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With more than 6.6 million Americans filing for unemployment as of April 9, there’s no doubt that social distancing and other public health measures are seriously affecting Americans’ financial well-being.
Meanwhile, the coronavirus continues to spread, and has already claimed tens of thousands of lives globally. But if you’re concerned that the measures being taken to “cure” the pandemic may end up hurting the American economy more than the disease itself, you may have reason to take heart.
A recent study by Federal Reserve and M.I.T. researchers analyzing the 1918 flu pandemic suggests that aggressive public health measures — while hurting the economy in the short-term — may actually contribute to a faster, stronger economic recovery when the COVID-19 pandemic subsides.
Want to learn more?
- Comparing the 1918 flu with COVID-19
- How social distancing may help the economy overall
- Applying lessons from 1918 to today
Comparing the 1918 flu with COVID-19
To get an idea of how public policy measures might affect the economy in the long run after the COVID-19 pandemic ends, researchers looked at data from around the time of the last major pandemic in American history. They reviewed state- and city-level data on flu-related deaths, economic activity, bank records and public health interventions from that time.
The 1918 flu pandemic, which struck in waves during 1918 until the end of 1920, killed at least 50 million people worldwide, including 550,000 to 675,000 Americans, the researchers point out.
The illness itself significantly affected local economies throughout the country, researchers say. It also reduced state-level manufacturing output by an estimated 18%, caused bank losses, and led to a rise in business and consumer loan default rates. The pandemic also reduced consumer supply and demand.
To thwart the advance of the illness, communities in 1918 did many of the same things Americans are doing today to halt COVID-19 — closing schools and other public places, banning public gatherings and limiting business hours, the researchers note.
How social distancing may help the economy overall
Social distancing and other non-pharmaceutical interventions, or NPIs, may appear to have negative short-term impacts on the economy. But researchers found their long-term effects are more positive.
Cities that implemented fewer and shorter social measures in 1918 not only saw higher mortality rates due to the flu, they also tended to remain economically depressed for years after the pandemic ended, researchers found.
Meanwhile, cities that took early and aggressive action and implemented more NPIs had fewer deaths and performed better economically after the pandemic ended. In fact, reacting 10 days earlier to the pandemic equated to a 5% increase in manufacturing employment afterward. And keeping NPIs in place for 50 additional days boosted manufacturing employment by 6.5% after the flu subsided, researchers found.
Applying lessons from 1918 to today
The study notes that there are many differences between the last pandemic and this one. World War I had just ended, and the 1918 flu appears to have been more deadly — especially for people of prime working age. Many factors could affect the interpretation of their findings, the researchers caution.
Still, the study does seem to suggest that pandemics cause more harm to economies than the public health measures that governments employ to prevent the spread of the disease. And if left unchecked, the effects of a pandemic can plague economies for years after the illness itself subsides.
Not only do public-health measures not make things worse for the economy overall, researchers say, they can actually help economic recovery after the pandemic is over.
“Altogether, our findings suggest that pandemics can have substantial economic costs, and NPIs can have economic merits, beyond lowering mortality,” the researchers wrote.