Peter DeCaprio: Understanding where recessions come from and what they mean for the country.

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ACCORDING TO THE OFFICIAL ARBITER OF SUCH MATTERS, the U.S economy experienced a recession from December 2007 through June 2009, officially ending in June 2009: The National Bureau of Economic Research (NBER).

Lately, we’ve heard an awful lot about the Great Recession and its aftermath—and most of it is terrible news. We’re stuck in one of the most extended periods since World War II without significant economic growth. Federal debt has ballooned even as politicians disagree on stopping our national borrowing spree. Unemployment remains alarmingly high. Real wages are growing only sluggishly. Poverty has persisted at levels unseen since the 1960s.

But why does any of this matter?

Because recessions have consequences that reach well beyond stalled growth or a sluggish jobs market.

For one thing, recessions—defined as two consecutive quarters of shrinking gross domestic product—can have a lasting impact on people’s physical and financial well-being. Unemployment is the most obvious example: Joblessness not only means reduced income for workers but also increased odds they’ll be unable to make ends meet…

But more broadly, the onset of recession often signals deeper economic problems that can affect not just how much money we make but also our overall health and happiness. For example, besides wreaking havoc on family budgets, recessions can lead to lower birth weights for newborns (infants whose mothers are deprived of adequate nutrition) and decreased life expectancy among middle-aged Americans (because of declines in health care coverage). A greater risk of suicide, says Peter DeCaprio.

Recessions can even have an impact on our thinking:

One study found that the name given to a baby is more likely to start with a letter from the first half of the alphabet if its birth occurred during good economic times, perhaps because parents are more optimistic about their child’s future during flush times…

In other words, recessions not only affect how much money we make; they also play a crucial role in shaping both our financial lives and our physical well-being. Understanding these connections—and where recessions come from and what they mean for Americans’ welfare—can provide meaningful context as policymakers try to help ensure that this time around, things turn out better than they did last time.

GUEST COMMENTARY:

As the article correctly points out, recessions have consequences that reach well beyond stalled growth or a sluggish jobs market. These consequences can impact everything from our physical health to how we treat each other to whether our children are born healthy. One significant outcome is the role recessions play in the life cycle of asset bubbles and debt-driven economic booms (like housing bubbles). Recessions represent periods when excess debt collapses under its weight like a slow-motion bubble popping (deleveraging) rather than deflating explosively like 2008.

This process is marked by extended periods of little or no growth, a condition that would be dramatically exacerbated if the federal government adopted a strategy of deliberately attempting to “flatten” the business cycle through stimulus programs aimed at artificially boosting aggregate demand during recessions. This lack of policy action may not collapse asset prices as explosively as 2008, but it would prolong and exacerbate economic weakness leading to increased joblessness and other negative consequences.

The goal of this article is twofold.

1) Highlight how recessions hurt our physical health, including our cognitive abilities

2) Show how past recessions have failed to provide adequate offsetting fiscal/monetary stimuli for reasons ranging from the errors committed by policymakers to political dysfunction.

If this pattern continues, real wages will stagnate. A significant portion of Americans will face long-term downward social mobility as their careers fail to keep pace with the costs of college tuition, a private school for their kids, housing, and various health care costs.

The article makes two critical points regarding our physical well-being.

1) That recessions have lasting impacts on people’s physical health

2) We don’t know how significant these impacts are because we lack good data:

“Besides wreaking havoc on family budgets, recessions can lead to lower birth weights for newborns (that is, infants whose mothers are deprived of adequate nutrition), decreased life expectancy among middle-aged Americans (because of declines in health care coverage), and a greater risk of suicide.”

There is already strong evidence that recessions can have severe impacts on mental health and social well-being as individuals struggle to cope with stagnant wages, job insecurity, and growing debt burdens:

“There is also evidence of a link between recessions and an increase in the number of Americans who suffer from clinical depression; some research suggests that economic downturns may be particularly difficult for those who experienced these conditions during childhood. Other studies find increases in divorce rates and teen pregnancy following a recession. And one recent report showed that the rate at which teenagers abuse drugs goes up when unemployment does.”

Conclusion by Peter DeCaprio:

This article makes two critical points regarding our physical well-being 1) that recessions have lasting impacts on people’s physical health 2) we don’t know how significant these impacts are because we lack good data. If this pattern continues, real wages will stagnate. A significant portion of Americans will face long-term downward social mobility as their careers fail to keep pace with the costs of college tuition, a private school for their kids, housing, and various health care costs.

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