Back in 2007, Thomas Garrett, Assistant Vice President and Economist for the Federal Reserve Bank of St. Louis, published a report titled, Economic Effects of the 1918 Influenza Pandemic: Implications for a Modern-day Pandemic. In it, he explores historical data as well as a variety of papers regarding the Spanish Flu to determine the potential economic impacts of a modern pandemic. While it may be over a decade old, this report provides valuable insight into how one of the nation’s leading economists saw a global pandemic like COVID-19 playing out today.
Most of COVID-19’s Impact Could be Short-Lived
Thankfully, much of COVID-19’s impact could be limited to the short term — if the 1918 influenza pandemic is any indication, that is.
According to Garrett’s report,
“Most of the evidence indicates that the economic effects of the 1918 influenza pandemic were short-term. Many businesses, especially those in the service and entertainment industries, suffered double-digit losses in revenue. Other businesses that specialized in health care products experienced an increase in revenues.”
“Local quarantines [caused by a modern pandemic] would likely hurt businesses in the short run. Employees would likely be laid off. . .”
Fast forward to today and the Federal Reserve Bank of Chicago is estimating a ‘U-Cov’ (unemployment coronavirus) rate in April between approximately 25% and 35%. For some context, Reuters recently polled economists and saw a 16% unemployment rate forecast. While these unemployment rate forecasts are historic (the U.S. unemployment rate peaked at 20% following the Great Recession), there’s still a chance they could turn around if the U.S. economy manages to reopen successfully.
However, even though Thomas Garrett’s report seems to suggest that much of COVID-19’s economic impact could be limited to the short-term, coronavirus still has the potential to be plenty destructive in the long run.
Long-term Impacts of COVID-19 May be Severe
Garrett explains in his report,
Using 1960-1980 decennial census data, [Douglas Almond] found that cohorts in utero during the 1918 pandemic had reduced educational attainment, higher rates of physical disability and lower income. Specifically, ‘(m)en and women show large and discontinuous reductions in educational attainment if they had been in utero during the pandemic. The children of infected 21 mothers were up to 15 percent less likely to graduate from high school. Wages of men were 5-9 percent lower because of infection.’
In other words, individuals in utero during COVID-19 may be less likely to be healthy, achieve higher education, and attain good-paying jobs.
Even now, many consumers have doubts regarding their long-term economic prospects.
“More than a third of Canadians believe their discretionary spending won’t recover to pre-crisis levels after stores and businesses are reopened, according to a Nanos Research survey conducted for Bloomberg News. Just over 5% of respondents expect their purchases to increase and 54% think they’ll spend the same amount on non-essential items.”
Predicting the Economic Impacts of COVID-19
Given that one has to “throw out” the proverbial economic playbook when it comes to COVID-19, the Spanish Flu is our best bet at predicting what could happen to the global economy over the short and long-term. Although much will remain uncertain for months and years to come, it’s clear that one way or another, COVID-19 will have a profound effect on future generations.