Since pandemics are rare events, and their timing unpredictable, historical evidence over many centuries is required. There have been four pandemics over the past century: the 1918-19 Spanish flu, the 1957-58 Asian flu, the 1968 Hong Kong flu, and the swine flu of 2009. Deaths in these ranged from around 50 million to about 400,000. None have closed down economies in the way this current pandemic looks set to do and the world has generally bounced back over time.

In a paper for the Federal Reserve Bank of San Francisco, three academic authors focused on 15 major pandemics where more than 100,000 people died and studied rates of return on assets using a data set stretching back to the 14th Century. In addition, they included a comparison with major armed conflicts that resulted in a similarly large death toll.

The findings indicate that significant macro-economic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, the authors found that wars had no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars but not in pandemics.

Using more sparse data, they found that real wages were somewhat elevated following pandemics. The findings are consistent with pandemics inducing labour scarcity and/or a shift to greater precautionary savings. Labour shortages occurred because pandemics generally claimed mainly the lives of workers, not older people. In fact, the pay effects of Covid-19 look similar to the financial crisis of 2008-09 when pay freezes and cuts were commonplace.

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