The Fed and The Flu: Parsing Pandemic Economic Shocks explores how pandemics have shaped economic history by illuminating the complex interplay between health crises and economic structures, giving readers a panoramic view of pandemics’ far-reaching effects. What inspired you to write this book?

David Kotok:

My curiosity about epidemics, pandemics and plagues originated when I was in the US Army as a second lieutenant in 1966. My first assigned unit was a very specialized organizational structure that dealt with preventive medicine for the entire 7^th army in Europe. Our regional focus was Europe, Africa, and the Middle East (EMEA). I recall the readiness preparation when the 1967 Middle East War broke out in the Middle East. We went on alert status in Germany with orders to be ready to deploy on four hours’ notice. We loaded live ammunition and slept in fatigues with our vehicles ready to roll on any notice. Fortunately, we didn’t have to deploy. That mission focus was preventive medicine against known pathogens in the Middle East. On other occasions, readiness was tested in other parts of the world and against other pathogens. I have been intrigued with the impacts of disease on geopolitics and economics ever since.

In June of 2020, a paper about the medium-term economic impacts of pandemics, published at the San Francisco Fed, caught my attention. The authors’ findings inspired me to pursue a study of pandemic economic shocks through history and to consider the Fed’s response to the COVID pandemic economic shock. An undertaking this big was best accomplished with a team approach, and Elizabeth, Tristan, and Mike came aboard to help.

What were some key ideas that were important for you to share in this book? 

David Kotok:

Human beings repeat mistakes throughout history.  The book demonstrates that characteristic of human behavior in governance, economics, preventive medicine, disinformation, and the disruption that follows epidemics, pandemics, and plagues because they are unique types of shocks. The book and the research our team did shows that we haven’t learned much from the 4000 years of confirmed history discussed in the book. We’re still a flawed species when it comes to dealing with pathogens.  

Mike Englund:

The U.S. economy was severely impacted at the start of the pandemic by both fear of the disease itself and by the initial policy response by state and local officials of mandated lockdowns. Politicians at the national level prompted an opposite upside policy jolt via the CARES Act that took effect soon after the collapse in most economic gauges. Macroeconomic forecasts diverged sharply at the time, as there was little precedent for either of these two massive disruptions to the economy. 

Economists invented new terminology for the shape of this new type of bust-boom business cycle, be it an “L” shaped cycle with a big bust and small boom, a “K” shaped cycle where parts of the economy rebound sharply after collapse but other parts do not, and a “V” shaped cycle where the economy turns off then on like a light bulb. The macro data exhibited properties of all these dynamics, as some urban areas downsized and never fully recovered, and some industries recovered more sharply than others. Mostly, however, the recovered proved “V” shaped, as broad measures of economic activity quickly resumed the secular pre-pandemic growth path.

Tristan Erwin:

A key takeaway, historically, is that a pandemic is the ultimate bringer of chaos, causing both economic and societal upheaval and breakdown. Whether we are talking about humans in 430 BC or the modern human in 2020, the basic human reactions to pandemics remain.

Elizabeth Sweet:

My key takeaways are that humanity has real choices now that it did not have before, thanks to medical science; and these can make a tremendous difference to the outcomes of pandemics. Effective public health mitigations paired with economic interventions can reduce the magnitude of a pandemic shock, even though they cannot prevent the shock or the “pandemic economic hangover” altogether. Some approaches to recovery, too, helped to regenerate economies over shorter or longer periods.

Did you find anything in your research of this story that surprised you?

David Kotok: 

Yes. I didn’t expect to see linkages to climate change in the way they were revealed. The Justinian Plague is a great example. The volcanic eruptions triggered a cooling of 2 degrees which allowed the flea to flourish and become the vector for a disease that killed almost half the population of the Roman Empire. Climate effects and how they interact with pathogens is more vivid for me after this book research journey. Today we confront global warming instead of cooling.  Coincidentally the 2-degree threshold is at work although it is warming, not cooling. And the mosquito has replaced the flea as the vector. Witness the growing number of malaria cases in the United States. Something new for Americans to confront. 

Mike Englund:

The shift in public perceptions, the surge in political polarization, and the divergent regional responses to the virus were arguably the most surprising, and this was evident in the macroeconomic data. The political polarization was probably responsible for the additional and excessively large stimulus packages in late-2020 and early-2021 that added aggregate demand to an economy that was already overheating, as partisan’s adopted divergent interpretations of reported macro data. The resulting inflation surge extended through the period covered in the research, and we have yet to see if the ultimate implications of these policy responses.

Tristan Erwin:

We found that human indulgence in quackery and attraction to “false prophets” dates to the very beginning. When we looked at how ancient people reacted to pandemics and then how our society reacted to the COVID pandemic, it turns out that the technological and medical superiority of modern medicine didn’t shield us from our own tendencies. Ancient people pleaded for a cure with no answer. In the COVID pandemic, medical science mustered vaccines and treatments that reduced severe illness and deaths. Yet, a substantial portion of the population rejected them, preferring bizarre or unproven “cures” and conspiracy theories over working together to end the pandemic. The ancients never had that choice.

Elizabeth Sweet:

Though the same things that surprised David, Mike, and Tristan surprised me, too, I’ll add something different. I was surprised at the resourceful strategies Athens used after the Plague of Athens, the Peloponnesian War, and the overthrow of the Thirty Tyrants, to create an economy that did not rely on tribute anymore, as it had before, but on trade. Since adult male Athenian citizens were in much shorter supply after the plague and the war, Athenian society became more open to outsiders than it had been before, in order to power the city-state’s recovery.

What is one thing that you hope readers take away from The Fed and The Flu?

David Kotok:

I hope readers get inspired and appreciate the lessons of history and absorb them for societal benefit. Unfortunately, the record of history as a teacher is poor if the history has time gaps between events. Churchill warned us. When he said, “Study history, study history.” Maybe this book can add to that discussion for some folks who find it arousing of their curiosity. I hope so.

Mike Englund:

A pandemic was seen by many as a “black swan” event that couldn’t have been foreseen, yet the book documents the regularity of pandemics through human history and the various similarities of human and policy responses to them. Of course, the timing of the 2020 pandemic was unknown, but society was largely unprepared for this eventuality, and the public and policy response was more arbitrary and counter-productive than it had to be. Debates over the policy response should have been more open and transparent, and politicians should have been more focused on finding common ground to keep the policy response less partisan.  A broader understanding by the public regarding the various issues associated with pandemics would have also been useful, and perhaps the material in this book can play a role in this regard.

Tristan Erwin: 

I hope that readers see how far we’ve come, and how far we have to go. 

Elizabeth Sweet:

I hope that readers come to see the meaningful roles that human behavior, science, and policy have to play in determining pandemic outcomes, economic and otherwise.

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