Spanish Flu Experience Might Indicate That Public Policy Interventions Don't Have Long-Term Economic Effects

Though focused on manufacturing and banking, this study sees economic optimism in quick and thorough interventions to keep people isolated.


Pandemics have substantial economic costs, but the things governments choose to do (or stop doing) to ease the pandemic can do economic good even beyond lowering mortality, according to a new preliminary study posted on the Social Science Research Network, authored by Sergio Correia (of the Federal Reserve Board), Stephan Luck (of the Federal Reserve Bank of New York), and Emil Verner (of Massachusetts Institute of Technology).

While it is very hard to feel good about the short-term economic outlook now with so many businesses, people, and industries deprived of the ability to earn income for an indeterminate period, their findings do provide some historical grounds for something short of utter despair about restrictions done to slow the pandemic spread.

A series of pre-COVID-19 economic analyses on the economic effect and aftermath of the 1918 Spanish flu pandemic, reviewed previously at Reason, were short on granular discussion of how government or social reactions to the disease influenced economic outlooks or recovery. This new study, "Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu," out just last week, tries to do that.

The authors look at "non-pharmaceutical interventions" (NPIs) during last century's Spanish Flu pandemics and note "NPIs implemented in 1918 resemble many of the policies used to reduce the spread of COVID-19, including school, theater, and church closures, public gathering and funeral bans, quarantine of suspected cases, and restricted business hours."

After considering these interventions, they find "areas that were more severely affected by the 1918 Flu Pandemic see a sharp and persistent decline in real economic activity." But don't blame the NPIs, since "early and extensive NPIs have no adverse effect on local economic outcomes. On the contrary, cities that intervened earlier and more aggressively experience a relative increase in real economic activity after the pandemic."

Checking data on 43 distinct cities with differing reactions to the pandemic, they found that "cities that implemented NPIs for longer tend to be clustered in the upper-left region (low mortality, high growth), while cities with shorter NPIs are clustered in the lower-right region (high mortality, low growth)." The authors find "that NPIs play a role in attenuating mortality, but without reducing economic activity. If anything, cities with longer NPIs grow faster in the medium term."

Among the typical economic problems the pandemic seemed to cause, the authors found "more severely affected areas experience a relative decline in manufacturing employment, manufacturing output, bank assets, and consumer durables" and that the 1918 pandemic "led to an 18% reduction in state manufacturing output for a state at the mean level of exposure. Exposed areas also see a rise in bank charge-offs, reflecting an increase in business and household defaults."

The analysis of NPIs, though, is of perhaps more instant interest as we watch economic activity frozen by pandemic-related interventions. As the authors note, "All else equal, NPIs constrain social interactions and thus economic activity that relies on such interactions" so a first guess might be they'd impose long-term economic damage.

Despite that initial intuition, on digging they found:

Comparing cities by the speed and aggressiveness of NPIs…early and forceful NPIs do not worsen the economic downturn. On the contrary, cities that intervened earlier and more aggressively experience a relative increase in manufacturing employment, manufacturing output, and bank assets in 1919, after the end of the pandemic. The effects are economically sizable. Reacting 10 days earlier to the arrival of the pandemic in a given city increases manufacturing employment by around 5% in the post period. Likewise, implementing NPIs for an additional 50 days increases manufacturing employment by 6.5% after the pandemic.

NPIs were common in 1918, being adopted in all major cities though not all with the same speed and severity. The authors were able to gather information on the speed and length of "school closure, public gathering bans, and isolation and quarantine" for 43 cities, via "municipal health department bulletins, local newspapers, and reports on the pandemic." In 1918, "local responses were not driven by a federal response, as no coordinated pandemic plans existed."

To be sure, our modern economy is of a very different sort than that of 1918—one can't help but wonder at the fate of so many in our service, entertainment, and restaurant economy of today when looking at their analysis which focused on manufacturing and banking. They don't discuss total unemployment, for example, and interventions today leading to possible 32 percent unemployment seem possibly more worrisome than what happened in the aftermath of 1918, when the highest estimates of the unemployment rate hovered around 11.7 (though that height wasn't reached until 1921).

The authors admit:

We cannot pinpoint the exact dynamics and mechanism through which NPIs mitigate the adverse economic consequences of the pandemic. However, the patterns we identify in the data suggest that timely and aggressive NPIs can limit the most disruptive economic effects of an influenza pandemic. The epidemiology literature finds that early public health interventions reduce peak mortality rates—flattening the curve—and cumulative mortality rates…Because the pandemic is highly disruptive for the local economy, these efforts can mitigate the abrupt disruptions to economic activity.

