THE THIN WHITE LINE: the history of a future avian influenza pandemic

Chapter 4: "The End is Near"

The plummeting economy

Canada paid a terrible human cost during the Pandemic. Just beyond the human cost, however, was the enormous economic cost.
Traditionally, the economic costs of an infectious disease are based on death and disability and resulting losses in income coupled with the costs of paying for healthcare and related services. Epidemics of highly infectious diseases, however, can have more dramatic impacts on economies and present numerous other costs, as evidenced by the SARS pandemic of 2003.

Table 4-1. Progress of epidemic in the province of Nova Scotia and its estimated impact over its entire 10-week course.(67)

	Week 1	Week 2	Week 3	Week 4	Week 5
Clinically ill	13,995	23,325	34,988	39,886	35,454
Hospital admissions	1,400	2,333	3,499	3,989	3,545
Hospital acute care bed capacity	2,981	2,981	3,726	4,472	4,472
Requiring acute care beds	1,085	1,808	2,712	3,091	2,748
Bed demand as % capacity	36%	61%	73%	69%	61%
Requiring ICU beds	210	560	875	1,123	1,130
ICU bed capacity	181	181	226	226	226
ICU demand as % capacity	116%	309%	387%	496%	499%
Requiring ventilators	105	280	437	562	565
Ventilator bed capacity	145	145	181	181	181
Ventilator demand as % capacity	72%	193%	241%	310%	312%
Mortality (1.25% of clinically ill)	175	292	437	499	443
Mort. in hospital (70% of deaths)	122	204	306	349	310

	Week 6	Week 7	Week 8	Week 9	Week 10+
Clinically ill	34,988	23,325	13,995	8,864	4,432
Hospital admissions	3,499	2,333	1,400	886	443
Hospital acute care bed capacity	4,472	4,472	4,472	4,472	4,472
Requiring acute care beds	2,712	1,808	1,085	687	343
Bed demand as % capacity	61%	40%	24%	15%	8%
Requiring ICU beds	1,057	875	560	343	199
ICU bed capacity	226	226	226	226	226
ICU demand as % capacity	467%	387%	247%	152%	88%
Requiring ventilators	528	437	280	171	100
Ventilator bed capacity	181	181	181	181	181
Ventilator demand as % capacity	291%	241%	154%	95%	55%
Mortality (1.25% of clinically ill)	437	292	175	111	55
Mort. in hospital (70% of deaths)	306	204	122	78	39

