Lessons from Historical Pandemics: Navigating the Post-Pandemic Boom
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The cholera pandemic of the 1830s hit France hard. It wiped out nearly 3% of Parisians in a month. The end of the plague prompted an economic revival, with France following Britain into an industrial revolution. But the pandemic also contributed to another sort of revolution. The city’s poor, hit hardest by the disease, fulminated against the rich, who had fled to their country homes to avoid contagion. France saw political instability for years afterwards. Today, even as covid-19 rages across poorer countries, the rich world is on the threshold of a post-pandemic boom. As vaccinations reduce hospitalizations and deaths, governments are loosening rules on social mixing. America’s economy is projected to grow by around 7% this year. Other countries are also in for unusually fast growth.
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History suggests that, following periods of massive non-financial disruption such as wars and pandemics, GDP does tend to bounce back. But it offers three further lessons. First, while people are keen to get out and spend, uncertainty lingers for some time. Second, the pandemic encourages people and businesses to try new ways of doing things. Third, political upheaval often follows, with unpredictable economic consequences.
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Take consumer spending first. Evidence from earlier pandemics suggests that during the acute phase people behave as they have during the past year of covid-19: accumulating savings as spending opportunities vanish. … History also offers a guide to what people do once life gets back to normal. Spending rises, prompting employment to recover, but there is not much evidence of bacchanalian excess. The popular notion that people celebrated the end of the Black Death … is probably apocryphal. … That extra spending certainly pushed the post-war boom along, though the government’s monthly “business situation” reports in the late 1940s were nonetheless filled with worry of an impending slowdown, and indeed the economy went into recession in 1948-49.
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The second big lesson from post-pandemic booms relates to the “supply side” of the economy. Though, in aggregate, people appear to be less keen on frivolous fun following a pandemic, some may be more willing to try new ways of making money. … Indeed a study for America’s National Bureau of Economic Research, published in 1948, found that the number of startups boomed from 1919. Other economists have drawn a link between pandemics and another change to the supply side of the economy: the use of labor-saving technology. Bosses may want to limit the spread of disease, and robots do not fall ill. The 1920s were also an era of rapid automation in America, especially in telephone operation, one of the most common jobs for young American women in the early 1900s.
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Rising wages are the product of political changes—the third big lesson of historical boom periods. When people have suffered in large numbers, attitudes may shift towards workers. That seems to be happening in this pandemic: policymakers across the world are relatively less interested in reducing public debt or warding off inflation than they are in getting unemployment down. Such pressures have, in some instances, exploded into political disorder. Pandemics expose and accentuate pre-existing inequalities, leading those on the wrong side of the bargain to look for redress. Ebola, in 2013-16, increased civil violence in West Africa by 40%. Recent research from the IMF finds that Ebola, SARS and Zika, in 133 countries since 2001, led to a significant increase in social unrest. Social unrest seems to peak two years after the pandemic ends. Enjoy the coming boom while it lasts—before long there may be a twist in the tale.
