People spend more and take more risks...
The cholera pandemic of the early 1830s hit Britain and France hard. The end of the plague prompted an economic revival, with France following Britain into an industrial revolution.
Today, even as covid-19 rages across poorer countries, the rich world is on the verge of a post-pandemic boom. Governments are lifting stay-at-home orders as vaccinations reduce hospitalisations and deaths from the virus. Many forecasters reckon that America’s economy will grow by more than 6% this year, at least four percentage points faster than its pre-pandemic trend.
The Economist’s analysis of GPD data for the G7 economies going back to 1820 suggests that such a synchronised acceleration relative to trend is rare. It has not happened since the post-war boom of the 1950s. The situation is so unfamiliar that economists are turning to history for a sense of what to expect. The record suggests that, after periods of massive non-financial disruption such as wars and pandemics, GPD does bounce back. It offers two further lessons. First, while people are keen to go out and spend, uncertainty lingers. Second, crises encourage people and businesses to try new ways of doing things, upending the structure of the economy.
History also offers a guide to what people do once life gets back to normal. Spending rises, prompting employment to recover, but there is not much evidence of excess. The second big lesson from post-pandemic booms relates to the “supply side” of the economy—how and where goods and services are produced. Though, in aggregate, people appear to be less keen on frivolity following a pandemic, some may be more willing to try new ways of making money.
Other economists have drawn a link between pandemics and another change to the supply side of the economy: the use of labour-saving technology. Bosses may want to limit the spread of disease, and robots do not fall ill. There is as yet little hard evidence of a surge in automation because of covid-19, though anecdotes abound. Whether automation deprives people of jobs, however, is another matter. Some research suggests that workers in fact do better in the aftermath of pandemics.
Economist. 2021. What history tells you about post-pandemic booms. [online] Available at: <https://www.economist.com/finance-and-economics/2021/04/29/what-history-tells-you-about-post-pandemic-booms> [Accessed 1 May 2021].