History demonstrates that when containment measures are strictly observed during an epidemic, economies rebound more rapidly than when policies are more lax. Stephan Luck, a US economist, explained why at a Graduate Institute Geneva webinar.
Although this may be our first time experiencing quarantine, it is not the first time that a pandemic has forced countries to drastically curtail economic activities.
In fact, the 1918 Flu Pandemic shut down major urban areas in the United States. But history showed that US cities, such as San Francisco and Minneapolis, which diligently applied quarantine measures, bounced back more quickly than others once the pandemic eased, says historian and economist Stephan Luck.
«The overall economic consequences of the 1918 flu were disastrous, particularly on manufacturing, a major industry at the time,», said Luck, an economist at the US Federal Reserve Bank of New York, and lead author of a new study on the American experience, Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu.
“The cities that managed to avoid a long-term economic downturn were the ones that had enforced non-pharmaceutical interventions from the very beginning,” he said, speaking at a webinar organised by The Graduate Institute Geneva's Centre for Finance and Development. Here are a few key excerpts from his remarks, based on his presentation and questions asked during the panel discussion:
What are non-pharmaceutical interventions? These are actions that communities can take to slow or even stop the spread of a communicable disease - and they are particularly important when drugs are not readily available for treatment, as per the COVID-19 pandemic. They include measures like: social distancing, the use of face masks, and travel limitations. Luck pointed out that recent studies have proved that non-pharmaceutical interventions can significantly lower mortality rates.
In the 1918 flu pandemic, effective drugs didn’t exist and so these measures were the only ones available. They were often strictly enforced in potential hotspots, says Luck:
«If you look at pictures of soldiers, they are all wearing face masks. There was a lot of exposure to health information. People knew that the disease spread in military camps, and to cities with a high population density. So city officials looked at how they could stop the disease spreading, and many enforced non - pharmaceutical interventions».
How did this protect the economy? Stephan Luck:
«It’s undeniable that such interventions restrict social interactions, which therefore depresses ordinary economic activity. But the pandemic itself also disrupts the economy. Non-pharmaceutical interventions work because they mitigate persistent economic disruption by reducing disease transmission and mortality rates. This means that, in the long-term, the economic consequences are not as drastic.»
But we don’t live in the same world as we did in 1918? “Today we are a more service – based economy,” Luck admitted, “We have global supply chains and communications, as well as a range of technologies. We have a better understanding of what causes the virus.”
Even so, Luck suggested that the 1918 Flu Pandemic had an even more severe impact on the economy than we have so far seen with COVID-19 because it was more deadly, especially for people of working age.
«The economic effects of COVID–19 should be less severe because of this, but there is room for debate on this issue. The pandemic is moving much more quickly than it did 100 years ago.Nevertheless, all of these factors allow us to understand the economic effects of Covid - 19, and the benefits of using non-pharmaceutical interventions in a timely manner.»
- The study was co-authored by Sergio Correia, an Economist at the Board of Governors of the Federal Reserve System, and Emil Verner, an Assistant Professor of Finance at MIT ‘s Sloan School of Management.