Media
pundits and politicians are now in the habit of claiming it was the pandemic
itself that has caused unemployment to skyrocket and economic growth to
plummet. The claim is that sick and dying workers, fearful consumers, and
disrupted supply chains would cause economic chaos. Some have even claimed that
economic shutdowns actually help the
economy, because it is claimed allowing the spread of the disease will itself
destroy employment and economic growth.1
Leaving
aside the fact there’s no evidence lockdowns actually
work, we can nonetheless look to past pandemics—where coercive government
interventions were at most sporadic—we should see immense economic
damage. Specifically, we can look to the the pandemic of 1957-58, which
was more deadly than the COVID-19 pandemic has been so far. We can also look to
the 1918-19 pandemic. Yet, we will see that neither produced economic damage on
a scale we now see as a result of the government mandated lockdowns. This
thoroughly undermines the claims that the lockdowns are only a minor factor in
economic destruction, and that the virus itself is the real culprit.
Economic
Reactions in 1957–58, and in 1918–19
The
CDC estimates that as of May 18 this year approximately ninety thousand
Americans have died of COVID-19. Adjusted for population size, that comes out
to a mortality rate of 272 per million.
This
is (so far) less than half the
mortality rate for the 1957–58 flu pandemic. In that pandemic, it is estimated
that as many as 116,000 Americans died. Yet, the US population was much smaller
then, totaling only 175 million. Adjusted for population size, mortality as a
result of the “Asian flu” pandemic of 1957–58 was more than 660 per million.
That’s
the equivalent of 220,000 deaths in the United States today.
Yet,
Americans in 1957 did not respond by shutting down commerce, forcing people
into “lockdown,” or driving unemployment up to Depression-era levels. In fact,
reports show that Americans took little action beyond the usual measures
involved in trying to slow the spread of disease: hand washing, staying home
when ill, etc.
Although
the virus does appear to have been a factor in the 1958 recession, the economic
effects were miniscule compared to what the US now faces from the reaction to
the COVID-19 virus. This suggests that most of the economic damage now being
experienced by workers and households in the US is more a product of the policy
reaction to the virus than to the virus itself.
The
pandemic of 1957–58 was a serious and deadly problem for many. As cases of the
Asian flu began to spread, it became clear to many scientists and other
observers that there was something different and deadly about this flu. Indeed,
according to D.A. Henderson, et al in “Public Health and Medical Responses
to the 1957–58 Influenza Pandemic, “Humans under 65 possessed
no immunity to this H2N2 strain.”1 This meant that the “highest attack
rates were in school-age children through young adults up to 35 or 40 years of
age.” Total deaths due to the flu over this period range from 70,000 to
116,000. This is cause for concern, to say the least. With younger Americans,
many of them in prime working age, susceptible to the disease, one could
anticipate significant costs in terms of economic growth and health.
What
was the policy reaction to this? Henderson et al. continue:
The 1957–58 pandemic was such
a rapidly spreading disease that it became quickly apparent to U.S. health
officials that efforts to stop or slow its spread were futile. Thus, no efforts
were made to quarantine individuals or groups, and a deliberate decision was
made not to cancel or postpone large meetings such as conferences, church
gatherings, or athletic events for the purpose of reducing transmission. No
attempt was made to limit travel or to otherwise screen travelers. Emphasis was
placed on providing medical care to those who were afflicted and on sustaining
the continued functioning of community and health services….there were no
reports that major events were canceled or postponed except for high school and
college football games, which were often delayed because of the number of
players afflicted.
In
1957–58, there was concern over the availability of medical services. But the
emphasis then was on increasing medical services rather than state-enforced
quarantines and “social distancing” measures. Nor did a vaccine offer an easy
way out:
Health officers had hopes
that significant supplies of vaccine might become available in due time, and
special efforts were made to speed the production of vaccine, but the
quantities that became available were too late to affect the impact of the
epidemic.
Schools
and workplaces were affected by absent students and workers, but absenteeism at
schools was a larger factor, with some schools even closed for short periods as
a result of so many missing students. Absenteeism did not rise to the level of
causing shortages:
Available data on industrial
absenteeism indicate that the rates were low and that there was no interruption
of essential services or production. The overall impact on GDP was negligible
and likely within the range of normal economic variation.
Overall,
the economy declined by approximately 2 percent during both the first and
second quarter of 1958, but this could not all be attributed to the effects of
the virus. Unemployment at the time also surged, peaking at 7.5 percent during
July 1958. Economic growth was positive again, however, by the fourth quarter
of 1958 and had soared to over 9 percent growth in 1959. Unemployment had
fallen to 5 percent by June of 1959.
But
the overall economic impact of the virus itself was hardly disastrous.
