mandated closures and “social distancing”, these prior pandemics were relatively short lived, and the economy appears to have recovered quickly once the pandemic had passed.
To be clear, that is not a suggestion that our current regulations aren’t warranted, quite the contrary. In my opinion, the biggest risk to the economy is not severity of the economic slowdown, but its duration. To illustrate with simple math, I’d rather see the economy shut down 100% for 2 months, than shut down 50% for 6 months, or longer. Uncertainty is the enemy of economies and business, and while there is always a level of uncertainty in the world, the longer this drags on without a sightline to a remedy and a vaccine, the worse it will be.
My hope and prayer is that with the advances in technology, medicine, and with good old fashioned ingenuity from companies and governments across the globe, this pandemic will have a shorter shelf life than previous pandemics and will therefore not have a lasting negative effect on our global economy.
Proverbial Living 