What Effect Would Ebola Have On Our Economy?

The Economic Effects of Ebola

Preface: Ebola will obviously have a devastating effect on those areas of West Africa where the disease is currently raging.  After all, no one wants to travel to an Ebola hot spot. But this essay focuses on the effects of Ebola on economies in the developed world.

If Ebola came to our country, what effect would it have on the economy?

Obviously, it depends whether or not it turns into a full-blown epidemic.

If it’s a small, localized scare which ends up being contained, then it would have a depressing influence on the local economy. For example, if a passenger from West Africa got off a plane and died in the airport – infecting other people in the process – then travel to that town would probably decline, conventions and hotel reservations might be cancelled, and business trips and family reunions postponed.

But – so long as it was contained fairly quickly – the local economy should recover.

And if pharmaceutical companies heroically speed up a vaccine – or treatment – for Ebola to be effective in the near future, those companies would make a boatload of money from the effort. And we predict that the optimism and confidence created by such a successful effort could boost the “animal spirits” … and so provide a shot of stimulus to the economy.

But what would happen in the worst case scenario: a full-blown epidemic?

To find out, let’s look at how the Black Plague effected the European economy …

Most scholars believe that the plague hurt Europe’s economy … at least in the short-run.

For example:

With the great plague of 1609-31, the total population fell by some 4o per cent to 1,o2o,000. The inhabitants of the towns suffered less than those of the countryside through the better organization of charity, but the effect of the enormous drop in the labour force was to cause a ‘very swift withdrawal of capital on a vast scale’, leading to an acute depression, typical, ac­cording to Professor Braudcl,of the whole Mediterranean area. The fall in global incomes is reflected in the sharp diminu­tion in tax yields in the years immediately following the plague.

But the longer term effects are more complex. And some immediately benefited.

The Economist notes that the immediate effect of the Black Plague was to depress prices:

As demand for food slumped, so too did farm prices …. An English chronicler recorded that in the plague year

a horse once worth 40 shillings could be bought for half a mark [one sixth as much], a fat ox for four shillings [say, a third of its earlier value], a cow for one shilling.

But the price of manufactured goods skyrocketed:

[The prices] of manufactures rose, as craftsmen died ….

Craft wages and prices remained far higher in England than before. That was true in the cities of mainland Europe too; in Florence they had doubled, a contemporary lamented.

Brown University writes:

The economy underwent abrupt and extreme inflation. Since it was so difficult (and dangerous) to procure goods through trade and to produce them, the prices of both goods produced locally and those imported from afar skyrocketed. Because of illness and death workers became exceedingly scarce, so even peasants felt the effects of the new rise in wages.

University of Wisconsin-Madison History Professor Johann Sommerville points out that – in towns hit by plague – some lost but others gained:

An attack of plague did not always reduce population for long, since by killing some people it increased economic opportunities for others. Some large towns continued to grow in the seventeenth century though they were repeatedly struck by plague. Amsterdam in the Dutch Republic lost over 10% of its population to plague in 1623-5, and again in 1635-6, and once more in 1655, and one more time in 1664. Yet the population of Amsterdam rose relentlessly in the seventeenth century (largely through immigration) from 50,000 to 200,000.

And the Economic History Association provides additional, interesting details:

In some instances, the initial hikes in nominal or cash wages subsided in the years further out from the plague and any benefit they conferred on the wage laborer was for a time undercut by another economic change fostered by the plague. Grave mortality ensured that the European supply of currency in gold and silver increased on a per—capita basis, which in turned unleashed substantial inflation in prices that did not subside in England until the mid—1370s and even later in many places on the continent. The inflation reduced the purchasing power (real wage) of the wage laborer so significantly that, even with higher cash wages, his earnings either bought him no more or often substantially less than before the magna pestilencia (Munro, 2003; Aberth, 2001).

***

The average size of the peasant holding grew in the late Middle Ages. Due to the peasant’s generally improved standard of living, the century and a half following the magna pestilencia has been labeled a “golden age” in which the most successful peasant became a “yeoman” or “kulak” within the village community. Freed from labor service, holding a fixed copyhold lease, and enjoying greater disposable income, the peasant exploited his land exclusively for his personal benefit and often pursued leisure and some of the finer things in life.

***

Late medieval sumptuary legislation, intended to keep the humble from dressing above his station and retain the distinction between low— and highborn, attests both to the peasant’s greater income and the desire of the elite to limit disorienting social change (Dyer, 1989; Gottfried, 1983; Hunt and Murray, 1999).

The Black Death, moreover, profoundly altered the contours of settlement in the countryside. Catastrophic loss of population led to abandonment of less attractive fields, contraction of existing settlements, and even wholesale desertion of villages. More than 1300 English villages vanished between 1350 and 1500. French and Dutch villagers abandoned isolated farmsteads and huddled in smaller villages while their Italian counterparts vacated remote settlements and shunned less desirable fields. The German countryside was mottled with abandoned settlements. Two thirds of named villages disappeared in Thuringia, Anhalt, and the eastern Harz mountains, one fifth in southwestern Germany, and one third in the Rhenish palatinate, abandonment far exceeding loss of population and possibly arising from migration from smaller to larger villages (Gottfried, 1983; Pounds, 1974).

