What Pandemic History Can Tell Us

Announced yesterday, the 3.3 percent U.S. annual growth rate was a surprise. As Covid receded and interest rates ascended, the next sure thing was supposed to be a recession.

However, based on the diverse aftermath of past pandemics, we can only be sure of uncertainty.

Pandemic History

Pandemic history can take us to wage growth, innovation, and rising per capita income.

Looking at the Black Death, we are told that its massive mortality rates were followed by higher wages. In addition, feeding urbanization, it fueled the disintegration of the feudal economy in parts of Europe. Then, taking a bit of a leap, some say the Black Death led to the printing press and gunpowder weapons.

Another pandemic study focused on income. Taking us to the 1918-19 influenza epidemic, researchers cited the connection between mortality rates and per capita income. Looking at states where mortality was highest, they found that by 1930, “one more death per thousand resulted in an average annual increase in the rate of growth of real per capita income over the next ten years of at least 0.15 percent per year.”

In their map, you can see where mortality rates were high:

When the San Francisco Fed tried to isolate the long-run economic impact of pandemics, it looked at wages and interest rates. Because of the high mortality rates that affect the size of the population and the incentive to save, a pandemic depresses interest rates for approximately 20 years after it ends. However, moving in the opposite direction, wage rates rise for approximately three decades.

Below, you can see the post-pandemic rise and subsequent dip in wage rates:

Our Bottom Line: Pandemic Effects

Where does all of this leave us?

In summary, Macalester Professor Andrew Latham tells us that pandemics first, “…can profoundly alter a society’s fundamental worldview. Second, they can upend core economic structures. And, finally, they can sway power struggles among nations.”

As a result, returning to where we began, and contemplating a post-Covid world, a pop in the GDP should not surprise us.

My sources and more: Hearing about post-plague and pandemic booms, on Bloomberg radio, I followed up and found this Economist article and this paper on the economic aftermath of the 1918 influenza epidemic. In addition, The Washington Post had the amazing pandemic history graphic and we had the perfect complement in the FRBSF pandemic paper. Then, looking at a vast expanse of pandemic research, this paper increased my confusion. But thankfully, Professor Latham’s article restored order with a summary perspective.