Odd Lots - What The Black Death And Spanish Flu Can Tell Us About What Comes Next

Episode Date: June 22, 2020

Nobody knows what the post-COVID future looks like. But there are some lessons to be learned from previous pandemics. On today’s episode we speak with Jamie Catherwood of O’Shaughnessy Asset Management, aka the “Finance History Guy.” Jamie talks to us about what he’s learned from studying both the Spanish Flu and the Black Death about what this crisis means for markets and the economy.See omnystudio.com/listener for privacy information.

The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Rafini. We'll bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off.

And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. That on Sundays we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television. Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend.

Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, Radio, and wherever you get your podcasts. Oh, and welcome to another episode of the All Thoughts podcast. I'm Tracy Allaway. And I'm Joe Wisenthal. So, Joe, you know what I like to do during uncertain times, times of trouble? Play with your dog, play with your puppy? Yes, but that's a relatively new development. But for a long time, I really like reading history books.

Whenever the world seems a little bit crazy, I like, going back in time and finding other moments where things seem just as crazy. See, I like stress eating when the world is really bad. Yeah, stress eating is also enjoyable. But the reason I bring it up is because in the current situation, we've seen the coronavirus pandemic, there are a lot of historic parallels to this particular outbreak. So almost immediately when this whole thing,

started, people started reaching back to the black death of the Middle Ages. We also had people talking about parallels with the Spanish influenza pandemic of 1918. Lots of people looking at history to try to figure out what's going on right now and what the economy might actually look like once this outbreak has subsided. Yeah, that's exactly right. Especially the Spanish flu, the Spanish influenza of 1918. There's been numerous stories about that, I guess, because maybe of all the different, like, sort of like pandemics we've had in the past, we probably have the sort of, you know, most accurate recollection of like what the medical experts were saying at the time. Of course, everyone's seen those charts of the second wave of the Spanish flu. So of all the,

you know, lots of, but as you say, lots of attempts to look at history to figure out what they mean for the present. Right. And whenever we talk about financial history, there's one guest that we really like to have on. And we're going to have him on again. It's Jamie Catherwood, aka Finance History Guy from Oshonnessy Asset Management. He also runs a website called investoramnesia.com. We've had him on before. We're going to have them on again to walk us through what we can learn from previous outbreaks or pandemics and what they tell us about the current situation. So, Jamie, thanks so much for coming on. Thank you so much for having me back. So, Jamie, maybe to begin with, you know, Joe mentioned that a lot of people have been focusing on the Spanish influenza pandemic of 1918 in particular. But is there one moment in history that you focused on in your readings and in your

studying of this topic? One moment of history that is the most relevant to our current situation? So I think that, like you guys talked about, there's a lot of people going back to both the Black Death and the Spanish flu. There's a lot of other kind of epidemics and pandemics in history that are also interesting, but they're all really different, including the Spanish flu. It's fairly different in terms of just the disease, but also kind of the time it occurred in versus today. So I think there are a lot of differences, more than similarities, but there are some interesting trends in both today and the Spanish flu. that are similar. And one that I found really interesting was just there is a paper that talked about the Amazon

effects that occurred in the Spanish flu, which sounds crazy. But we've all talked about how Sears was the original Amazon. And there was evidence, I think it was in a Federal Reserve paper that showed on a monthly basis during 1918 and the second wave that was in the fall, which is the worst of three waves, that the sales and business activity for Sears Roebuck and Monkum Reward, which had mail order catalogs, increased in the worst months of the Spanish flu when more places were shut and kind of lockdown was taking place. And then as the economy started to reopen, again, sales started to decline back to normal levels. But there's like this spike when people

were at home more of ordering through these mail order catalogs, just like today. Everyone orders from Amazon while they're kind of hunker down at home. So if the Sears, catalog was the Amazon of that. What was the Peloton of that crisis? I can't even imagine. I feel like there's some ridiculous contraption that you see like some elastic bands workout machine or something. No, no. But there's a lot of anecdotes like that, which are just very reminiscent of today. There were things like retail foot traffic was down 33% in some areas. But what was interesting is that then after the kind of reopening started to occur, that some retailers not all obviously reported that the kind of bounce back after the reopening made up for more than the sales

from when their business had to be shut down. So that was kind of interesting. Well, we should note on that note, since you brought up retail sales, that we are recording this on June 16th at about nine in the morning and just half an hour ago today, we got the retail sales for May, and they came in way better than expected. They basically came in double on a month-over-month basis about double what people were expecting. So as long as we're talking about the sort of eco side,

