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Pandemic flu and the sick global economy

Nothing is clear yet about the swine flu threat that emerged from Mexico last week. We don’t know whether it will turn into a full-blown pandemic, though governments around the world are starting to brace for the worst. The European Union’s health commissioner, Andorra Vassilou, is advising against non-essential travel to Mexico and the United States. And if a pandemic does develop, we don’t know how virulent the strain will prove to be. It’s apparently killed over 100 people in the first 1,700 or so confirmed cases in Mexico, but U.S. officials are stressing that the cases that have turned up stateside thus far seem much milder.

What would a world flu pandemic with moderate to high mortality mean for the global economy? In normal circumstances this would strike most people as a secondary question, but since economies around the world are already very sick themselves, the matter becomes more fraught and more urgent. Thanks to the lingering specter of bird flu in the past decade-plus, a number of organizations have assayed this question. The research is worth reviewing, but keep in mind that the answers are suspect for a couple of reasons: They’re all over the map in their assessments, and the studies were all modeled on economies that were not in collapse.

The advocacy group Trust for America’s Health estimated in 2007 that a flu outbreak comparable in virulence to the mother of all modern pandemics, the 1918 “Spanish flu,” would by itself reduce GDP about 5.5 percent in the U.S. The World Bank has revised its own analysis of the global economic toll a few times since 2005; according to their latest estimate, chronicled by Bloomberg News in October 2008, “A flu pandemic could kill 71 million people worldwide and push the global economy into a ‘major global recession’ costing more than $3 trillion, according to raised estimates by the World Bank of a worst-case scenario.”

The last phrase deserves underlining–these are worst-case scenarios we’re talking about, but most Americans have no notion of how catastrophic an influenza pandemic can be. Here’s a passage from the prologue to John Barry’s magisterial book The Great Influenza (not just the best account of the 1918 outbreak, but one of the best and most meticulous works of American history I’ve ever read):

“In 1918 an influenza virus emerged–probably in the United States–that would spread around the world, and one of its earliest appearances in lethal form came in Philadelphia. Before that worldwide pandemic faded away in 1920, it would kill more people than any other outbreak of disease in human history. Plague in the 1300s killed a far larger proportion of the population–more than one-quarter of Europe–but in raw numbers influenza killed more than plague then, more than AIDS today.

“The lowest estimate of the pandemic’s worldwide death tolll is 21 million, in a world with a population less than one-third today’s. That estimate comes from a contemporary study of the disease and newspapers have often cited it since, but it is almost certainly wrong. Epidemiologists today estimate that influenza likely caused at least 50 million deaths worldwide, and possibly as many as 100 million.”

There’s no reason to presume that the swine flu mutation making the rounds today would be so virulent, though obviously that is a possibility. But even a pandemic of less deadly proportions would have pronounced economic consequences. Quoting Bloomberg’s summary of the World Bank 2008 report linked above:

“A ‘mild’ pandemic, similar to the Hong Kong flu of 1968- 69, could kill about 1.4 million people and cut global GDP by 0.7 percent in the first year…

“A ‘moderate’ pandemic characteristic of the 1957 Asian flu could kill 14.2 million people and shave 2 percent from the global economy in the first year, the bank said. Some forecasts have estimated deaths during a ‘severe’ pandemic at as high as 180 million to 260 million, the report said.”

However severe an outbreak proved to be, it doesn’t take an economist to see that our present situation effectively lays waste to any economic impact projections based on normally functioning domestic and global economies. Consumer demand, already tanking, would be further decimated. More from the Bloomberg summary of the World Bank report: 

“Changed behavior by individuals in the face of a pandemic, such as reduced air travel in order to avoid infection in the enclosed space of a plane, avoiding travel to infected destinations and spurning restaurants and mass transport, could account for 60 percent of costs during a pandemic, the bank said.

“‘People’s efforts to avoid infection are five times more important than mortality and more than twice as important as illness’ in terms of economic impact, the authors said. In the worst-case, they assumed that air travel would slump by 20 percent for the whole year, and that tourism, restaurant meals, and use of mass transportation would decline by the same amount.”

And that’s to say nothing of the impact on health care systems, which are already in much tougher shape than during normal recessions due to the inability of so many people to pay for their health care.

This is a bullet the U.S. and the world desperately need to dodge. But as public health officials concede, it’s too late for containment. Best, I guess, to cross our fingers and hope the swine flu virus evolves in a less virulent direction, and fast.

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