The good recession

As the economy enters the doldrums, there are some things you can look forward to - including better health

Email|Print|Single Page| Text size + By Drake Bennett
March 23, 2008

HAVE YOU, IN recent months, found yourself drinking less and exercising more? If you smoke, have you cut back? Have you been spending more time with your kids, or stopping in more frequently on your aging parents or grandparents? Have you lost weight? Does the air seem cleaner, the roads less crowded?

If so, you may be feeling the effects of the recession. A slowing economy, some economists suggest, can actually help you live longer - just one of a few payoffs that might surprise those of us who see recessions as unmitigated disasters.

Recessions inspire a deep dread in most people. The "R-word" has an almost totemic sway in American public life: Barack Obama and Hillary Clinton mention the recession as often as possible; President Bush and Federal Reserve chairman Ben Bernanke just as studiously avoid it. Polls suggest that the looming recession (which many economists say has already arrived) has significantly darkened the national mood.

And there is much that is unquestionably bad about recessions. More people lose their jobs, and those who do have more trouble finding new ones. Company profits and productivity fall. City and state governments, with less tax revenue coming in, cut back on the very programs that might cushion the economic blow. And the weakening in real estate and stock prices can linger for years after the downturn.

But to see recessions in such exclusively negative terms suggests a misunderstanding of what a recession is. According to a classic economic view, recessions can play a painful but healthy role in the cycles of the economy. They wring inefficiencies, imbalances, and dangerous levels of risk out of the market. They can also shrink trade deficits, and they create a window to rebuild public infrastructure. They provide a chance to buy stock and real estate for those without the resources to make significant investments in boom times, and they offer a chance for workers to go back to school.

And, a few economists even argue, they may actually make us healthier: more likely to take care of ourselves, more likely to look after others and, in many cases, less anxious. For nations, businesses, and individuals, it's reasonable to see a recession as a time of possibility, even with a few benefits.

"I don't know that one should ever welcome a recession, and you want to moderate the human suffering that accompanies it, but we shouldn't be willing to pay any price to avoid them, either," says Edward Glaeser, an economics professor at Harvard University.

. . .

The great Austrian economist Joseph Schumpeter thought of recessions the way a naturalist might think of forest fires: periodic purges that burn off dead wood and make room for new growth. It was in recessions that what Schumpeter famously termed capitalism's "creative destruction" was at its most ferocious: Lean times sped up the process by which more adaptable companies and new industries pushed aside the less fit.

Today, few mainstream economists share Schumpeter's belief in the unerring regularity of business cycles. And some point out that there's plenty of room for creative destruction when the economy is strong - witness the turmoil over the past few years in the music industry, or the airlines, or, for that matter, the newspaper industry.

Economists do agree, however, that recessions help to right economies that have lost touch with reality. Recessions not only cull unhealthy companies, they expose financial gimmickry. They punish groundless optimism and the rampant speculation it feeds - in fanciful Internet ventures in the 1990s, for example, or in housing over the past few years.

They also shrink trade deficits. America imports far more than it exports, creating an imbalance that has worried experts for a generation. But as the economy weakens in a recession, the value of the dollar drops and household budgets shrink, so we buy less from abroad, and the deficit narrows. At the same time, the weak dollar helps our exports, further shrinking the gap. Many, though by no means all, economists see reducing the US trade imbalance, and the foreign debt that finances it, as a painful necessity. The money spent on interest on foreign debt is money that can't be spent on more productive investments, and we're at the mercy of foreign creditors' continued willingness to lend to us at favorable rates.

According to Nigel Gault, chief US economist at the Waltham-based economic forecasting firm Global Insight, the slowdown is already cutting into our trade gap. "It won't get rid of the deficit, but it will reduce it," says Gault. "We are already quite sharply reducing our deficit on pretty much everything except oil."

And for the US government, the recession might also be a good time to invest in infrastructure. With residential construction virtually stopped nationwide and a predicted slowdown in commercial construction as well, it's likely to get cheaper to build things. And those things don't have to be condo towers and office buildings: they can be bridges or freeways or levies. One of the enduring legacies of the Great Depression, after all, is a physical one: the many roads, bridges, dams, city halls, museums, and parks (including, ironically, what is now Reagan National Airport) built by the Civilian Conservation Corps and the Works Progress Administration.

