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Sinking Animal Spirits

There are many more pandemic threats than there are pandemics, and so I hope and expect that swine flu will run its course fairly quickly and without too much damage being done. Still, it's difficult to overstate how bad the timing is here. Not that there's ever a good time for a pandemic threat, but this particular point in the worst recession since the Great Depression is an especially bad time, for a couple of reasons. One is that people are certain to overreact, in ways that will be almost uniformly bad for the economy. Mexico City has become like a ghost town, it seems, with people staying indoors, and gathering places -- shops, restaurants, and bars -- closing their doors. It's unfortunate that the things which facilitate economic activity -- namely, the bringing of people together, are also the things that feed pandemics.

The other problem is that the appropriate government reaction is immediate overkill. Tyler Cowen quotes a study of the Spanish influenza epidemic, which reads:

Cities that instituted quarantine, school closings, bans on public gatherings and other such procedures early in the epidemic had peak death rates 30 percent to 50 percent lower than those that did not.

But these activities are in direct conflict with the goal of boosting the global economy. We want people to travel, gather, and spend. It's no wonder that markets seem a little nervous about the prospect of an outbreak. The human cost of a pandemic would be significant, but the economic costs of even the threat of pandemic could be nasty. So I really, really, really, hope this passes quickly.Related Links
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13.06.2012 16:04
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10.06.2012 06:09
Good stuff Mel. I didn't think there would be too many discrepancies whitin this topic as the pandemics covered have all happened in the past. I am finding with my nuclear war research that there is A LOT of specualtion (most scientifically based) into the effects of a huge nuclear war but, of course it is speculative, it has never happened so there is no precedence, no facts or figures.Do you really think that a virus can simply become less lethal? To evolve into a less lethal rather than more lethal virus sounds unusual to me, but then what do I know.It is possible that the doctors learn how to effectively treat this virus, but there would be much more to it than that I am guessing. For example, strict quarantine of infected?50 million is a lot of people, it would be interesting to know that as a percentage against total population of infected areas to judge the true significance.