Tuesday, April 28, 2009

The Hazard of Crowds: What Flu Is Doing to the Economy

A public health breakdown such as the swine flu that people are worried about now is an economic disadvantage for crowds. Wherever large numbers of people gather, it creates a significant risk of flu spreading, roughly in proportion to the number of people who are in that place that day. This creates a new disincentive to go to work, school, shopping, parties, rallies, movies, sports arenas, high-volume restaurants, and anywhere else that draws a large crowd.

Part of people’s response to contagious diseases is irrational. There is a risk in going to work or school in a building where there are 300 other people, but it is a slight risk. The greater risk is found in places that people pass through by the thousands: airport, subway station, shopping mall. Similarly, there is a risk in food, but only if it has been handled improperly since it was cooked. The greater risk with food, as always, affects the person who has to handle raw meat, and it is a risk that is easily contained by washing everything promptly (or, I hasten to add, avoided by preparing something other than meat). People seem to avoid vacationing whenever a contagious disease is spreading, yet the risk in a vacation spot could be less than the risk of going to work.

Yet most of the response people are having to the flu is basically rational. Flu can make a person unhappy and unproductive for a couple of months. It’s a risk that wouldn’t really make sense to ignore, and most of the risk comes from associating with crowds.

Specifically, flu risk leads to these broad economic changes:

  • People are more reluctant to go to work in crowded places. More people work at home. Some people postpone their job searches.
  • People go shopping less often. Even if they try to spend as much by buying more each time they go shopping, they inevitably buy less by going shopping less.
  • People worry more about unrelated diseases that have similar symptoms and are more likely to stay home with an illness or seek a medical diagnosis.
  • People cancel some plans to travel to meetings, conferences, and vacations.
  • All this results in a significant reduction in transportation. People burn less fuel and put less wear and tear on vehicles. This is more bad news for Detroit, as now even fewer people will replace their cars this year. And oil prices have already fallen on the flu news.
  • Worry, illness, and crowd avoidance all reduce productivity in all kinds of work. This could be the biggest economic effect of the flu. People who are sick in bed rarely get any work done, even if they try, and after they return to work, they may be moving and thinking a little slower for two or three months. People who worry make more mistakes and drop more tasks that needed to be done. And people who stay away from work may not be producing much.

News reports are mostly talking about what “could” happen “if” there is a significant flu outbreak, yet all of the above was already happening in varying degrees yesterday. And as the disease spreads, something the World Health Organization says is now inevitable, the effects will get bigger.

The economic implications are all the more troubling in an economy that is already pulling back, especially when it comes to retail. The retail sector has been holding on remarkably well under the circumstances, but if there is a disease scare that makes people not want to go to the mall or the supermarket, we could see another wave of store closings.