Finished John Barry book on The Great Influenza and James Grant book on The Forgotten Depression, we might get an idea of what we can expect over the next two years. Barry book details the human cost of the pandemic and science but little on the economic details while Grant discusses the economics but little of the connection between the virus and the overall economy.
We have a recent study from Federal Reserves discussing the impact of the 1919 Pandemics and concluded that Pandemics do impact the economy negatively and Non-Pharmacological interventions including social distancing do not. They made the case that those communities who practiced NPI saw quicker economic recovery. Cole and Ohanian detailed in their studies how the Hoover Administration and the early years of FDR allowed government interventionist policies to start the Great Depression and delayed full recovery. The lessons from Cole and Ohanian is that bad government polices can retard and delay a full recovery. As soon as the crisis passes, government policies can either bring a quick recovery or delay any recovery, if not kill it.
According to a recent Lancet Study, the overall mortality rate could be .66 which is considerably less than the 3% mortality rate often calculated, but regardless, even at .66, it is six times as lethal as the flu but less than the Spanish flu which killed nearly 700,000 Americans in a country that was one third the population today.
As the virus began, World War I was coming to an end and the United States economy was a war command economy but as Wilson administration was coming to an end, Woodrow Wilson was incapacitated by a stroke, There were many similarities between now and Spanish Flu epidemics. There were in place many government controls from the wartime economy in 1918 thru 1920. Wilson Administration ran the entire economy through boards, and we are witnessing a similar pattern as government edicts has closed down the entire economy as Government at all levels has shut down the economy in an effort to flatten the Pandemic.
Federal Reserve inflated the currency during the World War I and this continued after the War. Grant noted the economy continued to grow in 1919 before crashing in 2020. Barry detailed how the epidemic empty many streets, leaving the impression that in 1919 and going into 1920, the economy was in a tailspin. Federal reserve study found that manufacturing output dropped 18%.
What are the lessons for us? As already mention, the government is controlling every aspect of the economy, pushing companies to build masks and ventilators while many state and local governments are allowing what they consider essential business to stay open and closing others. Brian Westbury stated that if we begin open up first of the May, we can save 92% of the economy but added many small businesses are already out of business and the longer we wait, the more damage to the economy. By the time June ends, we may be only able to rescue 85% of the economy. Many small businesses will close their door for good.
The Federal reserve has already open the printing press, and Congress stimulus includes direct payments to Americans along with more money added to unemployment so you combine government running economy along with this stimulus, you may find a similar path following along what America did 1919 and 1920.
In 1920, Democrat administration was paralyzed with an ill President and a Vice President who noted that what America needed is a good five cent cigar, so the Recession continued into 1921. Harding allowed the economy to heal on its own, cutting taxes and the budget while raising tariffs. The economy roared back.
The economic opening will be partial and not enough to engineer a full recovery and the rest of the world is in decline. As long as travel ban stays in the place, there will be no trade as well. The World economy is in total decline. The key is to reduce the death total and begin the process of reigniting the economy. Some economist sees a big rebound in 2021. How do we get there?
With no vaccines on the immediate future and the infection spreading toward hopefully to a plateau, the reopening will need to start earlier as oppose later. Among things we can do starting in May in most of America:
- A partial opening would include restricting people in businesses. If a restaurant has a capacity for 100, you allow 50, with customer using every other table. If people wear masks, and maintain social distancing from each other at work, we can reduce transmission.
- Elderly and immunocompromised can be isolated.
- We have drug therapies that can help get many people to recover quicker.
- We can have expanded testing to include places like Wal-Mart and businesses since testing may gives us results in as little as five minutes.
While Congress is talking another stimulus, we have enough stimulus in the economy and what we need is people to begin working. We need to create opportunity and set the stage for the economy rise. That means we need to be starting on proposing those things to grow the economy beginning getting budget under control once this crisis passes, getting our monetary policy square and continue an aggressive deregulation along tax reforms to increase economic growth. Americas Majority Foundation has worked on these issues including building an investor class, helping business formation and a tax plan designed to help both the Middle Class and increase economic growth while saving the entitlements.
And as soon as we can lift the various controls that many state and local governments, we can begin growing the economy. A Vaccine will likely be ready in 2021 and that will help along with the right economy policy, will set the stage for a full-scale recovery.