|Page 2 of 2 <|
5 Myths About That Depressing R-Word
Recessions probably have become less frequent. In terms of duration, the average recession since World War II has lasted about a year. The past three recessions -- in 1981-82, 1990-91 and 2001 -- lasted about a year as well.
One factor that has clearly not helped is government discretionary fiscal policy, like the economic stimulus packages currently being considered on Capitol Hill. You might think that the brilliant postwar discoveries of economists would have provided tax medicine to stop recessions in their tracks. In an exhaustive study, however, Romer and her husband, David, found that fiscal measures such as temporary tax rebates and government spending increases have failed to push the economy out of recession because they have been too small or too late, or both.
4. Recessions are bad for your health.
David Mamet once told an interviewer that he got the inspiration for his 1984 Pulitzer Prize-winning play "Glengarry Glen Ross" from an account of a salesman's fatal heart attack, caused by a recession "so vicious the competition was for jobs and sales, especially among older men." However, for most Americans, the story is quite the opposite. Americans get healthier as the economy gets worse. Unemployment tends to increase during recessions, but economist Christopher J. Ruhm of the University of North Carolina at Greensboro has found that a temporary one percentage point increase in the unemployment rate leads to a 0.5 to 0.6 percent reduction in the mortality rate, or about 14,000 fewer deaths per year.
Why the health benefits? With more free time and less money on their hands, people tend to consume less tobacco, exercise more, prepare healthier meals and lose weight. In addition, they are much less likely to have car and other accidents, and to catch communicable and sometimes fatal diseases such as influenza. Among the top 10 causes of death in the United States, only suicide rates show a substantial unemployment-driven increase. Even deaths caused by heart disease fall substantially.
5. There is a regular business cycle.
In a pair of articles in the Quarterly Journal of Economics published in 1920 and 1921, Columbia University economist H.L. Moore hypothesized that the primary cause of economic cycles was the regular eight-year cycle of the modes of the planet Venus. This type of thinking, along with 19th-century English economist William Stanley Jevons's theory that the 10-year sunspot cycle causes economic fluctuations, perhaps accounts for the widespread notion that there is a regular business cycle.
Don't count on it. The term "business cycle" is imprecise. Economic fluctuations affect everyone, not just businesses, and they are, unlike astral cycles, anything but regular. In the nine recessions since 1949, the shortest time between two recessions has been three quarters (the recessions of 1980 and 1981-82), while the longest has been just short of 10 years (the recessions of 1991 and 2001). When the next recession ends, a good guess will be that the expansion that follows will be somewhere between one year and 10 years in length.
A better analogy might be to think of our economic future as being a road trip in a 1971 Ford Pinto. Our car might burst into flames in the next instant, there might be a truck in our lane around the bend, or we just might make it all the way to California.
Kevin A. Hassett is director of economic policy studies and a senior fellow at the American Enterprise Institute. His book "Calling the Business Cycle," co-authored with Marcelle Chauvet and James Hamilton, is forthcoming later this year.