the pent-up demand equivalent of the Spanish flu, this month's retail sales report would bear out, once again, a sort of similarity. And it's interesting to see kind of today and in the Spanish flu the different industries and types of retailers that did well and which ones didn't. Like today, you know, see Zoom and other companies like that. Clorox stock was rocketing for a while. But in the Spanish flu, the Federal Reserve paper showed that mattress sales actually increased

something ridiculous like 40% or something because bed rest. was such a commonly prescribed, like, cure by doctors for people who had symptoms. And so people were just going out and buying mattresses because that was what doctors were telling to do is just stay at home, you know, get bed rest. And so randomly the mattress industry did very well, while other, like, retail groceries, they dropped, like, a third. And then there were a lot of other businesses in towns in Arkansas, which is what the Federal Reserve paper focused on, which some of their business dropped, like, 70%.

So I'm curious, and you've touched on. on this already, but once the Spanish flu sort of fell away, once the pandemic ended, did we see the economy bounce back, corporate profits bounce back, and make up the lost income that had occurred during the outbreak? Or was there sort of a permanent hit to output? So the problem with this period is like there's not as great economic data as you would think, which is frustrating, obviously, because at a time like this, everyone's looking back to find the economic data. There is some, but from what I've read, the effect of the Spanish flu was pronounced, but it was over the short term. And then there was a fairly quick bounce back.

As I said, like some of the examples of retailers saying that the business boom, once they did reopen, made up for the losses incurred during the lockdown. And there were some businesses that actually reported a increase over the prior year in sales, which was remarkable. But the economy kind of bounced back, but also you have to keep in mind of how much that was due to the Spanish flu and how much was due to the war ending. But bounce back was kind of short-lived in itself because in 1920, 1921, you then had a recession. But in terms of the Spanish flu impact, it seemed to be harsh, but short-lived and the bounce back was pretty swift. Was there any, like, did they do any stimulus or anything?

Like, was there any economic policy to counter the effect? I mean, one of the things that's been striking that a lot of people have cited for the surprising resilience of the economy and the market during this crisis is just the degree to which policymakers moved extremely fast, perhaps having learned some of the lessons of the Greek recession about a decade ago. Was there a economic policy response that? that time around? You know, there could have been, not from what I've read. I've read a number of papers on this. And I don't recall seeing, if there was, it wasn't pronounced enough to be kind of prevalent throughout the research that I've read.

You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's time. stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations, but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News Now. And we don't wait an hour to publish breaking news. When news breaks, we'll have an episode up in your podcast feed within minutes. So you're always

getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. Yeah, Tracy, it's interesting. Speaking of history, how often economic stabilization measures that we sort of take for granted is making sense in a downturn, more spending, lower rates, etc. Like, they just didn't know anything back of the day.

They get some crazy reading back of past crisis, how, like, clueless policymakers looked relative to this sort of conventional wisdom today about what you need to bounce back. It always stands out to me when reading about past crisis. They didn't know anything. I mean, I guess it depends how far back in history you go. The Romans were pretty good at stimulus. Okay, we're going to get off track. I do want to go slightly further back and talk about the Middle-AIDS.

The Black Death, aka the Great Plague. A lot of people have been looking at that one and talking about the labor market, what might happen to wages and inflation. And I've seen different theories on this. So one explanation says that after the great death, so many people died that there was a shortage of labor and wages eventually went up. But I've heard other people say that one of the reasons wages went up is basically a bunch of the peasants revolted and sort of violently forced better earnings for themselves.

What have you learned so far, Jamie? Like, what do your readings tell you on that topic? And so if you survived, then in terms of the black death, everything came up peasants. Like, it was a great time to be a peasant after the black death because, like you mentioned, as you mentioned, there is a lot of disagreement over, which is crazy when you think about it, like something that happened hundreds of years ago, and there's still so much disagreement among economic historians of what happened. But from what I've read, there seems to be a agreement that there was a rise in wages

after the Black Death, because, as you mentioned, so many people died, and to put some numbers around it, the estimates are between 17 and 28 million Europeans, and the Black Death was from 1347 to 1353. And what made it actually so pronounced in its impact was the fact that it wasn't one isolated outbreak. It kept coming back in waves for decades. I think Britain experienced 30 different outbreaks of the play between 13, 53 and like 13. It was like 50 year period. Basically, there was an outbreak every four years of the plague.

