The Spanish Flu and Covid-19: Parallel Crisis?

The world in 1918 was completely different from what it was a few years before. Four years of the most devastating war ever seen up until then destroyed not only millions of lives, but also countries, cities, economies, and even beliefs and faiths. Decades of liberal optimism, faith in progress, and economic development came to a sudden stop.

There was hardly a worse time for a pandemic to devastate the world. The Spanish flu was provoked by an influenza A virus known as H1N1. Its origin is from an animal virus, with which human immune systems were not capable of fighting. The first reported cases were in the United States in February 1918, among soldiers training for deployment in Europe. The name “Spanish” comes from the fact that the Spanish press was able to cover the disease since the country was neutral in WWI.

The data about the pandemic is elusive and the estimates may be somewhat vague. Nonetheless, there are some established facts. No region of the world was left untouched by the pandemic. The estimates of total deaths vary from less than 20 to 100 million. The lowest estimation points to the death of around 1% of the world’s population at the time, and some say a third of the world population may have been infected. It affected particularly young and healthy adults, from 20 to 40 years of age. This pandemic was the last time there was a decline in population worldwide. The reasons for such mortality are easy to point: global movements of troops and standing armies in the first waves, the medical science was not ready to face the virus, healthcare was precarious even in rich countries, populations were generally poor, and governments were not able to impose lockdowns or treat adequately most people.

This brief enumeration shows how much the world changed for the better in only 100 years. Our article will build from it and show how the Spanish flu impacted the world of 1918 both in economic and socio-cultural terms. At the same time, we will compare those changes to what our world in 2021 is experiencing due to the covid-19 pandemic. Can History tell us something about what we will live as soon as the pandemic ends?

Economic impacts

Gauging the economic effects of the Spanish flu is not an easy endeavor. On one hand, the proximity of WWI makes it complicated to separate the economic effects of the pandemic from those caused by the war. In addition, economic information was not as thoroughly recorded in those times as it is nowadays, making analysis even harder.

The available macroeconomic data was sufficient to create a statistical model that separates the pandemic-related impacts from the war-related ones. One study concluded, through a regression analysis, that, on average, the Spanish Flu was estimated to have reduced real GDP per capita by 6.2 percent. Although this number was not as high as the expected 8.4 percent decline resulting from World War I, it still represents a considerable decline.

Likewise, concerning asset prices, the same study concludes that, on average, for a death rate of 2.1 percent due to the virus, the real stock returns would be lower by 28 percentage points, these stocks being based on broad market indexes. Similarly, short-term government bills (analogous to today’s US Treasury Bills) on average, for a death rate of 2.1 percent due to the virus decreased by 14 percentage points. This decrease can be seen partly as a decline in the “safe” expected real interest rate, as people’s expectations on economic performance were surely affected by the climate of uncertainty surrounding the pandemic.

It might be tempting to establish a connection between the current Covid-19 pandemic and the Spanish Flu, as both pandemics have severely disrupted society.  However, the way western economies are structured today is vastly different from those of the past: in 1918, less than half of the population worked in the services industry, whereas today more than three-quarters work in this sector. As such, western economies 100 years ago were not as dependent on customer traffic, meaning that they could absorb better a decrease in the confidence of the general populace.

Another significant difference, for western countries at least, is that global supply chains were nowhere near as prevalent as they are today, resulting in countries in the past being able to deal with supply shortages more easily, as they would become a regional issue, rather than a global one. Lastly, businesses are more highly leveraged today than they were 100 years ago. This higher debt combined with the economic shock of covid-19 will likely cause a higher blow to the current economy in comparison to 1918.

The fact is that despite the pandemic having negative implications for the economies, the following decade was one of unprecedented economic growth, particularly in the United States. For the Weimar Republic and the other defeated countries, not so much. Although it is early to affirm this with certainty, when comparing the Spanish Flu with our current pandemic, likely the economic impacts of the latter will be more significant than the former. We are not sure about the future growth of our economy. However, we have to control the restart of the economy and society in order to contain any possible risks that may lead to another “Great Depression” as in the 1920s.

Social Impacts

There is no doubt that a pandemic has a tremendous effect in social dynamics as well as in the economy. A study made by Bocconi University Research states that the Spanish Flu caused a permanent impact on individual behaviour relative to social trust. Social trust is the confidence and reliability that we perceive in others as honest individuals. Immigrants in the USA who lived through Influenza show much less levels of trust, and this was passed on to the next generation. Such attitudes may have come from the lack of efficiency of healthcare institutions. Weakening the social trust of individuals also has important consequences on economic activity.

With respect to the ongoing Coronavirus pandemic, thanks to advancements in public healthcare, this reaction is attenuated. Furthermore, although still early to draw any definite conclusions, a panel study developed in Sweden shows a considerable increase in social trust with the implementation of lockdown measures. There is also a big emphasis on the importance of political trust, since it may relate to the actual compliance with the law and with the policies made by the government. As this pandemic continues to unfold, it will be crucial to analyze if this specific crisis will add to or alter the conclusions of most scientific work.

Another curious aspect to explore is the post-pandemic behaviour that happened in the 1920s and may occur also after the covid-19 pandemic. After WWI and the pandemic, the world (and particularly the United States) entered the Roaring 20’s. People celebrated their newfound freedom from violence and disease and were willing to spend more than what they were used to, to compensate for the time lost. Many social conventions, particularly regarding women were shaken. Art and Entertainment also blossomed during this period, with many new developments.

Nowadays many hope for the same thing to happen after the current pandemic ends. Many believe a new Roaring 20ss awaits us. According to Yale Professor and social epidemiologist Nicholas Christakis, in his book Appolo’s Arrow: The Profound and Enduring Impact of Corona Virus on the Way We Live, once an health crisis comes to an end there is often a period where people look extensively for new social interactions.

We cannot predict what will happen after covid-19 ends, but the study of the spanish flu gives us some clues about what can happen to our economy, society and personal lives.

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Sources: Bloomberg; Bocconi University Research; Centers for Disease Control and Prevention; CNBC; Diário de Notícias; HISTORY; Jornal de Negócios; National Bureau of Economic Research; National Geographic; NPR; Our World in Data; Political Studies Review; Público; Sociedade Portuguesa de Medicina Interna; Times of India; VOX