Will the post-coronavirus economy come roaring back? Lessons from the 1918 pandemic and the Roaring '20s

Yahoo News

This is part of an occasional series of Yahoo News articles and accompanying videos on how the issues America faced in the 1920s — aka “the Roaring ’20s” — have echoes in our own decade, a century later.

In the fall of 1918, Republican Gov. Charles Seymour Whitman was up for reelection in New York. But there was a catch.  

“May abandon campaign. Theatres closed and meetings prohibited because of influenza,” a New York Times headline on Oct. 16, 1918, read. Campaign events that had been scheduled upstate were held in limbo by both the Democratic and Republican candidates, pending assurance that “the epidemic of Spanish Influenza has been abated sufficiently to permit the ban against public meetings, now rigidly enforced, being lifted.” 

Whitman would ultimately lose his reelection bid, but the snag he encountered wasn’t unique. In a move that has become all too familiar to modern-day Americans amid the coronavirus pandemic in 2020, across the U.S. 100 years ago, businesses, schools and events were being shuttered in an effort to stem the spread of a different virus: the so-called Spanish influenza of 1918 — or, as President Trump persists in calling it, the 1917 Spanish flu.  

Two women wearing masks during the flu pandemic that occurred near the end of World War I. (Keystone/Getty Images)
Two women wearing masks during the flu pandemic that occurred near the end of World War I. (Keystone/Getty Images)

Today, we’re already seeing the economic consequences of COVID-19. The April employment report is expected to show a jobless rate as high as 20 percent, with tens of millions of Americans filing for unemployment in the past six weeks alone. Some, including the president, have wondered if the “cure” — that is, social distancing and lockdowns — isn’t worse than the disease itself. Trump is eager to restart business and return to what he refers to as “the greatest economy in the history of the world.” But one of the lessons of the 1918 pandemic is that we may not have to choose between saving lives and saving the economy.     

A working paper on the economic impact of the Spanish flu concluded that it’s pandemics themselves, not the public health interventions enacted to mitigate them, that hurt the economy. In fact, the study found that cities that swiftly implemented public health measures such as lockdowns not only saved lives but actually helped their economies recover more quickly.     

The paper, which appeared in March and has not yet been peer-reviewed, was authored by Sergio Correia, an economist with the Federal Reserve Board; Stephan Luck, an economist with the Federal Reserve Bank of New York; and Emil Verner, an assistant professor at the MIT Sloan School of Management. They examined the use of nonpharmaceutical interventions (NPIs), or actions such as social distancing that can mitigate the spread of disease in the absence of a vaccine or treatment. They focused on the “medium term” effects of such interventions — looking beyond the immediate period right after social distancing measures were lifted, but no later than 1923.     

“We find that cities that intervened earlier and more aggressively do not perform worse and, if anything, grow faster after the pandemic is over,” the study says. “Our findings thus indicate that NPIs not only lower mortality; they may also mitigate the adverse economic consequences of a pandemic.”

“Cities that intervened earlier and more aggressively experienced a relative increase in manufacturing employment, manufacturing output, and bank assets in 1919, after the end of the pandemic,” the authors wrote in a blog post about their findings, adding that their “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.”

Seattle policemen wearing protective gauze face masks during the influenza pandemic of 1918. (Time Life Pictures/National Archives/The Life Picture Collection via Getty Images)
Seattle policemen wearing protective gauze face masks during the influenza pandemic of 1918. (Time Life Pictures/National Archives/The Life Picture Collection via Getty Images)

In literature on the Spanish flu, Philadelphia is frequently cited as an example of what not to do during a pandemic. In September 1918, despite the arrival of the pandemic in the city, officials went ahead with a Liberty Loan parade to raise money for the war effort. It drew 200,000 Philadelphians, and within days there were hundreds of new cases in the city. More than 12,000 people died there within six weeks. 

“This difference is clear when you compare Philadelphia with Cleveland,” Verner wrote in an op-ed in the Boston Globe. “Philadelphia was relatively slow in implementing interventions and kept them in place for a short amount of time during the 1918 pandemic. Philadelphia saw a high mortality rate, with about 900 deaths per 100,000 people, and a weak economy following the pandemic. In comparison, Cleveland took a more aggressive approach, which led to a lower mortality rate of about 600 deaths per 100,000 and significantly better economic performance in 1919.”

The authors of the paper mention several caveats. Their analysis includes data on only 30 states, and manufacturing data in the early 20th century was limited, meaning they couldn’t carefully examine pre-epidemic trends from the period between 1914 and 1919. 

