As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on topics that might affect employers or employees. This is a reprint of a blog post from KBGH:
We’re almost a month into social distancing in our collective effort to reduce the spread of COVID-19. It’s working; models indicate we’ve likely already prevented hundreds of thousands of deaths. But the economic effects of social distancing are tough. Though we haven’t met the official definition of a recession yet, simply because we haven’t been at this long enough, no one doubts that we are in a recession, if not an outright depression. The 22 million unemployment claims in the U.S. since early March are at levels that dwarf even the 2008 Great Recession.
So, naturally, even though public support for continued social distancing remains high, we’re hearing calls from some to relax restrictions. Small protests have broken out in Ohio and other places. Politicians are clearly spooked by the impending decision on when to “re-open the economy,” as some call it. And even though it is easy to make fun of some of their responses to questioning, the decision to relax social distancing in the hopefully near future will clearly be based on some combination of instinct and data. The best data we have on the topic seems to come from more than 100 years ago, during the 1918 influenza epidemic.
Economists Sergio Correia and Stephan Luck of the Federal Reserve and Emil Verner from MIT recently tried to apply lessons learned from the 1918 “non-pharmacologic interventions” for influenza (what we’re calling “social distancing”) like closures of schools, theaters, and churches; restriction on public gatherings and funerals; quarantine of suspected cases; and restricted business hours, to our current situation.
They came to two conclusions: First, areas that were more severely affected by the 1918 Flu Pandemic saw a “sharp and persistent decline” in economic activity. This is no surprise. We’ve seen the devastation COVID-19 has wrought in northern Italy and New York City. Second, the economists concluded that early and extensive use of non-pharmacologic interventions like social distancing had no independent adverse effect on local economic outcomes. Rather, cities that intervened earlier and more aggressively experienced a relative increase in real economic activity after the pandemic was over compared to other cities.
In other words, these three economists concluded that it was not social distancing that caused the most economic pain in 1918. It was the disease.
You can see the relationship between non-pharmacologic interventions and economic activity in the figure below. The green dots are cities with early, aggressive social distancing. The red dots are cities with late or low-intensity social distancing. The vertical axis is the change in employment over the four years before and one year after the pandemic. The horizontal axis is the mortality rate. What the best-fit line shows is that cities that intervened early and aggressively not only experienced more economic growth over time, but also, in most cases, had far lower mortality rates.
The United States is not a manufacturing economy today like it was 100 years ago, and these numbers look primarily at manufacturing output, which fell 18% during the influenza pandemic. The U.S. is primarily a service economy now. If that strikes you as a weakness of their analysis, the authors also looked at bank assets over the same time period, according to the intensity of the non-pharmacologic intervention (left; [e]), and the speed of the intervention (right; [f]):
The cities that intervened earliest and most aggressively were much more likely to experience an increase in wealth through the time of the influenza pandemic.
What lessons can we learn from 1918? We need to take the long view. Social distancing hurts now. Unemployment of 25% or even 30% is unprecedented in the last century, and we need strong actions by federal, state, and local governments, along with good work from charities and non-profit organizations, to get us through the hardest part of this pandemic. But we need to be very, very careful about when we relax social distancing. Many projections, like this one from Morgan Stanley, are already taking into account a “second wave” of infections this fall:
That second wave of infections is likely avoidable if we do the right thing now.
This paper, nor this blog post, have been peer reviewed. We at KBGH would love to know your thoughts on how and when we should modify social distancing for COVID-19.