***

Once the magna pestilencia had passed, the city had to cope with a labor supply even more greatly decimated than in the countryside due to a generally higher urban death rate. The city, however, could reverse some of this damage by attracting, as it had for centuries, new workers from the countryside, a phenomenon that deepened the crisis for the manorial lord and contributed to changes in rural settlement.

***

The gross loss of talent due to the plague caused a decline in per capita productivity by skilled labor remediable only by time and training (Hunt and Murray, 1999; Miskimin, 1975).

Another immediate consequence of the Black Death was dislocation of the demand for goods. A suddenly and sharply smaller population ensured a glut of manufactured and trade goods, whose prices plummeted for a time. The businessman who successfully weathered this short—term imbalance in supply and demand then had to reshape his business’ output to fit a declining or at best stagnant pool of potential customers.

***

In the city, however, the plague concentrated wealth, often substantial family fortunes, in fewer and often younger hands, a circumstance that, when coupled with lower prices for grain, left greater per capita disposable income. The plague’s psychological impact, moreover, it is believed, influenced how this windfall was used. Pessimism and the specter of death spurred an individualistic pursuit of pleasure, a hedonism that manifested itself in the purchase of luxuries, especially in Italy. Even with a reduced population, the gross volume of luxury goods manufactured and sold rose, a pattern of consumption that endured even after the extra income had been spent within a generation or so after the magna pestilencia.

The Economic History Association also notes that the plague led to revolution:

The late medieval popular uprising, a phenomenon with undeniable economic ramifications, is often linked with the demographic, cultural, social, and economic reshuffling caused by the Black Death ….

The Black Death may indeed have made its greatest contribution to popular rebellion by expanding the peasant’s horizons and fueling a sense of grievance at the pace of change, not at its absence. The plague may also have undercut adherence to the notion of a divinely—sanctioned, static social order and buffeted a belief that preservation of manorial socioeconomic arrangements was essential to the survival of all, which in turn may have raised receptiveness to the apocalyptic socially revolutionary message of preachers like England’s John Ball. After the Black Death, change was inevitable and apparent to all.

Facebooktwittergoogle_plusredditpinterestlinkedinmail
This entry was posted in Business / Economics, Politics / World News. Bookmark the permalink.
  • kimyo

    the comparison to the black death is inapt. our hospitals, nuclear plants, and air travel systems will cease to function given the loss of sufficient doctors, nurses, engineers, pilots and air traffic controllers.

    i don’t think the sirens around indian point are going to be much help if one of their people starts coughing up blood in the control room.

    globalization has decimated our resiliency. we may think ‘this isn’t africa’, but our doctors and nurses will succumb just as quickly here, should supplies of disposable gloves/gowns/etc. become scarce.

    an aside: uber-bullish for those google self-driving cars.

  • jadan

    In some respects, the medieval plague period was comparable to our own according to Barbara Tuchman. She titled her history book : A Distant Mirror, in recognition of this similarity. She was looking at the 14th Century as a transitional time, exploding with craziness and mass mortality, that led into a new world we call the Renaissance. There is no precedent for our time in history. It’s a vain hope to think we can find ourselves in the mirror of some past time. If Ebola became epidemic, our society would instantly transform itself into a medical dictatorship. A system of quarantine would fragment the population. Those who think of themselves as “preppers” would war against government that tries to deprive them of self-sufficiency and self-determination. Many millions would die and not all from the disease. The breakdown of support systems would induce starvation. Our society is more fragile than the medieval. Nuclear power plants would go fukushima. The techno infrastructure we take for granted would collapse. Our world is already collapsing, gradually, without benefit of an epidemic. The Pacific Ocean is being poisoned. the Gulf of Mexico is very sick. In every society there is huge economic stress and the war of factions, sometimes hot war. Weapons, conventional & WMD are everywhere. There is no chance that we could deal with a global pandemic because we are already in bad shape and can’t keep it together as it is!

  • kimyo

    Ebola threat prompts Red Cross to remove all bodies, infected or not

    For the Red Cross teams, the work is arduous and risky. Even though they are paid about $1,000 a month – a huge amount of money in impoverished Liberia – some staff have quit and the Red Cross has been obliged to search for new recruits.

    The teams suffer the stigma of their Ebola association, but they also suffer the incredible heat and discomfort of their Hazmat suits. They can only wear them for about 40 minutes at a time, and sometimes they must change suits 10 or 15 times a day.

    the science writers who get lots of facetime, for example: kurzweil, monbiot, degrasse tyson, james hansen, these guys should be pounding the press, demanding that the top people in nasa, darpa and silicon valley immediately start to deliver whatever robotic solutions they have which may be of use.

    a remotely operated unit capable of some basics would allow one worker to work his entire shift without suiting up. much easier to disinfect a robot as well. with multiple handlers, it could work through the night.

    if these exist, this is the perfect time to test and deploy them. if they don’t their development should be given a manhattan project-like focus.

    power is an issue, whatever those us army bigdog things run on should be adapted for this purpose.