So it just kept coming back every time they thought that they were done with it. it would just come back and each time it was less severe, but I mean, still it was the plague and it was killing off people. So it just kept coming back all over Europe, but in England it was basically every four years. But as you mentioned, Tracy, because so many people had died, what happened was that suddenly all these lords who had previously seen over these manner systems

where the peasants were working the land and the lord would collect rent views from the peasants, they suddenly faced this problem where they had all this land, which previously was a good thing, but suddenly now there weren't as many peasants to work until the land. So the peasants were able to demand higher wages. And also they had the ability to kind of shop around their services to other lords, which previously wouldn't have been the case,

but because every lord was so desperate to hire people to work their land, that if the lord a peasant was currently working for, didn't offer them better working conditions, living conditions, and wages, then they could just go to another lord who would be willing to offer them those conditions. So for the peasant and other kind of jobs related to agriculture, which outside of the city,

nine out of every 10 people were making a living related to working with soil in this period, which is crazy. they could go and get higher wages. And there was one example of like a plowman who in 1348, he was making two shillings a week. And then in 1349, he was making three shillings a week. But then in 1350, his wages had grown to 10 shillings a week. So, yeah. And that's just like one example of many.

The feds got to raise rates. That kind of wage grow. The ECB. I hope the ECB hiked rates. You know, I didn't realize until you said it just now that there were so many ways, but now I am looking at like, you know, I'm looking at the Wikipedia page of the Black Death. It's funny. There's almost no way to talk about old-timey things without automatically sort of superimposing modern conceptions of how the economy worked back onto them. Like, I mean, I joke about the ECB raising rates. Obviously, there was no ECB in 1348. But I, you know, my first question, like the first thing that comes to my mind is like, oh,

that has to be like really bad for business capital expenditure plans because who wants to like plan for the future when there's so much uncertainty about the next time the black death is going to come along. Well, there was no ECB, but they did try and control wages, which I'll get to in a second. Oh, great. Overall, so that was one stark example of a guy quintupling his weekly wages in like two years. But overall, the estimates are that wages rose between 20 and 40 percent from the 1340s to the 1360s. It's again pretty pronounced. But one thing that was a counter to this rise in nominal wages was there was a pre-substantial rise in inflation because the gold and silver supply remain constant, but the amount of people is decimated. So there was just a higher ratio of gold and silver per capita.

So much of those kind of nominal weekly wage gains were offset by this inflation. But to Joe's point about ECB or some regulatory authority trying to control things, there was obviously a lot of, there were a lot of upset lords because they didn't want to deal with these peasants who were suddenly cocky and knew that they kind of had leverage in this situation. And there are all of these lords who were complaining about peasants who would barely do any work. They would make a huge fuss about being asked to do anything. And if they did do jobs that they were doing them haphazardly because they just knew that the Lord wouldn't be able to find a replacement for them. So the Lord's tried to lobby the UK authorities to do something about this problem.

And what ended up happening was the government put out two statutes in 1349 and 1351. In 1349, there was the ordinance of laborers, and then the statute of laborers in 1351, which both were aimed at pertaining wages. And they both stipulated that wages for peasants had to be set at pre-plague levels. And again, that was to kind of address this situation where people were, quickly getting five times what they were making before the plague. And there are also rules that the peasant couldn't leave and kind of shop around his services to other lords, again, to prevent this issue of people leaving and manners being left or lords being left with no one to tell their

manners. So there's no interest rate policy or anything, but there is definitely statutes put in place to try and prevent the wage growth from spiraling out of control. Sorry, just to be clear, who is making these statutes? Which governing body or which royal family or whatever was making? I believe it was Parliament. Got it. Royal family or whatever. I'm June Grosso, inviting you to join me for the Bloomberg Law podcast.

Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases. the latest actions from Congress and regulators and the legal moves driving the markets. From corporate law to constitutional law and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars, and policy experts to break down what the rulings really mean. We do this every weekday, then bring you the best conversations in our daily podcast. Search for Bloomberg Law on YouTube.

