|By Alan Hall, originally published in the May 2009 Socionomist
Part I: Epidemics, Markets and a Model Crisis
It’s widely believed that epidemics make people fearful, but as you will see in this report, socionomic causality better explains the data, which show that fearful people are more susceptible to epidemics.
Socionomics posits that the trends in social mood—widely-shared feelings including those of optimism and pessimism—unfold in a hierarchical pattern of similarly-shaped waves that are visible in charts of stock prices, our most sensitive meter of social mood. Major epidemics occur near lows in social mood—often near significant, fearful bottoms in stock prices—and can persist well into the subsequent uptrend.
Our socionomic and Elliott wave analysis suggest that social mood has completed an upward wave of monumental size and shifted to the negative at Grand Supercycle degree—which is one degree larger than the change in mood that created the Great Depression. This shift is driving rapid changes for the worse in financial markets, economies, personal fortunes and the quality of life. The scale of this mood shift means that the bulk of the largest bear market since 1720 still lies ahead, increasing our risk of an encounter with one of the grim reapers of major social mood decline, epidemic disease.
The May 2003 Elliott Wave Theorist offered perspective on the potential degree of this downturn:
According to the World Health Organization, the ‘Spanish flu’ pandemic of 1918 killed between 40 and 50 million people worldwide ‘and caused the largest number of deaths in the 20-39 age group, devastating economies at the end of World War I.’ That was only a Cycle degree bear market. This one is two degrees larger. People should be preparing now for greater stresses to come.
Social Mood and Epidemics
The first step toward preparing for the increased risk of disease is to understand the engine that drives it. We begin with an observation in the March 1994 EWT, which notes that epidemic disease correlates with large-degree episodes of negative social mood:
For whatever reason, disease sometimes plays a prominent role in major corrective periods, with some Cycle and Supercycle degree corrections containing epidemics and larger ones pandemics.
Figure 1 is a chart of inflation-adjusted U.S. stock prices dating from 1888, the year Louis Pasteur opened his laboratory and the approximate advent of germ theory, which radically improved medicine. Prior to this period, epidemic disease was far more prevalent across the timeline but still occurred a significant majority of the time during bear markets. In Figure 1, we have shaded the bear markets and marked with arrows the three periods of major U.S. epidemics, which in each case breached human defenses near the ends of social mood declines that lasted twenty years on average. We are about ten years into the current bear market. Social stress is rising as we approach another of these dangerous junctures, far bigger than the previous three. It should bring one or more epidemics and, could culminate in a pandemic.
The (Sentimental) Picture of Health
The May 2003 EWT described how historic optimism about health generated a social attitude of entitlement:
A multi-century social trend change will be related to human health. Personal health itself is now considered a natural condition that only incompetent doctors could disrupt, as reflected in the historically unprecedented number and size of malpractice awards bestowed upon customers of doctors by U.S. courts. Whether the causes of a long term change in attitude ultimately are political or microbial, the current attitude is not likely to be maintained indefinitely. The specters of AIDS and roving nuclear weapons are two concerns that might be taken as foreshadowing, along with evidence of an extreme in the worldwide financial mania of the past few years, a major change in today’s historically high level of human health and social stability.
Our analysis suggests that human health and quality of life have passed a historic pinnacle, the point from which major declines begin. Confidence and complacency are hallmarks of extremes in positive social mood. Recall that in the late 1960s—near a major peak in inflation-adjusted stock prices that held for 27 years—Surgeon General William Stewart famously declared that it was time “to close the book” on infectious disease. Yet new outbreaks have come steadily, including: Legionnaire’s disease, hantavirus, West Nile virus, drug-resistant tuberculosis, AIDS, salmonella, bird flu and the threat of old diseases returning through drug-resistant bacteria and viruses.
The breadth of the recent peak in social confidence is evident in decades of widespread complacent overuse of antibiotics and the consequent emergence of antimicrobial drug-resistant organisms. MRSA—methicillin-resistant Staphylococcus aureus—has spread beyond hospitals to inhabit ocean water and beach sand. It is now described as a major public health problem.
