Covid-19 will last up to two years with massive long-term social, economic and psychological effects, says new IEA report

29 Apr 2020 03:31 PM

Historical precedent suggests another pandemic is likely at some point in the future, though steps could be taken to mitigate risk, says Institute of Economic Affairs paper

As humans have spread across the world, so have infectious diseases. Even in the modern era, outbreaks are recurrent, though few reach the pandemic level of Covid-19;

• Covid-19 is moderate compared to the really major plagues that have sometimes afflicted civilisation;
• But certain features of many contemporary societies – economic integration, long supply chains, the scale of travel, a systemic change in the way health systems are run – have made the impact of an infectious disease much greater than 50-60 years ago;
• Governments therefore have to take much more extensive and serious measures – ones that will have massive and lasting effects;
• History suggests the pandemic will last for up to two years and come in a series of waves, with the second the biggest and likely to cause the most damage;
• This epidemic will likely have a massive and lasting impact – including a significant fall in GDP, the acceleration of existing trends towards home working or online shopping, a debt crisis and significant revaluation of assets, and a retreat from globalisation;
• Further, unless steps are taken to reduce the risk, there will be other such outbreaks in the not-so-distant future;
• Going Viral: The history and economics of pandemics outlines how we can mitigate future risk and increase resilience. 

A new report from Dr Stephen Davies, Head of Education at the Institute of Economic Affairs, examines the history of pandemics and Covid-19’s place within it. Going Viral: The history and economics of pandemics finds that although the novel Coronavirus is moderate compared to Justinian’s Plague or the Bubonic Plague, it has a bad combination of qualities: it is highly infectious, has a long incubation period, has a fatality rate between 0.3 and 1 per cent (so far as we know at present), and is a novel virus, meaning very little natural immunity.

As a viral pandemic, it will likely last up to two years – the time it takes either to develop and roll out an effective and safe vaccine or for the population to develop herd immunity.

Further, the society and economy of the world have changed in ways that magnify the effects of a serious epidemic. International integration and the scale of travel makes it easier for disease to spread and harder to track; long supply chains have made the world economy more efficient but more fragile; a systematic change in the way health systems are run in most countries, combined with a movement of married women into the labour force and change in the way we care for the elderly, have made the impact of an infectious disease much greater.

In this context, Going Viral outlines several likely effects from the Coronavirus outbreak. First, there will be a massive fall in GDP in the two central quarters of 2020, of a scale comparable to the Great Depression.

Second, the creativity and adaptability of a market economy will be given full reign: this will lead to genuine inventions and the intensification of pre-existing trends (for instance, online shopping or home working).

Third, the pandemic will likely trigger a massive debt crisis and a significant revaluation of assets. A fourth possible consequence is an episode of much higher inflation. The liquidity being created by governments is mainly about preserving the supply side. But once controls are lifted, pent-up demand for goods and services could be released. If the supply side takes a while to meet that, the result would be a burst of inflation.

Finally, we will almost certainly see a retreat from globalisation and economic integration. The pandemic has been a massive stress test for economic and social systems. Many are economically efficient but also fragile and brittle, and unable to cope with a shock of this kind. It should remind us that pure economic efficiency in the use of resources is not the only yardstick we should use.

Going Viral outlines a number of steps that can be taken to mitigate future risk:

• We need to realise that the nature of contemporary intensive farming is an almost perfect environment for the development of novel pathogens and their transmission –future pandemics are inevitable and the world should be better prepared;
• We should improve the process by which diagnostic tests and vaccines are developed and produced – and eliminate much of the unnecessary regulation that slows down both.
• There should be more work on alternatives to antibiotics as the means for treating bacterial infections;
• We should rethink the way healthcare provision is organised so that systems are not so vulnerable and brittle;
• People in many countries should consider the balance between work and home, and the way the old are treated and cared for.Notes to editors

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The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

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Report:  Going Viral