/New Fed study finds efforts to slow pandemic don’t depress the economy

New Fed study finds efforts to slow pandemic don’t depress the economy


The economy isn’t helped by rushing back to work in the face of a pandemic, according to a new study by Federal Reserve researchers.

At a time when the lieutenant governor of Texas has said senior citizens would be willing to sacrifice their lives for a better economy and when President Trump has fretted that the cure may be worse than the disease, a new research paper looked at the impact of the 1918 Spanish flu on the U.S. economy.

Far from hurting the economy, what are called nonpharmaceutical interventions — for example, shutting schools, establishing quarantines and restricting business hours — mitigate economic harm as well as reduce mortality, the researchers determined.

Green dots are cities with nonpharmaceutical intervention days above the median in 1918, and red dots represent below-median municipalities.

The study by Sergio Correia of the Federal Reserve Board, Stephan Luck of the New York Fed and Emil Verner of the Massachusetts Institute of Technology’s Sloan School of Management found, on average, an 18% decline in state manufacturing output at the typical level of exposure.

Reacting 10 days earlier to the arrival of the pandemic in a given city increases manufacturing employment by around 5% in the post period, the researchers said. Implementing restrictions for an additional 50 days increases manufacturing employment by 6.5% after the pandemic abates.

Anecdotal evidence suggests that the results have parallels in the COVID-19 outbreak, the researchers found.

Countries such as Taiwan and Singapore have not only limited infection growth but also appear to have mitigated the worst economic disruptions of the pandemic.

Though written by Fed officials, the paper is not officially endorsed by the U.S. central bank.

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