They’re also cautious about drawing direct parallels between the Spanish flu and the coronavirus pandemic, which is still ongoing. Despite some similarities, 1918 was a different world than the one we live in today. World War I, which ended on Nov. 11, 1918, had already created an unusual economic environment even before the pandemic occurred. And markets were a lot more localized and less global than they are today.      

“The complex nature of modern global supply chains, the larger role of services, and improvements in communication technology are mechanisms we cannot capture in our analysis,” the authors write, “but these are important factors for understanding the macroeconomic effects of COVID-19.”

A man spraying the top of a bus with an anti-flu virus during the 1918 pandemic. (Davis/Getty Images)
A man spraying the top of a bus with an anti-flu virus during the 1918 pandemic. (Davis/Getty Images)

A 2003 paper by Elizabeth Brainerd and Mark Siegler for the Centre for Economic Policy Research also points to a morbid factor unique to the 1918 pandemic to explain why personal income increased so markedly in the subsequent decade. Unlike most diseases whose victims tend to be small children and the elderly, the Spanish flu disproportionately affected men and women of working age: those 15 to 44. And the unusually high mortality rate for this age group compared with the rate during nonpandemic years had some economic benefits for those who survived. Taking into account multiple variables, Brainerd and Siegler’s results suggested that “one more death per thousand resulted in an average annual increase in the rate of growth of real per capita income over the next ten years of at least 0.15% per year,” and indicated “a large and robust positive effect of the influenza epidemic on per capita income growth across states during the 1920s.”

But the conclusions in Correia, Luck and Verner’s paper could have some relevance for the coronavirus pandemic as well. Their study argues that during a pandemic, even in the absence of mandatory lockdowns and social distancing rules, many consumers take precautions on their own, passing up activities like dining in restaurants or attending sporting events or concerts. So the effect of NPIs on business can appear exaggerated; much of the economic activity they suppress wouldn’t have taken place anyway. At the margins, stopping one additional person from going shopping doesn’t hurt the economy very much — but if that one person happens to be contagious, keeping them home can have a big, if not immediately visible, effect on the spread of the disease. By reducing the prevalence or severity of a pandemic, NPIs can indirectly have a positive effect on the economy. So in the same way that NPIs “flatten the curve” of infections, they can also “flatten the economic curve” (from the other side — i.e., the bottom) by lessening the immediate shock of a pandemic on the economy. That phrase was used by Pierre-Olivier Gourinchas, a professor of economics at UC Berkeley, while discussing the role of government intervention in pandemics in a paper published in March. 

Red Cross volunteers fighting against the flu epidemic in the United States in 1918. (Apic/Getty Images)
Red Cross volunteers fighting against the flu epidemic in the United States in 1918. (Apic/Getty Images)

“Even if no containment measures were implemented, a recession would occur anyway, fueled by the precautionary and/or panic behavior of households and firms faced with the uncertainty of dealing with a pandemic with an inadequate public health response,” Gourinchas wrote, saying that bold policy initiatives can at least “contain the looming recession.” 

“Society as a whole recovered from the 1918 influenza quickly, but individuals who were affected by the influenza had their lives changed forever,” Thomas Garrett, an assistant vice president and economist with the Federal Reserve Bank of St. Louis, wrote in 2007. Using data from mortality rates as well as anecdotal evidence from newspaper articles of the period, Garrett’s paper also discussed what he concluded would be the likely effects of a modern-day influenza pandemic. 

“Local quarantines would likely hurt businesses in the short run. Employees would likely be laid off. Families with no contact to the influenza may too experience financial hardships. To prevent spread, quarantines would have to be complete (i.e., no activity allowed outside of the home). Partial quarantines, such as closing schools and churches but not public transportation or restaurants (as done in Philadelphia, St. Louis and Washington, D.C.) would do little to stop the spread of influenza,” Garrett wrote. 

In total, at least 50 million worldwide died from the Spanish flu, with 675,000 deaths in the U.S.  

“It killed many more people around the world and in the United States than anybody thinks the COVID-19 will. But the economy snapped back,” Alan Blinder, the Gordon S. Rentschler Memorial Professor of Economics at Princeton University, said of the 1918 flu on a Princeton University podcast Monday while discussing parallels between that pandemic and the coronavirus.   

“The Roaring ’20s were called ‘roaring’ because of how great the economy was going and leading eventually to a stock market bubble and a stock market crash. But never mind the crash. The point is that the ’20s were roaring. 

“So this is not going to last forever. And the economy will come back.”


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