On March 2, the CDC reported that “Tamiflu-resistant influenza A viruses are now spreading widely across the USA, imperiling a pillar of the global pandemic-response stockpile.” Humans work hard to develop drugs, but it seems that viruses can effortlessly become resistant. “The evidence also suggests that Tamiflu resistance resulted from a natural genetic mutation, not because the ever-changing virus adapted to survive treatment.” (USA Today)
As recently as 2000, public health officials said measles had been eradicated from the United States, but in 2008, cases resurged to their highest level since 1996. The CDC’s most recent U.S. data (through July 31, 2008) shows a 68% increase over the number of measles cases reported in all of 2007. The recent “unprecedented” measles outbreak in the U.S., along with similar outbreaks in Switzerland, U.K, Australia, and Vietnam, were fueled by complacency, reduced funding, and importation via travel and immigration—all symptoms of the peak in positive social mood that augured a major trend change.
The popularity of the anti-vaccination movement in the U.S. and Europe is another indication of social confidence about the state of human health. Complacency about disease may be the ultimate expression of overconfidence.
According to medical historian David Morens, “The three deadliest events in human history were all infectious diseases. The 1918-1919 flu killed 50 million to 100 million people. The Black Death killed 25 million people, and AIDS has killed 25 million or more.”
The May 2003 EWT observed:
The fact is that epidemics and pandemics seem to hit populations during major negative social mood trends. Perhaps it happens that way because people’s psychological constitutions are weaker during bear markets. Perhaps it is because people’s personal behavior, whether involving hygiene (as in the time of the plague or in recent years with respect to hypodermic needles used to inject drugs) or sexual promiscuity, is more conducive to spreading disease during social mood retrenchments. Perhaps it is because social mood retrenchment brings economic contraction, which makes people less able to afford the creature comforts that ward off disease and more apt to crowd into smaller, more affordable spaces.
In other words, the mechanisms may be complex, but the ultimate driver is social-mood change, which in turn leads to changes in social behavior and perhaps in individuals’ constitution.
A Brief History of Hard Times
Let’s review a few of history’s most prominent epidemics and several instructive ones, beginning with the Bubonic Plague. This bacterial illness originated in China and in 1348 reached Europe, where it found a vulnerable social milieu, a bear market. Philip Ziegler, in his book The Black Death, describes the scene (italics added):
Before the Black Death, most of Europe was in recession or, at the very least, had ceased to advance. The cloth trade of Flanders and Brabant stagnated. Colonisation stopped. The great fairs of the Champagne, indices of the economic health of a large and flourishing region, significantly declined. The prices of agricultural produce were falling: agriculture was no longer the easy road to prosperity which it had been for the past two hundred years. Put in the simplest terms, Europe had outgrown its strength and was now suffering the physical and mental malaise which inevitably follows so intemperate a progress.
Does this sound familiar? These are precisely the conditions that socionomists recognize as being causal.
Ziegler writes of how the European plague was preceded by rumors of environmental calamity in Asia:
Drought, famine, floods, earthquakes, locusts, rains of frogs, serpents, lizards, scorpions and many venomous beasts of that sort, lightning, sheets of fire, huge hailstones, fire from heaven and stinking smoke. The foul blast of wind. This concept of a corrupted atmosphere, visible in the form of mist or smoke, drifting across the world and overwhelming all whom it encountered, was one of the main assumptions on which the physicians of the Middle Ages based their efforts to check the plague.
This notion of noxious air, called “miasma,” developed into a crude disease theory that persisted into the mid-nineteenth century. Miasma echoes today in a controversial United Nations report claiming that “atmospheric brown clouds” generated by Asia are harming the world’s climate, agriculture and health. In another parallel, Ziegler notes that during the Black Death, “Europeans were possessed by a conviction of their guilt,” sure that they had brought the plague upon themselves. These observations echo today in rumors of environmental collapse and the broad social fear and guilt about atmospheric carbon and global warming.