Apple, Spotify, or anywhere else you listen. On the East Coast, listen as you start your day. And on the West Coast, catch up in the evening. That's the Bloomberg Law podcast with me, June Grosso. Subscribe today wherever you get your podcast. I wanted to go back to the inflation point. You mentioned the gold and silver ratio to actual human beings was one thing that was pushing prices up. But what did we see during the Spanish flu outbreak? Did we see, I mean, we wouldn't have had the same type of coinage, obviously, and we might have had hit to productivity because of the war and various disruptions. But what did we see in that one? Again, inflation didn't come up as much as I thought it would have during my reading, but I know that there was a brief uptick in inflation,

it seems like most of the effects for the Spanish flu were brief, even if they were kind of severe, they were short-lived. But for inflation, I know that there was a short uptick, but I don't think that there was anything substantial. Again, this is also kind of during the war, so the government was doing a lot to kind of try and control prices in terms of quotas and everything and keeping prices stable because I know that after the war ended, some industries, I think coal was one of them where the government wasn't buying as much and helped setting prices and stabilize them, that the prices kind of dropped after the war ended. Going back to the Black Death for a second, again, I'm doing Wikipedia history here,

which is no match for your war series academic history. But there's a line in here that says the Black Death most likely originated in Central Asia or East Asia from where it traveled along the Silk Road, reaching Crimea by 1347. A, does that fit with what you've read about the history of the Black Death? And I'm curious, you know, one of the things that's come up with this crisis and this virus is the degree to which it sort of has temporarily and perhaps long term changed trade routes and certainly changed travel routes due to the fact that international travel is temporarily almost completely non-existent with these recurring outbreaks.

in Europe over the span of years and years and years, were there any changes to trade routes that you saw or that you've discovered in terms of the relationship between Europe and the rest of the world? Not so much in terms of trade route, but what there was definitely a noticeable shift in was the type of products and like types of agriculture that was current in England. And again, it was because if you were a lord who had, say, 100 acres, and previously you had 50 peasants working that land, suddenly you still have the same 100 acres,

but maybe there was only 15 peasants that could work the land. So you really weren't able to make use of that 100 acres. And so what ended up happening, which again was great for the peasant, was the Lord ended up leasing and renting out some of that acreage to ultimately peasants who were able to get that land and make a better living for themselves because they didn't have to share as much of the profit with the Lord because they were actually renting the land themselves. But the Lord was also forced to then kind of move into areas of agriculture that were less labor intensive simply because they didn't have the labor to

work, the more labor intensive types of agriculture. So there was a push. into things like animal livestock husbandry and planting more things like grapes, apples, pears, and this kind of stuff instead of the more traditional grain harvests, which had been the case previously because those were more labor intensive. So there's definitely a large shift in what types of crops the manners were producing, which is pretty substantial. Well, so just, you know, big picture, you know, looking forward. And obviously, it seems to be in this sort of post-crisis period in the sense that at least from an economic perspective, and certainly a market perspective, a widespread view that the worst is behind us, what type of things would you look forward from history or what kind of questions do you still have as a student of history in terms of how the, you.

post-coronavirus period will transpire? I think that like many of us, I am looking to see whether this kind of recent uptick in cases in some of the states that reopened is going to be something more lasting or whether it's a brief uptick, as we've mentioned it a couple times, that everyone is well aware of the second wave of Spanish flu. And although there are a lot of differences, I think that it's definitely interesting to see even before all the recent protests, there seemed to be like around Memorial Day, some kind of like switch where people just kind of gave up on social distancing and lockdown, just judging by social media and the amount of people I saw kind of going out. So I think that's interesting to look out for because there are a lot of papers and examples from the Spanish flu that are very reminiscent of today where there was business owners protesting about not being able to operate their businesses and open up their shops.

I am interested to see if that kind of trend continues. But also it'll be interesting to see what I think is in the next maybe crisis or crash, what people's expectations are in terms of monetary policy and fiscal stimulus based on what's happened this time around. Because it's one of those things where now that the door has been opened, what it seems radical this time might become the expectation the next time around. So it'll be interesting to see what that kind of lasting impact. is just psychologically because it might be, well, the last time this happened, we got stimulus checks,

and the government really stepped in to try and save certain industries and sectors, but now this time you're saying you're not, like, and I think that should be interesting. Well, you mentioned that, you know, everyone has seen these charts and stories of, remember, the second wave of the Spanish flu was worse than the first, and, of course, that's on a lot of people's minds coming into the fall for blue season to the extent that the coronavirus is seasonal, which we don't know that much about. But was there anybody in 1918 saying, oh, remember, you know, what happened the second wave of X? Or is the awareness of the concept of a second wave something that makes this unique? And thus, maybe a reason to think that history

won't play out because when you can observe something and when you can describe something, usually don't really get the same as last time. I think, well, it might not have been like the second wave, the exact phrasing. There are definitely people who were advocating for continued kind of lockdown and quarantine in 1918 because they were aware that people continuing to go out and stumble in crowds would only cause the flu to linger around longer. But what is interesting and related to your point is that one reason to be more optimistic for today is the reason it's called the Spanish flu is because it didn't originate in Spain.

