I’m talking to my fishing buddy David Kotok Recently about a research project he has been working on:”What are the long-term economic consequences of the pandemic? “His research goes back to ancient Greece, and I’ll post something when his paper comes out. But Kotok pointed me to a fascinating white paper From the Federal Reserve Bank of San Francisco, which studies the effects of 19 epidemics dating back to the 14th century.

What did they find?

“The major macroeconomic consequences of the pandemic persisted for decades, with sharp declines in real returns, in stark contrast to what happened after the war. Our findings are consistent with neoclassical growth models: capital is destroyed in war, but Not in the disease; instead, the pandemic could lead to a relative labor shortage and/or a shift to more precautionary savings.”

This is not an afterthought, but something FRBSF published in June 2020, long before wages surged and labor became as scarce as it is today. They take into account factors such as deaths, return on assets, real wages, interest rates, savings rates, real GDP per capita, debt sustainability and other factors.

If you are so inclined to spend working paper Be sure to do so anyway. But if you prefer the TL:DR version, it looks like: lower return on assets, higher real wages, higher public debt, lower national savings rate.

The most interesting aspect is the rise in real wages.Pandemics have historically created worker shortages: partly because of overall fatalities, but also other factors, we have discussed earlier: Reduced immigration, workers forced to leave the labor market to take care of children, early retirement, fear of contracting diseases, etc. All of this has led to a reduction in the total workforce and a tightening of supply leading to higher wages (apologies for these descriptions).

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The authors take pains to point out that there are many differences between the current pandemic and those of the past—especially the death toll of the current COVID-19 pandemic relative to the general population. Vaccines and other pharmaceutical interventions should prevent this epidemic from looking like the worst of previous epidemics (which themselves are very different from previous wars, as shown in the chart below).

interesting stuff. . .

Before:
COVID deaths per million (July 2020 to date) (January 9, 2022)

The Economic Risks of Anti-Vaxxers (July 15, 2021)

DELTA is here for your economic recovery (August 13, 2021)

source:
Long-Term Economic Consequences of Pandemics
Oscar Jorda, Sanjay R. Singh and Alan M. Taylor
Federal Reserve Bank of San Francisco, June 2020
https://doi.org/10.24148/wp2020-09