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The psychological effects of recession

Posted by Christopher Shea  December 23, 2009 11:35 AM

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We've all heard about people who became tightwads for life because they lived through the Great Depression, no matter how much money they earned in later years. In a recent working paper for the National Bureau of Economic Research, Paola Giuliano, of UCLA's Anderson School of Management, and Antonio Spilimbergo, of the International Monetary Fund, examined the political and psychological effects that milder, more-recent recessions have had on American citizens.

recession_3.jpgGiuliano and Spilimbergo made use of the General Social Survey, which has recorded political attitudes among the American public since 1972. The specific questions Giuliano and Spilimbergo explored were whether living through a recession in one's "impressionable years"--defined as 18 to 25--influenced Americans' views on the merits of economic redistribution; on whether financial success resulted largely from hard work or from luck; and on faith in public institutions. Attitudes were analyzed by region, to account for geographical discrepancies in American economic performance. And, because so many people have lived through at least one year of a recession, the study focused on the worst recessions: those in which GDP growth was -3.8 percent for at least one year.

In each case, a recession during one's impressionable years had a significant effect on political and economic attitudes. People with such an experience were more committed to redistribution, more inclined to attribute success to luck, and less likely to trust public institutions. In each case, having been through a severe recession accounted for 4 percent of the variation in attitudes. For the sake of comparison, in the case of income redistribution, that's about one-third of the effect of possessing a high school education--as opposed to a B.A. or B.S, the authors said. (People with college degrees are less amenable to income redistribution.)

The authors borrow the concept of "impressionable years" from psychologists, but the existence of such a window born out in the data. People were most sensitive to a recession that hit when they were 18 to 25. Recessions had a smaller effect up to age 40, but not afterward.

The paper was intended partly as a contribution to the theoretical debate on how opinions are formed. But it doesn't seem a stretch to conclude that the current economic crisis may have long-lasting political effects--or that American attitudes toward inequality may become somewhat more "European" in years to come.
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