The reason it's called the Spanish flu is because during World War II, or World War I, rather, Spain was neutral. And in other countries that were experiencing outbreaks of the Spanish flu like the U.S., there was kind of this tacit agreement with the government, between media and government, that the media was not going to report on bad news like this, like Spanish flu. I mean, World War I's going on. And the government didn't want stories about Spanish flu kind of running all over the front pages of newspapers. So there are definitely some stories on it, but they were kind of relegated to kind of the

back pages of newspapers. So there wasn't much coverage. And the reason that it's called the Spanish flu is because Spain was neutral. And so they didn't have that kind of tacit agreement in place. And so they were the ones kind of openly reporting it, cases that were doing the most reporting. And so people started linking it with Spain, even though it was probably occurring in their own country as well. It just wasn't as widely reported. But back to your point is the fact that today it's the opposite where literally all we read about is coronavirus, right?

So there is a much more widespread. I can't imagine anyone who doesn't know what coronavirus is. And so everyone is going to be more cognizant of the risks involved. and where we can do things to prevent the continued spread of the virus. So that is definitely one major reason to be optimistic is there's much broader knowledge of how to stop the spread. I think that's a good place to leave it. It's pretty rare for us nowadays to like end things on an optimistic note.

Yeah, so let's do that. All right, Jamie Catherwood, aka Finance History Guy, Thank you so much for coming back on. And we should just mention, of course, that everyone should check out your website, investor amnesia.com. Thanks, Jamie. Thank you so much for having me. Thanks, Jamie. That was great. So, Joe, I found that discussion fascinating. I kind of knew that I would. But all those little tidbits and anecdotes of how, you know, history has reacted to previous pandemics, I just find it so, so fascinating. Yeah, absolutely. And Jamie's just the best, isn't it? Yeah. I mean, honestly, I know I've been sort of gushing about his output and his website, but if you enjoy finance, if you enjoy markets, or if you just enjoy general history, following him on Twitter and reading his weekly newsletter, things like that, it's just really interesting. He does a great job of going back to

primary sources as well. So he'll often include cartoons of the time, you know, some of the cartoons that accompany the Spanish flu are particularly poignant. It's just a really great thing to go over. And again, maybe I'm weird, but I always derive a little bit of comfort from going back in time and seeing what previous generations had to deal with and realizing that, you know, some things never really change. Yeah. No, I love it. And even the fact that there was an Amazon equivalent of the Spanish flu is pretty amazing because I was like, you know, I thought that was going to be a joker that there wasn't really going to be. But the fact that even even back then that were like similar industrial changes. And at some point, we should do like a history of the

catalog. What was it the JC Penny catalog? He said. Sears. Sears. The Sears catalog. The Sears catalog. Yeah. We should do an episode about the history of the Sears catalog because I think it's a pretty, pretty fascinating in its own right, how big of a deal that was. Absolutely. An absolute giant of retail in the early to mid-1900s. And then, well, we can see what's happening today. It kind of makes you think about Amazon's business model, isn't it? Yeah, absolutely. I guess the other, the other big point to consider from Jamie is the notion that there are some major things that are different today. So, one, we have more transparency when it comes to information about the coronavirus. And two, we have the big, big reactions from central banks and other

authorities. I guess that's pretty different, isn't it? Yeah, absolutely. All right. Well, on that note, this has been another episode of the All-Bots podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthal. You can follow me at The Stallworth. And you should follow our guest, Jamie Catherwood. He is JFC underscore 3 underscore. As Tracy mentioned, he is a great follow on Twitter. Be sure to follow our producer, Laura Carlson at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening. Bloomberg Tech returns to San Francisco, June 3rd and 4th. Join me, Emily Chang, along with Tom Giles,

as we convene the CEOs, investors, and innovators shaping what's next in technology. Powered by Bloomberg's global newsroom and unrivaled terminal data will break down the capital, connectivity, and big ideas driving the industry forward. Be part of the conversation. Register now at BloombergLive.com slash tech. That's BloombergLive.com slash tech.