Economics : What clockwork of Pandemics teaches us?

Pandemics are a cyclical feature of the modern economics. There were 10 pandemics in the last 300 years and 5-6 in the last 100 years. With global population increasing frantically, the rate of occurrence of pandemics is expected to rise as they are positively related to population density and economic and social integration of the world. In turbulent times like these, one can draw some solace from historical data. Pandemic economics, thus, is a vital field of study for future course. They appear like clockwork and coupled with different crisis, they reveal wealth inequalities and technical fragilities. In this regard, pandemics can be attributed to giving a blank slate for drawing up new policies and revamping institutions that went obsolete.

Mutant that punishes inequities and inefficiencies

Covid19 differs from other viruses in a way that it has extremely severe as well as extremely infectious, which is generally a trade-off. A severe virus generally forces infected to lie down and curbs mobility itself. However, we find a stark similarity between the black death pandemic of 14th century and Spanish flu of 17th century which is that the real income of individuals increased substantially in the aftermath of pandemic and the regions affected the most gave higher growth rates once the pathogen cleared up. The pandemic is especially hard on poor (peasants in earlier times) and hence the larger brunt of the attack is borne by the less privileged sections. What is expected is that poor share the larger proportion of deaths during this period. This generally leads to better labour policies like that of long term employment contracts after the Spanish Flu. Change in wages is unpredictable. However, this doesn’t imply that the rich sections is in any better place. Pandemics put in action revaluation of asset prices and in turn makes the paper wealth dusty and they face losses more in the long run. The mass upheaval hits service sector more than it destroys production sector.

Post Covid policy framework

Pandemics are often followed by big policy variations. The Black death pandemic saw abolition of feudal systems, Spanish flu saw shift to production of defence goods and the current pandemic has already witnessed the policy of work from home and company minimising office spaces and operating remotely.

Top Global institutions like World Bank and IMF suggest that Covid19 will cost global economy $800 Billion and other long term losses. Economic disintegration has already begun with countries developing a strict vigil over visas. Although most of the populous believes that recession is caused by insufficient demand, the truth is the opposite side of the same coin. It is actually fractured supply chains that have caused the slowdown. With economic nationalism in practise and economic disintegration following up, faulty supply chains are less likely to recover until lockdowns are lifted.

Recovery from the virus and rekindling hope

But what happens once life returns to normal. Will there be a sudden outburst of economic activities? Will the economies make a V-shaped recovery? Probably no.

The constant postponement of purchases for sure will lead to piled up demands and hence, when restrictions are lifted this pent up demand must be satiated. However, this doesn’t mean that one will get two haircuts in the same week or dine out daily just because they were not able to in the past few months. So, it is imperative the offerings with greater elasticity are going to be at the centre of attack.

Pandemic, thus, is sure to bring slowdown/recession. The economies will draw new plans and oil the existing machinery. Labour policies are expected to tilt in the favour of employees and the governments have the responsibility to navigate through the storms without losing lives and reviving economy after the storm settles down. While history offers an insight into how to sail through tough times; one requires certain level of discretion in times like these. Get in touch with us at London Strategy and Consultancy Group and let us sail you to the shore safely.

Contributors : J.G; Pratyush Jain, LS&CG