0
$\begingroup$

I was just wondering whether the recent COVID pandemics could lead or not to similar economic problems to the crash of the USA market in 1929. I then noticed that people had just faced the Spanish flu, which led to similar conditions to our last pandemics.

It is also remarkable, but perhaps not that related, that the crash of the Real State Market was more or less at the same period of the "Swine Flu", that of course, was less concerning than the recent pandemics. In any case, does anyone know some study correlating the afore studies?

$\endgroup$
1

1 Answer 1

1
$\begingroup$

Pandemics do lead to drop in output and hence sometimes to recessions, that is well established (e.g. see Ma et al 2020 as an example) but there is no solid research linking Spanish flu and Great Depression or swine flu to Great Recession. The drop of output from pandemic is virtually always sudden and there is virtually always a V shaped quick recovery. This pattern does not fit Great Depression or Great Recession.

Already prima facie that seems to be a stretch of an idea. The Spanish flu outbreak happened between 1918-20. Great Depression happened almost decade after. Outbreak of a disease should lead to recession immediately not 10 years after the disease was dealt with. I do not think that anyone seriously excepts economy to suddenly crash due to covid 10 years from now.

In addition Great Depression has well established primary cause in stock market bubble and secondary cause in bad monetary policy (see Bernanke Essays on the great depression). There isn't any big missing piece in our understanding of how Great Depression happened that could be potentially filled by decade old event.

When it comes to swine flu and Great Recession it makes even less sense. We know that Great Recession originated with the housing market crash, which in turn was caused by excessive lending, overleveraging, financial malpractice and lack of sound regulation (see Eichengreen Hall of Mirrors). The housing bubble burst (depending on how you date it) sometimes between last quarter of 2007 and first quarter of 2008.

Swine flu was first identified in Mexico in April 2009 (see NHS official site). Now sometimes effect can precede cause (November gift buying is caused by December Christmas). But it is extremely implausible that markets somehow expected swine flu to be discovered (by very nature this is completely iid shock), and then out of all markets it crashed somehow real estate market.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.