Financial History Issue 133 (Spring 2020) | Page 22

Pandemics
and Epidemics
Financial and Economic Effects
By Richard Sylla, Janice Traflet
and Robert E. Wright
During the first seven weeks of 2020,
despite ominous news from China, Italy
and Iran about the spread of the covid‑19
virus, US stock indexes hit new all-time
highs. Then, in little more than a month,
the market crashed. By March 23, the Dow
Industrials dropped 37%; the S&P 500,
34%; and the NASDAQ Composite, 30%.
It seemed that the markets suddenly
realized that the virus’s spread to the
United States would cause widespread
business shutdowns, closings of schools
and universities, and stay-at-home orders
Emergency hospital during the 1918 influenza
epidemic, Camp Funston, Kansas.
from public officials. More than 20 million
American workers, a seventh of the labor
force, would apply for unemployment ben-
efits between mid-March and mid-April.
All of that happened. A major recession, if
not a depression, seemed imminent.
Then, in response to the crisis, the
Federal Reserve, Congress and the Trump
administration implemented a number of
unprecedented monetary and fiscal mea-
sures to alleviate the public-health and
economic crises. By mid-April, as the
numbers of infections and deaths from the
virus mounted daily, the markets staged a
sharp recovery. In less than a month, from
the March lows the Dow rose 30%, the
S&P 29% and the NASDAQ 26%. Justified
or not—only time will tell—the markets’
collective wisdom seemed to think that the
virus would soon go away and the govern-
ment’s drastic measures would soon bring
a sharp economic recovery.
20    FINANCIAL HISTORY  |  Spring 2020  | www.MoAF.org
Is this what typically happens during
epidemics and pandemics? Because they
don’t occur often anymore, most people
have not experienced them and don’t have
a clue as to what is typical. But they have
happened often enough in history, which
can offer some guidance. Here, seeking
that guidance, we examine a number, but
by no means all, of the epidemics and pan-
demics that have occurred over the course
of US history.
Yellow Fever Epidemic
(Philadelphia, 1793)
The epidemic hit what was then the
nation’s capital in late summer and lasted
several months. The most likely source
of the outbreak is that the infection was
brought to the city by refugees fleeing
a slave revolt in Santo Domingo (mod-
ern-day Haiti), where mosquitoes made