Beyond contagion and deaths, the spread of the new coronavirus (COVID-19) has led to stock-market crashes, surging financial volatility, decreases in nominal interest rates, and contractions of real economic activity. At this point, there is substantial uncertainty around the eventual scale of the pandemic and its economic implications, especially in terms of how a worst-case scenario could look like. We think the Great Influenza Pandemic provides a reasonable upper bound in terms of mortality and economic effects, as analyzed from the cross-country experience in Barro, et al. (2020).
The pandemic arose in three main waves, the first in spring 1918, the second and most deadly from September 1918 to January 1919, and the third from February 1919 through the remainder of the year (with some countries having a fourth wave in 1920). The two initial waves coincided with the final year of World War I (1918), which helped to spread the infection across countries. An unusual feature of the pandemic was the high mortality among young adults without pre-existing medical conditions. It also killed a number of famous people, including sociologist Max Weber, artist Gustav Klimt, and Frederick Trump, the grandfather of the current US president. Survivors included economist Friedrich Hayek, entrepreneur Walt Disney, and US President Woodrow Wilson.1
Mortality rates are sometimes expressed as shares of numbers infected, but these are much less reliable because they depend on inaccurately measured counts of infections. For the Great Influenza Pandemic, a commonly quoted figure is that roughly one-third of the world’s population was infected by the H1N1 virus. If this number were accurate, a mortality rate of 2.0% for the overall population as we estimated would translate into a mortality rate of 6% of for the infected population. But the latter has to be regarded as highly speculative, because it is based on surveys done in a few places in the US (as described by Frost 1920). This is why in our analysis of macroeconomic effects we use mortality rates out of the total population.
In this column we discuss lessons of the Great Influenza Pandemic in three areas: (1) mortality and morbidity, (2) macroeconomic effects gauged by declines in GDP and consumption, and (3) impacts on financial returns and inflation.