In a recession, the point isn't to run a New Deal-style jobs program, says Harvard's Glaeser. It's a chance for the government to get far more for its money, now that there's no private-sector construction boom driving up prices. "You've got bridges falling down, you've got a bunch of infrastructure needs; right now is when we should be concentrating on that stuff," he says. "You certainly don't want to do it at the height of a boom, when contractors cost top dollar."

Most economists hesitate to say that recession is necessary for all these opportunities to arise; they'd prefer to see a more gentle slackening of economic growth. Still, some argue that a boom-bust cycle can have its benefits. The financial writer Daniel Gross has pointed out that the railroad bubble of the late 19th century, despite the number of railroad companies and personal fortunes that disintegrated along with it, gave the country a much more extensive transport infrastructure than a more orderly development might have. And, for all its quickly defunct start-ups, it was the febrile experimentation of the Internet bubble that birthed much of today's wired world.

"I'm not sure we could have learned how to really use the Internet without a dot-com bubble," argues Tyler Cowen, an economics professor at George Mason University.

Whether the bubble that triggered the current recession will have such a legacy remains to be seen. "Did we need all those massive homes out near Las Vegas? I tend to doubt it," Cowen says.

. . .

For individual investors or workers, there are benefits as well. In a recession, real estate is cheaper, as are stocks. Traditionally, stock prices tend to rise through recessions on the assumption that the bad financial news has already been priced in. (It's the end of recessions that can sometimes be bad times to invest: The 2001 recession was followed by a very poor year for the US stock market.) Low home prices help buyers, especially young ones who might have been priced out of the market during the boom. Those who can afford to hold on to such investments for a while often do well.

Even stagnant wages could provide an opportunity for some. For workers thinking of going back to school, recessions are the perfect time. When wages are lower, then what economists call the "opportunity cost" - the cost, in this case, of the forgone wages while one is in school - are lower, and further education makes more economic sense.

But even people with no home-buying or investing or education plans, a few economists argue, have something to gain from a weaker economy: better health. Over the past several years, Christopher Ruhm, an economics professor at the University of North Carolina, Greensboro, has written a series of papers tracing the connections among the business cycle, disease, and death. Along with similar work by Ryan Edwards, an economist at Queens College, and Jose Tapia Granados, a doctor and economist at the University of Michigan, Ruhm has looked at national data from the United States and other wealthy countries and found that during recessions people drink and smoke less, get sick less, and even die less than during boom times.

There are several factors at work, according to Ruhm. Higher unemployment means fewer people driving to work, and that means fewer cars on the road and fewer accidents, hence the drop in motor vehicle fatalities. Fewer cars, along with a slowdown in manufacturing, Ruhm suggests, also means less air pollution and hence the drop in pulmonary diseases and heart attacks.

Epidemiologists have been studying the link between health and the economy for decades, and some have found evidence that corresponds with certain of Ruhm's findings. Ralph Catalano, a professor of public health at the University of California, Berkeley, takes issue with some of Ruhm's findings, and he sees it as a "gross oversimplification" to argue that recessions are good for us. Losing one's job, as even Ruhm concedes, is bad for many reasons, including the damaging effects on one's health.

Catalano agrees with Ruhm, however, that a jittery job market has ways of getting people to live healthier lives than they might otherwise. "When you look at that literature what you find is that people who worry about losing their jobs do things to keep them from getting laid off: they drink less, they fight less, there's less risk-taking." And if they have less disposable income, he adds, they spend less on drugs, alcohol, and cigarettes.

Regardless of its predictive power, though, there may be a lesson in Ruhm's work. Among the biggest factors he uncovers is the cost of the time we spend at work. Even in a recession, most people keep their jobs. But many of them still work less. That means, Ruhm argues, that they're less stressed, and they smoke and drink less. It also leaves more time to do things like exercise, or make sure one's children or elderly relatives go to the doctor at the first sign of a health problem, or, for that matter, all the other things we don't seem to have time for when our work hours swell.

It might be something to keep in mind when the recession ends, as it inevitably will.

Drake Bennett is the staff writer for Ideas. E-mail

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