The researchers think they see some sign in the COVID-19 context that "Countries that implemented early NPIs such as Taiwan and Singapore have not only limited infection growth. They also appear to have mitigated the worst economic disruption caused by the pandemic. Well-calibrated early and forceful NPIs should therefore not be seen as having major economic costs in a pandemic."

America can only hope the history the authors think they found repeats itself.

NEXT: Brickbat: Let the Punishment Fit the Crime

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  1. We didn’t shut the country down for the fucking spanish flu. It was done at a local level city by city. What’s happening now is lunacy and hysterical virtue signaling. The gov didn’t mandate shelter in place orders for an entire fucking state.

    1. 30% unemployment at the end of april is something that is going to take a long time to recover from. Nobody’s going to rehire right away because there isn’t going to be pent up demand. And the virus is still going to exist so it’s not like all these business’s are going to have a rush of people. this strategy is insanity. We are going to all leave our houses after this and if theres going to be another peak ,what then? either this thing isn’t as dangerous or widespread as they think or it is and this strategy is retarded.

      1. I think 30% is being optimistic.

        1. It’s low end for sure.

          1. It’ll be interesting to see what the number is. There are A LOT of exceptions to to the lockdown rules and probably not a lot of stomach for enforcement beyond the hot zones and public properties. The central planners may find that their plans aren’t always followed as much as they’d like.

            1. I live in the state with apparently the most exempt workers for one with a lock down, so it feels like it’s pretty much constrained to retail, theaters, and restaurants (dining room only). Everything else seems to be considered essential.

      2. I think it will recover pretty quickly. People who were able to maintain some income are going to be eager to get out and do something, anything other than sit in the house. That’s if the lockdowns don’t last too long. If they really end up going on for months we’re going to have rioting and violence in the streets to deal with. That’s never good for the economy, broken windows notwithstanding.

    2. Idle Hands
      March.31.2020 at 12:41 pm
      “We didn’t shut the country down for the fucking spanish flu…”

      Nor was the economy nearly as sophisticated or intertwined as it is now.
      Joe could go back to work, since his employer could go the the forest and cut down some trees for raw material.
      Now, Joe’s employer needs high-allow steel, which hasn’t been made for several months, and further, the employer’s a bit short of money to buy it, since the government shut down his sales.

      1. And literally everything is financed on debt

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  2. WW I, especially the typical end-of-war deflation and the new Fed’s attempts to prevent it, contributed mightily to the economic problems too. Thankfully Woodrow Wilson’s stroke and incapacitation, and his family’s and staff’s reluctance to let the public know, meant that a lot of their interventionist plans never got implemented, and the sharp recession was also pretty short, unlike 1929’s aftermath.

  3. The biggest difference in the US now v 1918 is the sheer amount of debt now (private and public – doesn’t much matter). That debt really gets ignored but it has a very different impact in times of growth v recession and makes it much less likely now for recession to self-correct. Esp if the pandemic has a different demographic impact than debtor/creditor demographics.

    1. We have a Republican president, so debts don’t matter right now.

      1. We have a Republican president, so debts don’t matter right now.

      2. Chipper Morning Wood
        March.31.2020 at 1:38 pm
        “We have a Republican president, so debts don’t matter right now.”

        We have many assholes stricken with TDS.

        1. Being concerned about the debt is TDS now, Sevo? I think we know who is deranged here.

          1. Claiming the debt is the sole blame on the president is TDS. You missed the whole branch of government that is responsible in your post.

      3. I really wish they required a basic civics test to post here so you would learn how our government works and how the President is not king.

  4. Also anyone else concerned we are operating on a single study from 1918 to craft modern policy? what. the. fuck. Fucking lunacy, no metrics of success in any of this ,just shifting targets to show we are ahead or behind. Two weeks away from peak perpetually. Every model had us on orders of magnitudes off last week but there was no reevaluation just decided to press on. It’s climate change/ war on Afghanistan all over again.

    1. >>no metrics of success in any of this

      wrong metrics of the virus too. total hospitalizations are ignored in favor of tested and infected, and deaths are precursed with “at least”

    2. no metrics of success in any of this

      Define one then. That way you can hold government accountable to that.

      Of course they ain’t gonna define one if you don’t either. Because that way they can do something forever and you can whine forever and apparently that’s ok by the both of you.