The plague itself was evidence of the weakened condition of society. It was followed by social hysterias such as the “dancing manias,” described as frenzied deliriums in which many people reportedly laughed, wept and danced furiously to the point of exhaustion or death. Justus Hecker’s Epidemics of the Middle Ages (1844) ascribed these “epidemics” to “morbid sympathy” during the widespread pessimism and despair that followed the Black Death. Hans Zinsser’s Rats, Lice and History (1934) observed the possibility that these strange behaviors amid rampant disease could have been partly due to infectious agents:
In great part, no doubt, the outbreaks were hysterical reactions of a terror-stricken and wretched population, which had broken down under the stress of almost incredible hardship and danger. But is seems likely that associated with these were nervous diseases of infectious origin which followed the great epidemics of plague, small pox, and so forth, in the same manner in which neurotropic virus diseases have followed the widespread and severe epidemics which accompanied [World War I].
Cholera in London
Cholera epidemics are case studies in social collapse. An easily preventable and treatable disease, cholera becomes epidemic when health and sanitation systems fail. Most recently, Zimbabwe suffered an epidemic that began in August 2008 and has killed about 3,200 and infected more than 69,000. Following the bear-market Panic of 1825, London experienced cholera epidemics in 1832 and 1848. Figure 2 plots the U.K. FTSE All-Shares Index and locates the epidemics. The quotes are from R.J. Morris’ 1976 book, Cholera 1832—The Social Response to an Epidemic. Morris observed that in 1848 people felt less helpless because they could see the obvious lessons from the 1832 epidemic:
Cholera had demonstrated the relationship between disease and the dirty, ill-drained parts of towns and had shown the need for drainage, sewerage and filtered water supplies. It ought to have been a spur to sanitary reform. Yet little action of this sort followed the  epidemic. In the winter of 1832-3, both government and people seemed to want to forget cholera as quickly as they could.
In 1849, after the second epidemic, this mindset changed as social mood reached its nadir, and interest in cholera sustained until well into 1850 with publications in the Surgical Journal, Medical Times and the Lancet. As Supercycle wave (c) bottomed in a low that has not been broken since, the religious association between sin and cholera gave way to a more rational mindset. Parliament passed public health acts that led to sanitary reform.
The 1918 Flu
Figure 3 shows the inflation-adjusted Dow, with boxes that display the time spans of World War I, the 1918 Spanish Flu pandemic and encephalitis lethargica, a deadly neurological disease. Although World War I introduced machine guns and poison gas and caused about 16 million total deaths, those casualties were dwarfed by the influenza/pneumonia outbreak that followed, right at the bottom of a collapse in stock prices that signaled a swift change in social mood toward the negative. The 1918 Flu was 25 times more deadly than ordinary influenza, killed as many as a hundred million people worldwide, and reduced by twelve years the average American’s lifespan in 1918. Historian Alfred Crosby said the virus “killed more humans than any other disease in a period of similar duration in the history of the world.” It came without warning, killed quickly, and even after excavation of frozen flu victims and decades of research, it is still not completely understood.
Despite the devastating blow to the population, Gina Kolata, author of Flu, The Story of the Great Influenza Pandemic of 1918, wrote that she took college microbiology, virology and history courses in the 1970s that never mentioned the pandemic. Much like the aftermath of London’s 1832 cholera outbreak, survivors were in denial and sought to forget the horrific disease. Kolata wrote that the 1918 Flu was largely “obliterated from the consciousness of historians.”
