A new study released by the Federal Reserve Bank of New
York found that while the 1918 Pandemic lowered economic activity in areas
severely affected by the virus, taking early and lengthy actions to stem a pandemic
did not cause additional damage to the economy and actually resulted in a more
robust economy during the recovery phase.
Researchers Sergio Correia, Stephan Luck, and Emil Verner
looked at how American cities reacted to the 1918 Flu Pandemic. The 1918 Pandemic
took the public by surprise and resulted in between 550,000 to 675,000 deaths
in the U.S.
Decisions on how aggressively to combat the 1918 Pandemic
were decided at the local level. Cities varied in their willingness to commit
to a long fight using non-pharmaceutical interventions (NPIs) to combat the flu.
Some cities took very aggressive actions for a longer time, while other cities were
concerned that prolonging the fight against the flu virus would cause greater
damage to their local economy.
The researchers used manufacturing employment as a proxy to
measure the local economies. In 1918, manufacturing was a much more dominant
part of local economies than it is today, and employment information on the
manufacturing sector was the primary information collected by statistical
agencies, so seeing the pandemic’s effect on the manufacturing sectors of
various cities gives a good approximation on how the overall economies of
various cities were impacted.
“Our paper yields two main insights. First, we find
that areas that were more severely affected by the 1918 Flu Pandemic saw a
sharp and persistent decline in real economic activity. Second, we find that
cities that implemented early and extensive NPIs suffered no adverse economic
effects over the medium term. On the contrary, cities that intervened earlier
and more aggressively experienced a relative increase in real economic activity
after the pandemic subsided. Altogether, our findings suggest that pandemics
can have substantial economic costs, and NPIs can lead to both better economic
outcomes and lower mortality rates.”
Plotting the mortality rate, the growth in manufacturing
employment, and how long cities implemented NPI measures, the researchers found
a correlation between the length of those interventions and the subsequent
growth in employment between 1914 and 1919 (the time between two economic censuses)
for a number of U.S. cities.
Impact in the South
While Atlanta is not one of the group of cities included
in the study, Birmingham, Alabama., is included on the list. Birmingham at that
time played much the same dominant role in the southern regional economy as
Atlanta does today. In 1910, Birmingham had a population of 132,000, while
Atlanta’s population was 154,000, so the two areas were relatively close in
size at that time.
There has been some concern that taking more aggressive
measures against Covid-19 will cause greater damage to the economy than by
letting the virus take its course.
The New York Fed study does not support this hypothesis. In
fact, the researchers write that cities that kept their interventions going for
longer during the 1918 Pandemic actually benefited with their manufacturing
employment growing faster in the medium term.
“Our regression estimates suggest that the effects
were economically sizable. Reacting ten days earlier to the arrival of the
pandemic in a given city increased manufacturing employment by around 5 percent
in the post-pandemic period. Likewise, implementing NPIs for an additional
fifty days increased manufacturing employment by 6.5 percent after the
pandemic.”
Birmingham was one of those cities that chose to intervene
for a shorter period of time relative to other U.S. cities and suffered both a
higher mortality rate and lower employment recovery than cities that more
aggressively battled the flu.
The most successful cities were those in the Midwest and
West that saw the impact the 1918 Pandemic had on cities in the East and took
more drastic measures to contain the virus as it traveled across the country.
Lessons for Georgia
In one sense, Georgia is lucky that the greatest impact
of the virus has been in cities such as Seattle, and New York, giving Georgia
time to take aggressive actions.
If the Atlanta region, and in fact all of Georgia, want
to avoid the slower recovery that afflicted Birmingham in the early part of the
20th Century, then being more aggressive in combatting the coronavirus now may
be the only means to avoid the longer-term risk of falling farther behind other
parts of the nation after the infection rate slows.
British economist George Magnus has blogged recently that
protecting lives and protecting the economy is not a choice.
“We are shuttering the economy because otherwise,
letting the virus run, our health systems might collapse. As infection rates
soared, we would not only experience high fatality rates in Covid patients,
largely but not only older people, but also in a wide array of non-Covid
patients, young and old, for whom the health system would barely be able to
serve.”
He finishes his blog by writing:
“So please, can we stop this red herring argument
about choices between keeping the economy going versus saving lives? The latter
is part of the strategy to get to the former. Simples.”
As of March 28, Georgia is officially reporting 2,366
cases, 69 deaths and 617 hospitalizations. Undoubtedly, these numbers will
grow, but the infection growth rate depends on how well policymakers learn from
the actions in other cities.
Georgia’s policymakers at the state level need to
reevaluate whether their current slow approach to fighting the virus will
really provide the best result for the health of its citizens and the state’s medium-term
economic future.
Sources:
Fight
the Pandemic, Save the Economy: Lessons from the 1918 Flu, March 27, 2020
Protecting
lives and protecting the economy is not a choice, March 26, 2020
WSBTV, March 28, 2020
