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# ‘Pandemics Do Not (Necessarily) Cause Recessions’
- URL: https://goodoil.news/pandemics-do-not-necessarily-cause-recessions/
- Published: 2020-05-02T01:30:00.000Z
- Updated: 2020-05-01T05:01:00.000Z
- Author: Guest Post
- Tags: COVID-19, Economy, NZ, NZ Politics, Politics, #wp, #wp-post, #Import 2024-07-17 03:24

**Peter Cresswell**  
[pc.blogspot.com](http://pc.blogspot.com/2020/05/pandemics-do-not-necessarily-cause.html?ref=goodoil.news)

A pandemic does not necessarily cause a recession on its own.

It needs help.

Historically, a pandemic has very rarely caused (or been correlated with) a recession:

![](https://storage.ghost.io/c/31/f4/31f4e20a-0315-499e-83ff-139e8eab53bf/content/images/wp-content/uploads/2020/05/2020_04_08_image2_2000x2528.png)

The BFD

Did I say “rarely.” For the twentieth and twenty-first centuries, read “never.” So far.

Why not? Because, [as David Ranson explains](https://www.independent.org/publications/article.asp?id=13110&ref=goodoil.news), “the economic system is resilient in a way that the human body is not”:

> Fortunately, the economic damage from an epidemic is largely unrelated to the very serious and tragic number of deaths.

> Containment and quarantine efforts mean production shutdowns, and they now are underway everywhere. But they represent supply-side disruptions, very different from conventional “recessions.” …. \[S\]uch events need not cause much cumulative loss of output—except to the extent that it is self-inflicted.

Self-inflicted? What could he mean by that? Well, things like:

- over-zealous efforts to slow the spread of disease by interfering with economic life;
- rather than coming together, the political parties outbid one another, striving to be seen by the public as proposing the more extreme policy;
- the police powers of the state are invoked and expanded to enforce those policies, which impose excessive and indiscriminate constraints on economic freedoms; and
- going forward—bigger and more authoritarian government; and, of course,
- the Federal Reserve and other central banks (violating their own policies of forward guidance), hitting investors again and again with shock and surprise.

But the economic system *is* resilient, explains Ranson.

One reason why: because in a supply-side disruption, folk are at least able to save more. Second reason why: because a production interruption like this “destroys no physical capital.”

> Nor is the incentive to restore normality harmed. All too few remember the natural adaptive abilities of a free-market economic system to adjust in even the direst circumstances. In the aggregate, gaps in the flow of goods and services are filled by a mix of pre-emptive efforts and ex-post rebuilding. Output dips and vitality are redistributed across sectors. Winners and losers emerge, but there’s no natural reason to fear economic damage beyond that.

Third reason why: because in “anticipating more difficult conditions ahead, b\[usinesses boost\] production and buil\[d\] up its stocks of raw materials and unfinished goods”:

![](https://storage.ghost.io/c/31/f4/31f4e20a-0315-499e-83ff-139e8eab53bf/content/images/wp-content/uploads/2020/05/2020_04_08_image1_2000x1263.png)

The BFD.

So in general, a pandemic alone does not cause a recession.

Of course, this provides no guarantee against *this* pandemic being the cause of a recession. It provides no guarantee because:

- *This* pandemic *is* bigger than all those others; and
- governments *are* inflicting more damage than in past epidemics, hindering this process of correction; and, even more seriously (and barely acknowledged)
- when this pandemic hit, the world was *already* in the throes of seeing the bursting of the everything-bubble.

There will be short-term economic damage due to those first two causes. But whatever long-term economic damage comes will primarily be from that third cause. Especially to be feared, **the response of government**.

*If you enjoyed this BFD article please consider sharing it with your friends.*