, entitled “Longer-Run Economic Consequences of Pandemics,” ask: “What are the medium- to long-term effects of pandemics? How do they differ from other economic disasters?”“Significant macroeconomic after-effects of pandemics persist for decades, with real rates of return substantially depressed, in stark contrast to what happens after wars… capital is destroyed in wars, but not in pandemics; pandemics instead may induce relative labour scarcity and/or a shift to greater precautionary savings,”...
“Pandemics, like natural disasters, offer a unique opportunity to study how economies work. They are like a randomised control trial, but at a much larger scale, with microbiology providing the natural assignment mechanism,” the study says. “This shock left England with a 25% to 40% drop in labour supply, a roughly 100% increase in real wages, and a decline in rates of return on land from about 8% to 5%.”“Pandemics have effects that last for decades. Following a pandemic, the natural rate of interest declines for years thereafter, reaching its nadir about 20 years later, with the natural rate about 150 bps lower had the pandemic not taken place.
“While the short-run fallout from pandemics looks similar to other economic disasters – large and sudden declines in economic activity – the medium- to long-run economic consequences are staggeringly different. And these differences matter for policymakers. In any such abrupt downturn, the textbook response is to either borrow to smooth the shock, or to pursue an aggressive stimulative fiscal policy to counter the shock. Both will likely result in a rapid buildup of public debt.