In this paper, we study the financial and economic implications of a zombie epidemic on a major industrialized nation. We begin with a consideration of the epidemiological modeling of the zombie contagion. The emphasis of this work is on the computation of direct and indirect financial consequences of this contagion of the walking dead. A moderate zombie outbreak leaving 1 million people dead in a major industrialized nation could result in GDP losses of 23.44% over the subsequent year and a drop in financial market of 29.30%. We conclude by recommending policy actions necessary to prevent this potential economic collapse.1
1. Names, characters, businesses, places, events, locales, and incidents are either the products of the author’s imagination or used in a fictitious manner. Any resemblance to actual persons, living, dead, or undead, or actual events is purely coincidental.
We know that Gringotts Wizarding Bank is the sole bank for witches and wizards in all of the United Kingdom. This makes it too big to fail. Though economics is not taught at Hogwarts School of Witchcraft and Wizardry, the magical world follows many of the same laws of economics as the muggle one. As muggles found out in 2008, if a too-big-to-fail institution is threatened with collapse, it can harm the economy beyond the financial sector. We look at one of the simplest policy proposals in regards to the problem of Gringotts size. Namely, what happens to financial stability if we split it up to make multiple smaller institutions?
To analyze this question we calibrate and simulate the wizarding economy. Due to the literature on the Wizarding World, we are able to find an official exchange rate of roughly £5/Galleon. But official exchange rates determined by the government do not tell the full story. In terms of purchasing power (comparing costs of newspapers), the more accurate exchange rate should be £376.90/Galleon (roughly $493/Galleon at August exchange rates). Then comparing the cost of Hogwarts to the price of other elite British boarding schools we are able to deduce a “true” tuition cost of roughly £2,500,000/year or $3,700,000/year (paid by the Ministry of Magic). Ultimately this leads to a GDP per capita in Wizarding UK of approximately $8,400,000, significantly higher than the $55,836 in the United States.
With these numbers, we found that breaking up Gringotts would be devastating during a financial crisis. By splitting it up the banks would require an external bail-out rather than the implicit bail-in that the single institution provides. The costs of a crisis would be 10%-50% of GDP more expensive after splitting up Gringotts depending on the stress scenario (for instance rumors of Lord Voldemort’s return or the threat of muggles discovering the Wizarding World). We note that this ignores the possibility that the split up institutions change strategies after they lose the too-big-to-fail designation and can no longer rely on a bail-out to save them.
That is, unless the goblins at Gringotts have an infinite supply of Felix Felicis to avoid any market downturn.
The rise of Lord Voldemort has been explained by his charisma, magical power, and desire for control. While the support of a few powerful members of the establishment, i.e. Lucius Malfoy, would aid in a taking over the Ministry of Magic, it is insufficient for total success. Popular appeal is necessary. [NB: Seemingly in the Battle of Hogwarts there were equal numbers on both sides of the fight, so some amount of popular appeal must have been gained.] We can discover a long-term hidden economic catastrophe in the background of the Potterverse which hints to the confounding popular appeal of Lord Voldemort. Let us take a detour through a wizarding census in order to get a sense of the demographic and economic situation of the Potterverse.
Based on the student population, the fact that all four houses existed from the founding of the school, and the Chamber of Secrets was created under the foundation of Hogwarts Castle by Salazar Slytherin and not discovered by the broader public until 1993 (which means the castle foundation was never expanded), we know that Hogwarts was built to house at least the 1,000 students currently enrolled. But Hogwarts was founded in 990CE. The population in England at the time was roughly 1.5 million. To consider the entire United Kingdom, we will increase our estimate to 2 million muggles. Assuming similar population statistics for the wizarding and muggle world as we have in the current era, then there are approximately 316(!) witches and wizards in all of the UK. Only a fraction would be school aged, and especially at the founding more witches and wizards would opt to educate their children the traditional way — homeschooling. This means the class sizes would be even further reduced. It would be extremely odd planning to build Hogwarts Castle with four distinct houses for such a small number of students. Additionally, Salazar Slytherin’sdisdain for muggle-born wizards becomes the sign of an obsessed mind — either the muggle-born students are nonexistent at the founding of the school or they are a significant fraction of the student population. As a comparison for how muggle schools function, the University of Oxford (founded in 1096) has had an increase in number of colleges since its founding to accommodate increased enrollment.
This discrepancy can be explained if the amount of magic in the world has been decreasing over time, as in Middle Earth. So in the eras of our Hogwarts founders: Godric Gryffindor, Helga Hufflepuff, Rowena Ravenclaw, and Salazar Slytherin, the fraction of the population that is magical would be greater than at present. Not only may there have been more witches and wizards, but those that were alive may have even been more powerful on the whole. This also explains a related problem: how is Hogwarts Castle so advanced when advances in magic must have been possible in the subsequent 1000 years after its founding.
With the knowledge that the amount of magic in the Potterverse is decreasing — both from a smaller magical population and the weakening overall magical power — we can conclude that the wizarding economy has been in decades or even centuries long recession. The smaller magical population, if it gets too small, would decrease specialization and thus mandate that witches and wizards work in fields in which they are less productive. Perhaps even more importantly, those witches and wizards would be less productive because they would need to do the same work but with less power. This clearly points to a (slow-rolling) economic catastrophe. Over time the magical populace would surely notice that life used to be better — wages were higher and leisure time was easier to come by.
In the muggle world, during extended periods of economic turbulence, authoritarian tendencies may become pronounced in the general populace. This leads to support for demagogues and strong(wo)man leaders who promise to return society to former strength and protect the status quo. Demagogues will also stoke the fear of minorities as scapegoats as the cause of loss of greatness. Lord Voldemort would be just such a leader — rallying a segment of the population that is nostalgic for a more powerful (literally and economically) wizarding past through the scapegoating of the muggle-born minority. Thereby explaining why a leader who is a symbol of hatred and evil can gain so much power.