Can We Recover From This? A Look Back at 3 Historical Events

Written by: Allison Berger

We are living through extraordinary times.  The current health care and economic crisis has created a level of uncertainty that could cause even the most confident capitalists to question:

  • Is this time different?
  • Can we recover from this?

These were some of the questions we addressed in our recent client webinar with Dr. Apollo Lupescu.  Apollo highlighted the unique aspects of this economic downturn and drew parallels to 3 other events in American history that we can draw lessons and assurance from to help us navigate these turbulent times.

To understand why the current situation is so unique, Apollo first detailed the characteristics of a typical economic downturn.  In our economy we have 3 groups generating activity:

  • Consumers (the largest part)
  • Companies
  • The Government

If consumers cut spending because unemployment is rising or future expectations are poor, then companies are not producing as much, and this draws the economy into a recession.  The typical way to solve that problem is to give a tax break.  Consumers have more money in their pockets, so they buy more, companies start producing more, and the economy rebounds.  This is known as a Demand Side Recession and is what we experience, on average, about once every 10 years.  It’s also important to remember that this is a normal part of the economic cycle.

What we see today is not only a demand side crisis, but also a supply side shock.  In this case even if we want the economy to produce, it simply cannot because the workers are stuck at home.  This type of demand and supply side shock does not happen very often.  Over the past 100 years we can look at 3 instances when this occurred:

The Spanish Flu Pandemic of 1918

While there are many differences between the 1918 flu and COVID-19, there are also many similarities.  This was a virus that we could not treat and there was no cure for.  The response of the government and what the economy did at the time was very interesting and similar to what we are experiencing today.  Be sure to watch the video for a break down of their social distancing practices, safety recommendations and forms of entertainment while quarantined.


Apollo also highlighted an interesting study out of MIT that found cities that closed earlier and imposed longer restrictions through the 1918 flu had stronger economic rebounds after the crisis.  While the dismal news of the time seemed ominous, what happened afterward was quite encouraging.  Manufacturing took off, cities were vibrant again, and the Roaring 20s highlighted a strong economic period in our history.

World War II

The next supply side shock we experienced was during WWII when 11% of the US workforce was pulled to support the war effort.  The economy could not produce as much without these workers.  We learned some remarkable lessons through this period:

  • Women can do the same work as men

  • In free markets companies will find a way to make money in whatever state the world is in. If car manufacturers couldn’t make cars, they made tanks.  We see this today with breweries making hand sanitizer instead of spirits and Ford and GM repurposing their assembly lines to make masks and ventilators.  Things might look bad but that doesn’t mean companies won’t find a way to make money.
  • As investors we must be careful about overreacting when things look gloomy.  The darkest days can precede incredible stock market returns.  The view in 1941 was particularly grim.  Investors had lost money 4 out of the past 5 years, the war was killing millions of people, cities were being destroyed, and people were watching their neighbors leave and never return.

However, during the darkest days of this generation the stock market had a stunning result.

1973 Oil Embargo

Conflict in Middle East led to an oil embargo in the US.  This was a huge oil crisis and supply shock.  We did not have enough oil and the price sky rocketed.  There were lines at the pump to fill up your tank and inflation soared.  This crisis changed our nation in significant ways.

One of the lessons learned was that we could not continue driving gas guzzling vehicles.  Laws were passed requiring greater fuel efficiency.  We also realized our whole economy depends on a commodity that comes from countries that are not always friendly to us.  We needed to produce more at home.  Today the US is the largest oil producer in the world, larger than Saudi Arabia and Russia.

The Path Forward

The current health care and economic crisis will change us.  Some changes will be short run.  Some will be long run.  Apollo suggested there may be a national security component to this.  This could trigger a rebirth in American manufacturing the same way we saw with oil after the 1973 Oil Embargo.  The lessons will only be clear in hindsight.  What we know is it is a matter of learning.  We are learning, changing, and adapting to the new landscape.  Referencing these previous events in American history can offer us both the perspective to continue our investment journey and the confidence to persevere through obstacles along the way. 

Related: Three Questions Investors Had During the Stock Market Decline