Dangerous Assumptions

Again and again, we hear the same scenario repeated by governmental and private agencies. A pandemic strikes, and employers will be forced to deal with absenteeism rates of 30% to 40%, as many will be ill or taking care of stricken loved ones. We are warned that this could take a major toll on our gross national product, cause delays in obtaining goods and services, and could result in a sharp, but short, recession.

A pandemic wave, they say, could last 8 weeks. Maybe 12. But the good news is, recovery should be swift, and any economic downturn should reverse itself after 1 or 2 bad quarters. The worst hit sections of the economy, we are told, will be airlines and the travel industry. Pharmaceuticals, however, are expected to perform nicely.

Doesn’t sound that bad, does it?

A sharp, but short, recession. And losses mostly in a couple of economic sectors, followed by a swift recovery.

But is this realistic? And what are they basing these calculations on?

Invariably, these projections, and studies, are based on a mild or medium pandemic. No one that I have seen has publicly released a projection based on a 1918-like scenario. Most of these projections assume a pandemic of the sort we saw in 1957, with the Asian flu, or a little worse.

While we cannot know if the next pandemic will be as bad as 1918, the evidence is pretty strong that the H5N1 virus, if it mutates, will be a bad one. It has been called `the scariest flu virus I’ve ever seen’ by Dr. Robert Webster, one of the worlds leading virologists. And other leading scientists like Dr. Osterholm at CIDRAP, and Dr. Nabarro at the UN have all expressed extreme concern over the virulence of this particular virus.

It is, of course, of prime importance of governments around the world to keep the economies going. There is little stomach for talking about a 1930’s style depression on the horizon. It might cause some people to stop and take notice. Perhaps put off buying that new car, or committing to a new mortgage. Some investors might pull back, move to safer harbors, and the stock markets around the world could fall.

Better, it seems, to talk about mild or medium case scenarios, and paint optimistic pictures of how the economy would fare during a pandemic. After all, it might not happen. And if it does, it might not be so bad.

The lynchpin of most of the economic analysis’s seems to be that 60% to 70% of employees will show up for work during a pandemic, and that presumably there will be work for them to do. Is this even remotely reasonable?

How many people will really go into a workplace during a pandemic, even if they are not yet ill? Already, we hear many healthcare workers are balking at the notion of going into work. Will the guy who works the deep fry baskets at McDonalds, or the gal who makes your double Latte at Starbucks really show up for their jobs when co-workers are keeling over and dying?

And will restaurants, shopping malls, and virtually every other business in the world keep their doors open if people are afraid to leave their homes?

And the idea that a pandemic wave will last 8 to 12 weeks, while correct, is just a bit disingenuous. The 1918 pandemic lasted 18 months, and was highlighted by 3 distinct waves. Just about the time people began to believe that it was really over, and the number of deaths had dropped for several months, it came back with a vengeance. Most health officials think we could be in for a 1 to 2 year ride with a pandemic.

So much for a swift recovery.

Since the rest of their rosie projections are based on these two dubious, and dangerous assumptions, one is inclined to doubt their analysis.

While it is to be expected that our leaders will do everything they can to talk up the economy, even in the face of a pandemic, it is important for everyone to realize the source and their agenda.

Getting your financial house in order to withstand a pandemic will be every bit as important as having a full pantry. Now, before the herd realizes what is about to happen, is a good time to look at your financial exposures. Talk with an advisor you trust, and make adjustments.

If a pandemic does come, it won’t be pretty. Best be prepared for that.