How Fear of Ebola Could Impact the US Economy

"Aversion behavior" may impact the way Americans spend their time and money.

ByABC News
October 3, 2014, 8:31 AM

— -- While Ebola may have infected only one person in the United States, economists say fear of the disease can spread like contagion.

"People become afraid by talking to someone else who is fearful or seeing someone else get the disease," said Ross Hammond, economist and director of the Center on Social Dynamics and Policy at The Brookings Institution.

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Hammond, who studied the economic effects of closing American schools in response in 2009 to the H1N1 virus, said there are documented instances of fear spreading very rapidly. Those fears could have consequences that affect consumer behavior and businesses.

"When people become afraid of catching a disease, and they change their behavior or keep their kids home from school, or stay home from work or cancel a trip, that of course has economic effects," he said.

PHOTO: Students are dismissed from Sam Tasby Middle School on Oct. 1, 2014 in Dallas, Texas.
Students are dismissed from Sam Tasby Middle School on Oct. 1, 2014 in Dallas, Texas. Officials confirmed that a student, who had contact with the first confirmed Ebola virus patient in the United States, attends classes at the school.

Here are some potential consequences:


In Texas, where the first person in the U.S. has been diagnosed with Ebola earlier this week, some parents have already chosen to withhold their children from school in fear of contagion. That means people will have to say home with their children, possibly affecting the level of workplace productivity.

In his 2009 study, Hammond had estimated that closing all U.S. schools in response to the H1N1 for four weeks would cost $10 billion to $47 billion.

Wall Street

Airline stocks have dropped this week, in part, due to fears that the virus may hinder Americans' willingness to travel.

Also, the World Bank estimated last month that the economic effect of Ebola in the hardest-hit countries of Liberia, Guinea and Sierra Leone, would be "catastrophic." In a global economy, that could impact American companies.

Travel and Tourism

People may choose to not travel -- either internationally or domestically -- and that can affect the airline and tourism industry.

Mead Over, senior fellow at the Center for Global Development, told ABC News that since Nigeria has succeeded in containing the outbreak, he expects the United States’ stronger public health system to quickly contain the disease in Dallas or if any other infected traveler arrives elsewhere.

Any economic impact on the stock market or in travel is not the impact of the disease per se but the impact of largely irrational "aversion behavior,” Mead said. “The impact of aversion behavior on the markets is like a speculative bubble, but in reverse," adding he expects this “reverse bubble” to collapse in a matter of weeks, as Americans realize that a strong public health system can protect them.

Meanwhile, Hammond's other research shows fear can help spread an epidemic as well as help contain it.

"So when the effects of something are severe, people tend to assume that it’s also somewhat more likely," he said.

The disappearance of the Malaysia Airlines plane earlier this year, for example, may make people more concerned about air travel even though probability of an incident may not have increased, he said.

But Columbia Business School Professor Amit Khandelwal said it's too early to know if companies are changing their business decisions.

"I’m not worried in the slightest about this, and I can’t imagine this holding back businesses from sending managers to Texas," he said.