|
The outbreak in Mexico of a new strain of the deadly swine flu has raised the specter of a global pandemic. Although details are still emerging about the new virus, as of this writing it appears to have sickened about 1,600 people in Mexico and killed as many as 152. In this country, the first 20 diagnosed cases, one of which required hospitalization, prompted an emergency declaration from Homeland Security Secretary Janet Napolitano. The U.S. total of confirmed cases now stands at 50. Additional cases have been reported in Canada, Spain, and New Zealand. Other nations also are reporting possible incidences of swine flu. And organizations around the globe have put in place various quarantines and travel advisories in an effort to prevent the spread of the disease.
Public health officials have been planning responses to a new lethal flu virus prompted by the earlier avian flu and SARS scares. According to AIER Visiting Research Fellow William F. Ford, health experts believe there is a 3 to 4 percent chance each year that such a global flu pandemic may occur. In his December 2008, Economic Bulletin, “Bird Flu Economics,” Ford reviewed the economic implications of a pandemic.
The scope and severity of the current swine flu outbreak is yet unknown. In seeking to estimate the impact of a public health emergency caused by the bird flu, economists developed a series of models based on the severity of the outbreak, Ford found. A study published in 2006 by Australia’s Lowry Institute, for example, suggested that even a mild global flu outbreak could cost the world 1.4 million lives and close to 0.8 percent of global GDP (approximately $330 billion at the time of the study). The study’s ultra scenario—equivalent to 1918 Spanish flu pandemic—could cause an estimated 142 million deaths and a global GDP loss of $4.4 trillion. About a fourth of the output loss would occur in the U.S.
In contrast, a 2006 study by the Congressional Budget Office put the one-time loss of real GDP in the U.S. at $640 to $700 billion in the case of a severe flu outbreak. That would generate a year-long recession not much different than the average postwar downturn, Ford wrote. But real wages are expected to rise because of worker fatalities—with densely populated areas near ports more heavily affected than rural areas.
Monetary authorities and the financial markets could face significant liquidity problems. Health insurers, for example, certainly would be overwhelmed with claims—possibly causing a wave of bankruptcies. Life insurers also would face heavy drains on their reserves, although early deaths among annuity holders might offset part of that impact. In addition, the art and entertainment industry, restaurants, lodging and recreation providers would suffer sharp drops in their revenues—but the consequences of these has not been explored.
The world already is in an economic downturn; it's unknown how a global health emergency may influence the current financial situation.
The full text of William F. Ford’s “Bird Flu Economics,” is available in the December 2008 AIER Economic Bulletin. Individual issues of the Economic Bulletin can be purchased for $2 from the AIER bookstore.
|