   SARS had illustrated just how interconnected our globalized world had become, and how vulnerable it had made its constituent economies should these connections be impacted by infectious disease. In the case of SARS, more than 8,000 people in 32 countries became infected and more than 10 percent of them died. The total number of people infected with SARS represented 0.00013 percent of the world’s population, and yet the East Asian economy suffered a reduction of 0.5 percent of Gross Domestic Product (GDP) and the global economy lost about US$30 billion because of the disease.
    The biggest economic impact of the Pandemic was arguably not the numbers of dead, but morbidity——the numbers of clinically ill——which resulted in absenteeism and government interventions such as travel restrictions and business closings. In other words, the impact on travel, trade, business investment and consumer spending would likely have been significant even if the flu had been milder like previous influenza pandemics. Consider the impact on travel and tourism alone, industries worth about 4 percent of global GDP.(68) Even with lower mortality and hospitalization rates, the economic losses would have been immense during the Pandemic.
    According to current estimates, the massive global slowdown caused by the 2012-13 Pandemic resulted in a 5.3 percent reduction in global GDP in 2012, valued at US$2.2 trillion.(69) This is not counting further reductions in GDP due to civil strife, such as the ongoing civil war in China. GDP represents the total value of all goods and services produced by a country. These effects were largely produced by economic shocks.
     Economic shocks are events, typically unpreventable and unexpected, that affect an economy. Sometimes they are negative and sometimes they are positive. For example, Canada is the world’s leading producer of zinc, uranium and nickel, and the second leading producer of silver, titanium and gypsum. An event that reduces demand or lowered prices for any of these commodities, for example, would be considered a negative shock.
    Shocks may be national or, like the Pandemic, international events. International shocks are especially damaging to open economies and large exporters. Additionally, shocks may be supply or demand shocks. A demand shock is an event that affects demand for an economy’s goods and services. A supply shock is an event that abruptly changes the price of a commodity or service, which may be related to a sudden change of supply.
    Shocks affect resource allocation. Economics, after all, is the study of how limited resources in an economy are allocated, who gets what. In terms of resource allocation, all shocks have winners and losers.
     The Pandemic produced a series of demand and supply shocks. On the supply side, high rates of illness reduced labor availability. On the demand side, consumer and investor confidence plummeted, while consumers changed their buying patterns. The total economic impact was aggravated by the fact that the markets reacted strongly to cascading bad news about the Pandemic.
    Mortality and morbidity had severe impacts on the workforce, resulting in a labor shortage in virtually every industry. With fewer workers and restricted trade, production declined. Thanks to the just-in-time economy, Canada’s warehouses contained few goods, creating a fast scarcity. This scarcity disrupted production and resulted in higher prices for all valuable goods.
    Government interventions such as business closings produced a series of shocks. For example, nationwide travel restrictions virtually suspended demand for tourism in Canada, resulting in minimal travel activity; in terms of resource allocation, the travel and tourism industries were big losers. Now the employees of each tourism operator suddenly found themselves without a pay check, reducing their wealth and spending power. As more people lost their jobs due to closings and layoffs, arrears and defaults increased among consumers and businesses.
    Negative demand shocks became partly offset by demand substitutions——changes in consumer preferences for goods and services that have positive economic effects. For example, a consumer who doesn’t want to leave home and go to a crowded retail store may switch to online shopping. As another example, a couple that could not take a vacation used their spare cash (or credit) instead to order bottled water, a portable gas stove, emergency power generator and canned food through the Internet. In terms of resource allocation, any businesses providing these types of goods and services became big winners, although they faced production constraints if their supply chains extended to China. Demand reached such a fever pitch that consumers were easily scammed.
    As business and investor confidence plummeted, capital began fleeing in search of safe havens——stable investments where its value could be preserved. For example, if demand for tourism has dropped to close to zero, a tourism operator is going to halt its plans to build a new resort. If the tourism operators are going to get hammered and many of them go out of business, then investors will want to pull their capital out of tourism operators and put it into something safe, such as drug companies or gold and silver or government bonds. These decisions weren’t always rational. Investor panic resulted in a plummeting stock market before most markets were ordered closed for the duration.
    Over time, these shocks worsened as mortality and morbidity increased and government intervention measures escalated in severity while a growing number of people virtually quarantined themselves in their homes and avoided public places. Governments ultimately assumed a wartime view of the economy, focusing their efforts on shutting down many non-essential businesses while maintaining essential businesses such as health-related goods and services, utilities telecommunications, food production, pharmaceuticals, defense industries, freight transport and so on.
   Wherever demand dramatically exceeded supply, as in the case of essentials such as masks and luxury goods such as cigarettes, liquor and spices, prices skyrocketed even farther and faster than the normal rate of inflation did, and a black market flourished. With cash in short supply as banks either closed or ATM machines were not restocked, many people began bartering anything they had of value.

    Economists now estimate that the Pandemic caused GDP in both Canada and the U.S. to drop by about five percent. Canada’s US$1.2 trillion GDP lost more than US$60 billion. The US$13.2 trillion GDP of the United States lost more than US$660 billion.
    Major pre-Pandemic industries, such as the airline and life insurance industries, suffered a wave of bankruptcies. As of the time of writing, the government is attempting to re-stimulate key industries with aid and tax breaks.
    The economy is still suffering a major recession, and economists say that it may take as long as a year or more to return to growth rates enjoyed before the Pandemic.
    If a second wave occurs, however, all bets are off.
    During the Pandemic, essential businesses operated in extreme conditions. Without them, the country might have simply collapsed.