History has always fascinated me, but to my utter dismay we have failed to learn from it. Time and time again throughout history we have had catastrophic pandemics that have not only wiped out millions of people from the face of this earth but more importantly have left major dent on global economies and financial markets. Interestingly, with globalization and advancements, societies have progressed, but at the same time the spread of these diseases has increased dramatically too. It seems like that history seems to be repeating itself yet again. The important questions to raise here are that why has the world failed to learn from history and act timely in response to such pandemics? Why has the world response been so timid? Weren’t crumbling markets and deteriorating economies significant enough already? Wasn’t history frightening enough already? Or, are we trying to create a new history?
These questions beg for an answer. The earlier we answer them, the better prepared we can be to prevent any future crises. Yes, while the pandemics have been very costly in terms of destroying the human capital but the scars and strains they leave behind on global economies and financial markets lasts for great many years.
Exactly around a century ago in 1918, Spanish Flu hit us very hard, costing us 40-50m(over 2.5% of the population) precious lives. Well, the timing of the virus coincided with the World War-1,which just amplified the damage. In terms of economic cost, the global GDP declined by approximately 4.8% and the US economy contracted by 11%. Here we are talking about the time period when trade was limited, technological advancements were rare and human progress was just kicking off. One can gauge this from the the fact that even economic data for that time period is lacking to fully quantify the economic impact. But, the print media during that time period and today paint a very similar picture. Here are some of the print media headlines that surfaced back in 1918 and today in 2020:
Spanish Flu 1918:
Coronavirus 2020:
Financial Markets reaction to the Spanish Flu of 1918-1920 show similar trajectory as they show today in response to Corona Virus 2020.
The purpose of walking you back into the past is to make you realize that one can draw parallels from the Spanish Flu of 1918 and try to learn from it before its too late. I was just wondering what if China had been more proactive and had taken strict measures since their first detection, world would have been much better placed. Financial Markets wouldn’t have faltered, stock exchanges wouldn’t have closed down, monetary policies wouldn’t have become ineffective, countries wouldn’t have locked down, daily-wage workers wouldn’t have to give up their wages. But, this is now a lost cause. It is useless to cry over the spilt milk. What now? Where do we go from here? What should be our course of action?
Do you know what upsets me? The fact that during this 101 year period, societies have evolved tremendously be it through increased trade, advancement in technology, improved fiscal and monetary policies, improved education and health care systems, but we have tried to overlook such pandemics and our response to crises situation hasn’t improved at all.
According to The United Nations Trade and Development agency, the slowdown in the economy caused by the corona virus outbreak could potentially cost the world at least $1 trillion. Moreover, the COVID-19 shock will bring recession in some countries and would strain the global annual growth this year to below 2.5%. That is the recessionary threshold for the world economy.
Even before COVID-19 struck us, we were already headed for a crises but our late reaction to COVID-19 just accelerated our downfall and here we are to yet again with another major crises after 2008. Wounds from the 2008 financial crises were still afresh that COVID-19 just sprinkled further salt into those wounds to extend our suffering.
Well, now that we are here, past is past but learning from it is really crucial. Where do we go from here depends on three variables: the growth and spread of virus, how long before the vaccine is found and lastly and most importantly is the effectiveness of policy makers in mitigating the damage to our physical and economic health and well-being. Surprisingly, these three variables are in our control. The better our response to these variables the better our chances of winning.
I would end this note saying that throughout history pandemics have waged war against the humanity, economies and financial markets and coronavirus is yet another battle in that war. Whether we win this battle or get defeated lies in our own hands. We get to decide our own fate and factoring in the past, so far we have been poor in deciding our fate.
I pray for the health and safety of your families and hope that we come out strong from this difficult time period.
With Love,
Sahil Nisar
theeconomisteye.blogspot.com