Other health threats incubated while society endured the bear-market stress that preceded World War I. Encephalitis lethargica—a sleeping sickness that attacks the brain and leaves some victims speechless and motionless—emerged in 1916, during the war. The disease killed about five million people in Europe and North America (which may look small on the chart, but is roughly the combined population of Chicago and Houston today), then abruptly vanished in 1926, five years into a bull market. Also in 1916, the U.S. suffered its first large outbreak of polio, (another neurological disease) with over 9,000 cases reported in New York City alone. Future President Franklin D. Roosevelt fell victim to polio in 1921; a significant outbreak occurred in Los Angeles in 1934 and large polio epidemics closely followed World War II, averaging more than 20,000 cases per year from 1945 to 1949. The epidemic peaked at 58,000 U.S. cases in 1952, just three years after the 20-year bear market ended (see the second shaded box in Figure 1). The rate fell to 5,600 in 1957 and 121 in 1964.
The AIDS Epidemic
Figure 4 shows the U.S. AIDS epidemic beginning right at the extreme of a period of increasingly negative social mood and therefore social stress, i.e., at the end of a bear market in stocks. In 1999, Chapter 18 of The Wave Principle of Human Social Behavior (HSB) commented on the AIDS epidemic, which, like polio, reached a peak during a rise in stock prices:
AIDS might appear to be an exception [to the observation that epidemics occur near lows], as this slow-moving epidemic has remained in force during the bull market years of the 1980s and 1990s. However, during this advance, the epidemic has waned significantly, as AIDS today is no longer in the top ten causes of death in the United States, the rate halving in 1997 alone.
We might also note that the epidemic peaked near the end of Primary wave 4, which lasted from 1987 to 1991 and whose recessionary effects lasted through 1993, as noted in Chapter 1 of Beautiful Pictures:
In the early 1990s, extensive layoffs and the biggest collapse in S&P earnings since the early 1940s dogged the economy right through 1993, even though the Bureau of Economic Research declared the recession ‘officially’ over in 1991.
A Socionomic View of Disease in Asia
Figure 5 is a chart from the April 2008 Global Market Perspective, showing outbreaks of influenza and SARS in relation to the Hang Seng Index. Editor Mark Galasiewski wrote:
The earliest available Hong Kong stock market data begin in 1964, when the Hang Seng Index started at 100. Soon thereafter the index dropped by 50%, finally bottoming in 1967. By the next summer, the Kong Flu’ broke out and infected nearly 15% of the population, a good example of how negative social mood manifestations sometimes lag the absolute lows of corrections. The disease had a low death rate but ultimately killed a million people worldwide. Throughout the ordeal and despite the fear, prices rose. In November 1997, during the initial decline in Primary wave 4, the nation was shocked by an outbreak of avian influenza that would claim the lives of six people. In November 2002, just months from the end of the 2000-2003 correction, another avian viral mutation, Severe Acute Respiratory Syndrome (SARS), broke out, and Hong Kong suffered 299 of the almost 800 deaths that ultimately resulted from it.
A Government Managed Epidemic? I’m Already Feeling Ill!
Saddled today with a global economic collapse, empire-building and war operations, historic debt levels and history’s largest financial bailout, how effectively do you think the United States and its government…
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Most economists, historians and sociologists presume that events determine society’s mood. But socionomics hypothesizes the opposite: that social mood determines the character of social events. The events of history—such as investment booms and busts, political events, macroeconomic trends and even peace and war—are the products of a naturally occurring pattern of social-mood fluctuation. Such events, therefore, are not randomly distributed, as is commonly believed, but are in fact probabilistically predictable. Socionomics also posits that the stock market is the best available meter of a society’s aggregate mood, that news is irrelevant to social mood, and that financial and economic decision-making are fundamentally different in that financial decisions are motivated by the herding impulse while economic choices are guided by supply and demand. For more information about socionomic theory, see (1) the text, The Wave Principle of Human Social Behavior © 2011, by Robert Prechter; (2) the introductory documentary History's Hidden Engine; (3) the video Toward a New Science of Social Prediction, Prechter’s 2004 speech before the London School of Economics in which he presents evidence to support his socionomic hypothesis; and (4) the Socionomics Institute’s website, www.socionomics.net. At no time will the Socionomics Institute make specific recommendations about a course of action for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended.