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The Fed and the Flu

Parsing Pandemic Economic Shocks

A Word from David Kotok

I have been intrigued by the impacts of epidemics and pandemics for more than a half century. My journey began in 1966 when, as a second lieutenant in the US Army, I was assigned to the 485th Preventive Medicine Unit attached to the 7th Army, Europe. We were part of the 7th Medical Brigade, whose task was to support the entire American 7th Army in Europe with field medical services, including medevac helicopter ambulance services. 

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The American military establishment has long understood the risk of sickness and disease. History tells us that General George Washington inoculated troops in the Continental Army against smallpox during the American Revolutionary War using a technique called variolation. Smallpox was the most virulent killer of soldiers in those days, far more dangerous than British troops.

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Fact is, disease has killed more soldiers throughout all wars than swords, arrows, bullets, and bombs have. American military commanders from General Washington to General Eisenhower knew this history lesson well; thus, the task of the 485th was to try to protect soldiers from epidemic disease.

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The writing and research in this book are the culmination of over a half century’s focus on disease and epidemic and pandemic events and their economic impacts. Pandemic disease, fear of disease, prevention, and treatment have long factored into economic and financial market risk alignment. An economy and its financial market function best when market agents are not sick and don’t have disease risk on their minds. And while an economy can be spurred in the short term by subduing fear — a popular strategy — it cannot be fully restored as long as pandemic-caused disease, death, and disability continue to erode human health and productivity. 

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David R. Kotok

Book cover — The Fed and the Flu: Parsing Pandemic Economic Impacts
"A well-researched, engaging economic history of pandemics." — Kirkus Reviews
Read the review.

Over the century that intervened between the 1918 H1N1 Spanish Flu pandemic and the COVID-19 pandemic, the US Federal Reserve has deepened its understanding of the economic shocks that pandemics deliver. In fact, epidemic and pandemic shocks appear to have had similar characteristics as far back as the historical record can offer us clues. Further, human behavior has always been implicated in a pandemic's economic outcomes, as surely as pathogens are. The Fed’s actions in response to COVID-19, based in part on its own evolving understanding of what it takes to stabilize an economy and financial system in the face of a pandemic shock, were successful in forestalling an economic and financial collapse when COVID struck.

 

The Fed and the Flu examines the Fed’s journey, insights from history, lessons from the world’s experience with COVID, and the pandemic’s economic impacts captured in charts. Every pandemic delivers an initial shock, but it also casts a longer shadow over the medium term. Most importantly, in the authors’ view, every pandemic is a learning opportunity that can be leveraged to better inform responses to future pandemics.

David R. Kotok

Authors

Michael R. Englund
Tristan J. Erwin
Elizabeth J. Sweet

David R. Kotok

Before Covid-19 few economic commentators who thought about big economic risks pointed to a pandemic.  Yet, we are now living with the profound impacts of both the pandemic and the policy responses to it. David Kotok and his coauthors have produced a highly valuable examination of the crisis that began in 2020, its historical antecedents, and its lessons.  David’s book is both timely and most helpful in anticipating the inevitable next one prophesied by many experts. 

Dennis Lockhart, former President and CEO, Federal Reserve Bank of Atlanta

Praise & Reviews

The Fed and the Flu: Parsing Pandemic Economic Shocks by David R. Kotok, Michael Englund, Tristan Erwin, and Elizabeth Sweet is an important compendium of the history of pandemics, their effects on societies and economies, the policy actions taken to address both the health and economic effects, and recommendations drawn from these historical experiences. David Kotok, a financial market practitioner and scholar, provides insights from his decades of interest in the effects of pandemics on people and the economy. All policymakers will benefit by considering the lessons the authors draw from the recent COVID-19 pandemic so that they are better prepared to address future pandemics.... [Read Loretta Mester's full review of a July 2024 draft.]

Loretta Mester, former President, Federal Reserve Bank of Cleveland, Professor of Finance, the Wharton School at the University of Pennsylvania

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The Fed & the Flu, Parsing Pandemic Economic Shocks is a monumental journey through time aimed at understanding the impact of pandemics on individuals, society, the economy and on policy responses. The latter vary in their objectives, some to preserve the power of ruling classes within their empires, and some to protect the social fabric and well-functioning of societies. Invariably, the economic impact of mass contagious illness is profound and often long-lasting. The striking and remarkable conclusion is that whether through antiquity, the Middle Ages, the pre-industrial and industrial eras, the modern scientific times or through the advent of the technological and AI revolutions, the responses from large segments of the population carry a disturbingly similar tendency: a burgeoning lack of trust in governing entities.... [Read Kathleen Stephansen's full review.]

Kathleen Stephansen, current Vice Chair and former Chair of the College of Central Bankers at the Global Interdependence Center

Praise and Reviews

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