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What The 1918 Influenza Pandemic Teaches Us About Economic Recovery After Pandemics

In 1918, towards the end of World War I, a new crisis hit. An influenza pandemic started to bubble and by the end of the 1918 influenza pandemic between 30 million and 100 million people had died from what would be known as one of the worst pandemic crises in history. The combination of rapid transmission, poor medical infrastructure and suppression of critical information led to a crisis that killed millions and crashed the economy. But when looking at the recovery from the 1918 pandemic, there are striking observations and lessons. 

By early 1918 the markets had crashed. Unsure of how to respond to a crisis well beyond the control of any singular market force, investors and businesses alike were left wondering what to do. Sound familiar?

With non essential businesses shut down across the country and shelter in place orders in most states, even Larry David is chiming in to recommend people stay home.

However, what we’re seeing is not new. Back in 1918, as influenza ravaged the world killing millions, people lost their jobs and markets crashed, no one was sure what came next.

But by early 1919, markets experienced rapid growth. 

This presents an encouraging view on where we are now.  The most encouraging elements are some of the contrasts. Yes, our medical systems still have much room for improvement, however in contrast to 1918 era medical standards, we are much more well positioned with medical knowledge and data to combat this crisis.

Additionally, the primary economic concern with the Covid-19 pandemic is this leads to a debt crisis, similar to what occurred in 2008. Fortunately, many protections are in place to ensure the average person has access to the funds she needs.

New programs include extending unemployment benefits, mortgage and student loan deferments as well as providing low risk loans to small businesses so they can provide payroll and pay rent or mortgages. These ensure we have a backstop in place for our economy to prevent a debt crisis similar to 2008.

When looking at history, we see 1918’s precedent for rapid market recovery after pandemics. When looking at policy, we’ve implemented policies to ensure we don’t spiral into a debt crisis because of this pandemic. Combined with the higher quality of medical care, there is fair reason to believe that as this pandemic passes, we will begin to see a strong economic recovery.

One area of concern that is still unaddressed is a medical debt crisis. Ensuring that treatment for Covid-19 is no cost to both insured and uninsured individuals is a necessary next step to protect real people from crippling medical debt.

As we move forward, a sense of optimism allows us to see we are better prepared at nearly every level to save as many lives as possible while ensuring we don’t risk increasing significant hardship for the average person or our economy as a whole. A question remains though.

What about people who lost their jobs?

Close to 10 million Americans have already filed for unemployment benefits. While most job losses are focused in the service, tourism, entertainment, and hospitality industries, we’re starting to see less job postings from manufacturing, education and even healthcare.

Many of these jobs will return as soon as small businesses reopen. Between federal and state small business loans as well as unemployment benefits, there are protections in place for the average worker that has been laid off or furloughed. Will all of these people get their job back? Not necessarily. But we have to be realistic about our economic concerns.

Before this pandemic, we didn’t have an economy built on faulty debt. After 2008, lending regulations became more restrictive, ensuring that much of the financial trickery that created an unstable economic foundation in 2008 was removed from markets.

While some segments of our economy are less stable than we may like, going into this pandemic, our economic foundation is built on more stable ground compared to the debt crisis of 2008.

This is encouraging when looking at the economic return post Covid-19 pandemic. 

Most laid off and furloughed employees will be rehired. In fact, it’s likely that the average consumer will be so enthusiastic about being able to have freedom of movement again that she’ll go out and about even more than she normally would have, potentially creating a hiring spree in service industries. 

Tourism and hospitality will return slower, especially internationally. These workers may be best suited to explore other options, if available, since these sectors will have a slower return. 

We are just beginning to understand the ramifications of the battering ram called Covid-19 that just hit every country in the world. 

But with a continuing commitment to smart policy based on worker protections, we can see a path forward that doesn’t end in systemic economic failure, leaving billions of people in economic ruin. Many of these initial steps have already been implemented. 

According to a paper written in 2007 by the St. Louis Fed that explored the economic impact of the 1918 Flu Pandemic, “Most of the evidence indicates that the economic effects of the 1918 influenza pandemic were short-term…Society as a whole recovered from the 1918 influenza quickly.”

Patience and our continuing commitment to effective policy gives us a new sense of optimism, even as the true hardship of loss of life continues. 

Tell your family you love them, stay home and know that you’ll be ok. 

On a personal note, I am left in awe, inspired by the outpouring of love from every one of you committing to stay home or serving your community, a true expression of selfless service to protect and help those you don’t know. 

As Mr. Rogers once said, “When I was a boy and I would see scary things in the news, my mother would say to me, “Look for the helpers. You will always find people who are helping.”