Henderson, et al conclude:
Despite the large numbers of
cases, the 1957 outbreak did not appear to have a significant impact on the
U.S. economy. For example, a Congressional Budget Office estimate found that a
pandemic the scale of which occurred in 1957 would reduce real GDP by approximately
1% ‘‘but probably would not cause a recession and might not be distinguishable
from the normal variation in economic activity.’’
The
1918–19 pandemic, which caused an astounding ten times as many deaths per
million as the 1957–58 pandemic, also failed to produce
economic disaster. Although the US entered the 1918–19 pandemic in poor
economic shape thanks to the Great War, according to economists Efraim Benmelech
and Carola Frydman,
The Spanish flu left almost
no discernible mark on the aggregate US economy….According to some estimates,
real gross national product actually grew in 1919, albeit by a modest 1% (Romer
1988). In new work, Velde (2020) shows that most indicators of aggregate
economic activity suffered modestly, and those that did decline more
significantly right after the influenza outbreak, like industrial output,
recovered within months.
Nor
can the pandemic be blamed for the 1921 recession, because “by then the decline
in output had all to do with a collapse in commodity prices when post-war
European production finally recovered.”
How
Do Pandemics Affect Economic Growth?
Not
surprisingly, then, we find relatively mild estimates in a 2009 World Bank report estimating
the economic consequences of new pandemics. The authors concluded
that moderate and severe pandemics would lead to GDP declines of 2–5
percent. Or, as a 2009 Reuters report summarized it:
If we get hit with something
like the 1957 Asian flu, say goodbye to 2 percent of GDP. Something as bad as
the 1918–19 Spanish flu would cut the world’s economic output by 4.8 percent
and cost more than $3 trillion.
Not
even a 1918-sized pandemic was expected to produce the sort of economic carnage
we now see from COVID-19.
The
Reaction in 2020
Needless
to say, the economy today appears to be in far worse shape in the wake of the
2020 pandemic than in the days following the 1957–58 outbreak, or even in
1919.
As of
April 2020, the unemployment rate has ballooned to 14.4 percent, the highest
rate recorded since the Great Depression. The Atlanta Federal Reserve,
meanwhile, forecasts a drop in GDP of more than 40 percent. More mild estimates
suggest drops of 8 to 15 percent. If the
milder predictions prove true, then the current downtown is “only” the worst
since the Great Depression. If the Atlanta Fed is right, then we’re in an
unprecedented economic disaster.
The
World Bank’s estimates of even a “severe” pandemic, which predicted a GDP drop of around 5
percent, don’t even come close to the estimates for the 2020
collapse. And why should they? The World Bank report didn’t anticipate the
global economic shutdown imposed on billions of human beings by the world’s
regimes. Thus, the bank’s estimates assumed that economic losses would be
limited to absenteeism, disrupted trade and travel, and declining demand due directly to disease or fear of disease.
So
why the enormous difference in economic effects? The answer almost certainly
lies in the fact that governments in 2020—unlike in any other period in
American history—engaged in widespread business closures, “stay-at-home” orders,
and other state-mandated and state-enforced actions that led to widespread
layoffs and plummeting economic output.
Defenders
of government-coerced “lockdowns” have insisted that fear of the virus would
have destroyed the economy even without lockdowns, but there is no historical
precedent for this claim, and no current evidence to support it. Although
some survey data has
been proffered to suggest that more than 60 percent of Americans say they plan
to comply with stay-at-home orders, this merely tells us how people make plans
when threatened with fines, police harassment, and other coercive measures.
In
reality, the experience of the 1957–58 pandemic—or even the 1918–19
pandemic—gives us no reason to believe that joblessness should be increasing at unprecedented rates and
that GDP would collapse by catastrophic levels. In a modern industrialized
economy, that sort of economic damage is only achievable through government
intervention, such as socialist coups, wars, and
forced economic shutdowns in the name of combating disease.
The
cost in terms of human life will be significant. One study contends that
the current economic downturn could lead to seventy-five thousand “deaths
of despair.” This is not shocking, however, since the fatal effects of unemployment and economic decline have
been known for decades.
Defenders
of lockdowns will likely continue to claim that “we have no choice” but to
continue lockdowns for long periods of time. At the very least, many claim that
the lockdowns until now have been “worth it.” Yet the efficacy of
lockdowns remains an open question, and has hardly been proven. Meanwhile, the world
faces the worst economic disaster experienced in centuries.
It didn’t have to be this way.
—
a. b. For example, Politico this
week quotes an economist who says the disease itself is
the cause of the economic downturn. “The economic story really isn’t about
lockdowns, and we’re going to make mistakes by pursuing that narrative. It
really is about the disease.”
Note: The
views expressed on Mises.org are
not necessarily those of the Mises Institute.
Ryan W. McMaken is the editor of Mises Daily and The Austrian.
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