A review of the devastating 1918 flu pandemic shows aggressive measures such as social distancing will help the economy recover from the current coronavirus scourge, according to a new study coauthored by an MIT researcher.
The study, titled “Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu,” was posted March 26 to the Social Science Research Network, MIT said in a statement. Boston and Lowell were among the cities last century that struggled economically compared to other municipalities that were more aggressive with social distancing, the release said.
The study was coauthored by Emil Verner, an assistant professor in the MIT Sloan School of Management, as well as Sergio Correia, an economist with the US Federal Reserve, and Stephen Luck, an economist with the Federal Reserve Bank of New York, the statement said.
MIT noted that the study, published as a working paper, hasn’t yet been peer-reviewed by experts in the field.
Researchers found cities that acted more aggressively to limit social and civic interactions during last century’s pandemic saw more economic growth once restrictions were lifted, according to the statement. In fact, the release said, cities that implemented social distancing and other measures 10 days earlier than other municipalities saw a 5 percent “relative increase” in manufacturing employment when the pandemic ended, through 1923.
"We find no evidence that cities that acted more aggressively in public health terms performed worse in economic terms,” Verner said in the statement. “If anything, the cities that acted more aggressively performed better.”
He said the data casts doubt on the notion that cities must risk public health in an effort to open up their economies sooner.
“It casts doubt on the idea there is a trade-off between addressing the impact of the virus, on the one hand, and economic activity, on the other hand, because the pandemic itself is so destructive for the economy,” Verner said.
Verner and his coauthors crunched data including mortality statistics from the CDC, historical economic data from the Census Bureau, and banking numbers compiled by economist Mark D. Flood, using the “Annual Reports of the Comptroller of Currency,” a government publication, the statement said.
"The genesis of the study is that we’re interested in what the expected economic impacts of today’s coronavirus are going to be, and what is the right way to think about the economic consequences of the public health and social distancing interventions we’re seeing all around the world,” Verner said.
The study, the statement said, looked at 43 cities and found “significantly different economic outcomes” during the 1918 pandemic, when overall manufacturing output dropped 18 percent through 1923.
The cities that fared best were Oakland, Omaha, Portland, Ore., and Seattle, which all mandated more than 120 days of social distancing in 1918, the statement said. Cities that struggled with manufacturing after the pandemic included Lowell, Philadelphia, and St. Paul, Minn., all of which had fewer than 60 days of social distancing in 1918, according to the statement.
"What we find is that areas that were more severely affected in the 1918 flu pandemic see a sharp and persistent decline in a number of measures of economic activity, including manufacturing employment, manufacturing output, bank loans, and the stock of consumer durables,” Verner said.
The banking industry was also harder hit in areas with less social distancing, researchers found.
According to the statement, Albany, N.Y., Birmingham, Ala., Boston, and Syracuse, N.Y., which all had fewer than 60 days of social distancing in 1918, saw their banking sectors struggle “more than anywhere else in the country.”
The researchers concede that the US economy has changed significantly over the last hundred years, with less manufacturing and more activity in the services sector. In addition, the 1918 pandemic claimed the lives of many working-age adults, the release said. Still, the statement said, economists believe parallels can be drawn between the past and present crises.
"The structure of the economy is of course different,” Verner said. "While one shouldn’t extrapolate too directly from history, we can learn some of the lessons that may be relevant to us today.”