In the COVID-19 pandemic, policy makers are debating the impact of public health responses on the economy. They are struggling to find a balance between flattening the curve with public health interventions and protecting the health of the economy. However, historical data show that this isn’t a choice between saving lives and saving the economy. Interventions benefit both public and economic health.
This may seem counterintuitive. After all, things like social distancing and business closures are generally bad for the economy. This leads to questions like, “Is the cure worse than the disease?”
WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF. AT THE END OF THE 15 DAY PERIOD, WE WILL MAKE A DECISION AS TO WHICH WAY WE WANT TO GO!— Donald J. Trump (@realDonaldTrump) March 23, 2020
No, it isn’t. There is no trade-off because this is not a normal economic time. Pandemic economics are different from normal economics. The pandemic has a negative and severe effect on the economy because people are afraid of contracting the virus. They go out less, consume less, and invest less. Anything we can do to mitigate the pandemic will leave the economy in a better position when it ends.
By analyzing data from the largest influenza pandemic in US history, the 1918 flu pandemic, my colleagues and I looked at the severity of it across the nation, as well as the speed and duration of public health interventions. Those interventions look a lot like some of the interventions we are using today: school, theater, and church closures; public gathering bans; and quarantine and isolation of suspected cases.
We looked at how the 1918 pandemic impacted manufacturing employment, manufacturing output, bank assets, consumer durables, and mortality.
The data clearly reveal that areas that were more severely affected by the pandemic saw a sharp and persistent decline in real economic activity. For example, it showed an 18 percent reduction in state manufacturing output for a state at the mean level of exposure to the pandemic. Exposed areas also saw a rise in bank charge-offs, reflecting an increase in business and household defaults.
These patterns affirm the idea that pandemics depress economic activity through reductions in both supply and demand. The data also show that the more affected areas of the country remained depressed relative to less exposed areas from 1919 through 1923. The worse the pandemic affected a city, the more severe and longer the economic contraction lasted in that area.
We also analyzed the speed and duration of public health interventions across cities. We found that cities that intervened more aggressively performed better economically the year following the pandemic. Reacting 10 days earlier before the acceleration of the pandemic in a city led to an increase in manufacturing employment by around 5 percent after the pandemic. Likewise, implementing interventions more intensively was associated with increased manufacturing employment.
This difference is clear when you compare Philadelphia with Cleveland. 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.
As we continue to deal with the COVID-19 pandemic, policy makers need to think long and hard before removing any public health interventions. If they remove restrictions too early, it could be even worse for the economy and lead to a resurgence of an even more destructive outbreak.
This shouldn’t be seen as a choice between saving lives and saving the economy. It’s clear that well-calibrated public health interventions are the most beneficial way to protect our health and the health of our economy.
Emil Verner is a professor at MIT Sloan School of Management.
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