David Warsh: Unlike in 1929-33, we know where we are

SOMERVILLE, Mass. 

“A medically induced depression.” The phrase has stuck in my mind because an especially dear friend was treated with a medically induced coma several years ago, after his heart stopped for a few minutes sending oxygenated blood to his brain. For several days his life hung in the balance. Such were the odds that, if he survived, it would probably be with significant cognitive impairment. He recovered completely, having suffered no damage at all. Another miracle of modern medicine.

I don’t know any more than that about medically induced coma except for this: for a time the treatment was the centerpiece of the Milwaukee protocol, designed to prevent death after the onset of rabies symptoms in humans. The treatment has been discredited, since it saved only the first of more than 26 patients on whom it was tried. Rabies vaccines, of course, have spared countess others. 

Vaccines are one more reminder of how far we have come in the last hundred years, in both medicine and economics.

How far since the 1918-20 pandemic of the Spanish flu? The “blue death” infected something like a quarter of the world’s population and killed between 17 million and 50 million persons. In 1928, Alexander Fleming discovered penicillin in a petri dish on his workbench, touching off a cycle of brilliant research and development by others that led, in 1940, to the first successful treatment of infection with an antibiotic.

Vaccines? Viruses are another matter; antibiotics are no help against them. The technology surrounding DNA makes it possible to produce a reliable vaccine for Covid-19 within a year or two. But if, like most readers of The Double Helix: A Personal Account of the Structure of DNA (Touchstone, 2001), by James Watson, you think the road to the secret of life began with the phage group at Cold Spring Harbor and Caltech in 1945, you would enjoy The Nobel Prizes: Cancer, Vision, and the Genetic Code (World Scientific, 2019), by Erling Norrby, an MD/PhD involved for many years with the award of the medicine prizes. He traces the beginning of the story back to Peyton Rous, a Johns Hopkins University physician who in 1911 discovered viruses that caused cancer in chickens. In The Pandemic Century: One Hundred Years of Panic, Hysteria, and Hubris (Norton, 2019), medical historian Mark Honigsbaum makes clear how subsequent advances in medicine have generated overconfidence that the infectious disease situation is under control.

What have we learned since the Great Depression? The Fed and Congress and the governments of dozen other nation prevented a repeat in 2008 by lending first freely, then forcibly, to financial institutions threatened by panic. The best book I know about it is Last Resort: The Financial Crisis and the Future of Bailouts, by Eric Posner (University of Chicago, 2018). Thanks to the events of 2008, we have a better idea, too, of how the Depression got started, thanks to Gary Gorton, Toomas Laarits and Tyler Muir.

In 1930: The First Modern Crisis, they argue that banks stopped lending after the 1929 stock market crash and purchased safe assets instead. In essence, the banks were running on each other, producing the 21 percent drop in industrial production that has mystified economists. In the present crisis, faced with a pandemic instead of a mysterious slump, the authorities shut down social commerce and embraced mitigation.

Robert Gordon, of Northwestern University, explains

“The difference between the 1929-33 collapse in the economy vs. 2020 is that we understand now what is happening. We have a massive shutdown in production relative to the incomes of (a) all the people who have kept their jobs and (b) all the stimulus money going to the unemployed (roughly $1,000 per week) plus (c) the $1200 per-person payments. As a result 2020:Q2 [of the National Income and Product Accounts] is going to witness a massive increase in the personal saving rate, as consumption declines steeply relative to income. The closest analogy is rationing in World War II, where many types of consumption were rationed to equal zero. The difference is that GDP is falling today rather than rising because there is no current equivalent of WW II military production.”

There are plenty of things we would like to know, and don’t, beginning with how to get out of the current mess as quickly as possible. Vox’s Ezra Klein on the major plans to curtail social distancing being offered in hopes of restoring commerce to its customary vigor: “It’s scary,” Klein reports; he sees nothing normal about the foreseeable future. “Until there’s a vaccine, the U.S. either needs economically ruinous levels of social distancing, a digital surveillance state of shocking size and scope, or a testing apparatus of even more shocking size and intrusiveness.” 

We’ll figure it out, just as we have in the past, learning by doing. It is hard to imagine daily life returning to normal before the election. As in 1918, pandemics take lives while cures take time.

xxx

New to Economic Principals’ bookshelf: EuroTragedy: A Drama in Nine Acts, with a new afterword (Oxford, 2918), by Ashoka Mody.

David Warsh, an economic historian and veteran columnist, is proprietor of Somerville-based economicprincipals.com, where this essay first ran.