      1. Wtf are you talking about?

        1. I’m a solitary voice, that has no influence or social media footprint. I’m just pointing out the absurdity of the present course. Wtf are you doing? I’m not an expert or an economist I would like anyone to write an oped or ask the question is all I’m saying. I’ve personally called the governors office and local congressman for an answer and received zero response from anyone.

      2. The R number for the flattening of the curve so we can hold the leaders responsible for following the medical expertise, not their precautionary principle voodoo…

      3. Okay. Here’s a metric. People dead compared to an average flu season.

        2019-2020 Flu Season (estimated): 29k-59k
        2018-2019 Flu Season: 34.2k
        2017-2018 Flu Season: 61k

        Oh, also keep in mind while there is a flu vaccine of varying viability (2019-2020 season’s vaccine was nearly useless because they guessed wrong at which strains would dominate) only between 35-45 percent of people get it each year. So keep that in your head as you mull over those numbers. 40 percent of the population is vaccinated and STILL every year many tens of thousands of people die from influenza and related complications–

        –and no one really cares.

        1. Oh, I just want to add to this: COVID-19 can kill up to 583 thousand people in the United States alone before the average person would know of even one person who died to it.

          1. Many many destitute people are going to think this whole thing was a con even if we get to the projected worst case 80k to June. The only people holding the bag on this one will be the politicians and the media.

            1. except they’re never left holding the bag.

          2. Intriguing. Please show your work.

            1. Average person knows 600 people. US population is 350 million. If you make the (admittedly simplistic) assumption that that 350 million is broken up into 600-people communities there would be 583k of them. Actually, now that I think about it that math is kinda bullshit. Sorry. Either way. Unless it suddenly becomes hundreds (multiple hundreds) of times deadlier than it currently is it won’t have any measurable impact on America. The panic and the government reaction is causing literally 100% of the damage.

              1. Thanks, dragon. (I don’t know anyone with the disease.)

                1. I had a presumed case in the house. Was a fairly unique disease with how it went for the lungs immediately and harshly. I’m still asymptomatic though, which I guess is part of the strangeness of this bug.

                  It does come down to where you live. I’m worryingly close to NYC.

                  1. >>how it went for the lungs immediately and harshly

                    happened to me in January. lungs on fire, floored for 2 weeks.

                2. I don’t know anyone, but the brother of my friend has it. And another friend knows some people who have it.
                  That is all

      4. “Define one then. That way you can hold government accountable to that.”

        The current condition; done.
        Stuff your PANIC!! flag up your ass, stick first and sideways.

      5. Well not forever. I’d be surprised if a lock down can be held through April much less beyond that.

    3. As of March 19 (last date for reliable data from CDC) the USA was still below peak incidence set on March 16. So it still looks to me like the epidemic (measured by positive testing cases) peaked 2 weeks ago, before the extreme control measures.

  5. Where did you get that picture, Brian!?

    1. Jarun Ontakrai, is the attribution.

      But the hardest thing to get in the photo is the test tube, so anyone could have made it.

      1. But how did this Jarun guy test positive for Spanish flu?



    1. Hihn and JFree are on board! If we save just one life!!!!!

  7. economic optimism in quick and thorough interventions

    What about in slow and mixed interventions?

  8. They didn’t do this in 1918. The hot spots may have implemented some of this.

    Apparently we were a lot smarter back then.

  9. The underlying study classifies NPIs in 1918 as follows: “NPI measures consist of school closure, public gathering bans, and isolation and quarantine.” That strikes me as far less extreme than the shelter-in-place and lockdown directives that a majority of our population are now enduring.

    Further those restrictions don’t result in mass unemployment and shuttering of businesses for months like current edits do. Those restrictions were not nearly as destructive to organization capital as are the current ones. I am therefore not at all confident that the bounce back from the current restrictions will be as robust.

    A return to the NPIs of 1918 would be a welcome break!

    1. The items you list are things we’re doing now. What additional things are we doing now that weren’t done back then? It seems to me that “shelter-in-place” is just a fancier term for a combination of school closure, public gathering bans, and isolation and quarantine.

  10. We’ve become a virtue-signalling society over recent years. And that continues with the current COVID-19 response, at all levels from President, to Governors, to Mayors, to CEOs and down to all of us. Yes, the doctors would like to do everything possible to limit and defeat the bug. But there are aspects to life other than simply remaining alive. I’m afraid that what we’re doing to ourselves in this panic amounts to a form of slow-motion national suicide: in order to kill the very smallest possible number of us, we’re destroying the very roots of our society.

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