The Sky Isn’t Falling

It certainly looks like another example of crying wolf. After bracingourselves for a global pandemic, we've suffered something more like theusual seasonal influenza. Three weeks ago the World Health Organizationdeclared a health emergency, warning countries to "prepare for a pandemic"and said that the only question was the extent of worldwide damage. Seniorofficials prophesied that millions could be infected by the disease. But asof last week, the WHO had confirmed only 4,800 cases of swine flu, with 61people having died of it. Obviously, these low numbers are a pleasantsurprise, but it does make one wonder, what did we get wrong?

Why did the predictions of a pandemic turn out to be so exaggerated? Somepeople blame an overheated media, but it would have been difficult toignore major international health organizations and governments when theywere warning of catastrophe. I think there is a broader mistake in the waywe look at the world. Once we see a problem, we can describe it in greatdetail, extrapolating all its possible consequences. But we can rarelyanticipate the human response to that crisis.

Take swine flu. The virus had crucial characteristics that led researchersto worry that it could spread far and fast. They described—and the mediareported—what would happen if it went unchecked. But it did not gounchecked. In fact, swine flu was met by an extremely vigorous response atits epicenter, Mexico. The Mexican government reacted quickly andmassively, quarantining the infected population, testing others, providingmedication to those who needed it. The noted expert on this subject, LaurieGarrett, says, "We should all stand up and scream, 'Gracias, Mexico!'because the Mexican people and the Mexican government have sacrificed on alevel that I'm not sure as Americans we would be prepared to do in theexact same circumstances. They shut down their schools. They shut downbusinesses, restaurants, churches, sporting events. They basicallyparalyzed their own economy. They've suffered billions of dollars infinancial losses still being tallied up, and thereby really broughttransmission to a halt."

Every time one of these viruses is detected, writers and officials bring upthe Spanish influenza epidemic of 1918 in which millions of people died.Indeed, during the last pandemic scare, in 2005, President George W. Bushclaimed that he had been reading a history of the Spanish flu to help himunderstand how to respond. But the world we live in today looks nothinglike 1918. Public health-care systems are far better and more widespreadthan anything that existed during the First World War. Even Mexico, adeveloping country, has a first-rate public-health system—far better thananything Britain or France had in the early 20th century.

One can see this same pattern of mistakes in discussions of the globaleconomic crisis. Over the last six months, the doomsday industry has movedinto high gear. Economists and business pundits are competing with eachother to describe the next Great Depression. Except that the world we livein bears little resemblance to the 1930s. There is much greater and morewidespread wealth in Western societies, with middle classes that canwithstand job losses in ways that they could not in the 1930s. Bear inmind, unemployment in the non-farm sector in America rose to 37 percent inthe 1930s. Unemployment in the United States today is 8.9 percent. Andgovernment benefits—nonexistent in the '30s—play a vast role in cushioningthe blow from an economic slowdown.

The biggest difference between the 1930s and today, however, lies in thehuman response. Governments across the world have reacted with amazingspeed and scale, lowering interest rates, recapitalizing banks andbudgeting for large government expenditures. In total, all the variousfiscal--stimulus packages amount to something in the range of $2 trillion.Central banks—mainly the Federal Reserve—have pumped in much larger amountsof cash into the economy. While we debate the intricacies of each and everymove—is the TALF well -structured?—the basic reality is that governmentshave thrown everything but the kitchen sink at this problem and, takinginto account the inevitable time lag, their actions are already takingeffect. That does not mean a painless recovery or a return to robustgrowth. But it does mean that we should retire the analogies to the GreatDepression, when -policymakers—especially central banks—did everythingwrong.

We're living in a dangerous world. But we are also living in a world inwhich deep, structural forces create stability. We have learned fromhistory and built some reasonably effective mechanisms to handle