What were the economic effects of the 1918 flu?

The world population is concerned about the devastating effects of the Coronavirus on health and the economy. Faced with this harsh outlook, it would be advisable to look back in time, to the 1918 flu.

The rapid spread of COVID-19 has wreaked havoc on the global economy. Everyone is wondering how to move towards the path of economic recovery, and whether the pandemic will continue to erode the world economy.

The Coronavirus has dragged humanity into an extraordinary situation, but not unprecedented. Therefore, it is convenient to look back and consult the history books. We can surely draw lessons from the previous pandemic: the 1918 flu or “Spanish flu”, which caused between 21 and 50 million deaths.

It all started in 1918, just in the last year of the First World War. However, there are very different versions of the origin. There are those who affirm that the virus broke out in the barracks of the United States army and that it spread to Europe when North American troops were sent to fight the old continent. On the contrary, other hypotheses point to China as the origin of this flu.

The high number of infections (about 500 million infected) and deaths transcended beyond neutral countries and the rear. In the trenches, with numerous soldiers weakened by the flu, many military operations had to be halted.

Fall in economic activity

Beyond the possible origin of the virus and the numbers of deaths and infections, what is undeniable are the extremely harsh economic consequences of pandemics. Thus, in 1918, economic activity suffered a significant drop, as the rapid spread of the flu forced the paralysis of industrial activity. Likewise, public shows such as the theater were canceled, without forgetting that schools and churches were also closed.

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Faced with an even more deadly virus, fear was more than evident in the world’s population. All this not only had consequences at the health level, but on the economic level there are studies that estimate the drop in GDP by 6%.

It should also be noted that it is difficult to obtain a detailed macroeconomic analysis of the consequences of the 1918 flu. This is all because, at that time, national accounting was not as developed as it is today. In this sense, the United States seems to be one of the countries with the most reliable economic records. Thus, towards October of that year, the fall in industrial activity was especially marked in the United States, precisely coinciding with one of the hardest moments of the pandemic.

Putting a brake on economic activity had very harsh consequences on employment. The companies had no choice but to resort to massive layoffs.

A second effect of the fall in production levels was a reduction in supply and, therefore, a large increase in the prices of basic necessities. Refusing to see their income cut, the store owners decided not to lower prices.

Social consequences

If social differences in 1918 were already very pronounced, the rapid spread of the “Spanish flu” made them even more acute. A good part of the population was forced into poverty, because with production paralyzed, it seemed very difficult to find a job.

The fear of the flu was such that many opted for absenteeism to avoid getting infected. In this context of fear, quarantines were also imposed and gatherings were prohibited. In Spain, one of the countries most affected by the flu, the social isolation imposed became so extreme that it cost many children their lives, as contact was so restricted that they were prevented from bringing them food.

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Faced with a very sharp drop in production and an impoverishment of the population, it is worth asking, what were families spending their scarce economic resources on? With consumption plummeting, families were fundamentally limited to those goods with which to satisfy their most basic needs.

As for the public sector, it became necessary to allocate special credits to provide health care to the large number of people affected by the flu. Other extraordinary expenses that had to be faced were the costs of masks, disinfections and vaccines. But, with a good part of the nations completely overturned in the First World War, it was very difficult to find the resources to defray this type of expense.

Thus, around 1920, after suffering three waves (of which the second was the deadliest) and with the virus weakened, the “Spanish flu” subsided and the happy twenties arrived, marked by the economic boom.

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