Saturday, April 04, 2009

Why do Recessions feel bad?

Given the continuous media and social coverage of the recession, it is worth asking the question again as to why it matters. The answer lies in the emotions we feel about different types of possessions. Without emotions, recessions would not have a human welfare component. Therefore, a good place to start in thinking about the negative effects of recession lies in these types of emotions. Fear, Sadness and Anger are three emotions that may be heightened in the context of economic loss. We need to understand further how these emotions are triggered in the context of recessions and whether they may "overshoot".

- Fear of the future. Some of this is rational concern about future reductions. A key question is the extent to which brain centres responsible for fear can "overshoot" in the context of continuous presentation of negative stimuli. In particular, it is worth considering whether continuous threatening images can lead to patterns of inertia. We do not have statistical evidence for this in Ireland but I think its plausible and worth testing that at least part of the negative effects of recession comes from a fear overshoot that inhibits search and active attempts to improve one's position.

- Sadness due to the loss of possessions. This is a key one. What types of possessions loss make us feel most sad? The reduction in consumption of various goods is one consequence of a recession. Do we really believe though that this is the main driver of increased unhappiness during recessions? Sadness may also be triggered by the lost of one's job. The relation between unemployment and well-being has spawned a very large literature. My interpretation of this literature is that the loss of income is only one small component of the overall emotional loss from unemployment and that factors such as the loss of the social work environment and a loss of one's work identity are at least as important. Another loss that has been discussed in the literature is the loss of one's home security or home value. The feeling of seeing one's home values reduced is likely to affect people emotionally but we do not know enough about the factors at play here. It seems intuitive to me that people who purchased in different years will have different reference points and that a reduction may be less painful from a psychological perspective if its coming from an asset that inflated from a low base. Also, the emotional cost of home repossession has not been examined in depth though I have blogged before on some good papers in the UK context.

- Anger and indignation, related to a perception that we are being treated unfairly by those with power over our lives. Such emotions may be genuine reactions to economic circumstances or strategic mechanisms used (perhaps unknowingly) by groups to influence political outcomes. For example, Brian Lenihan would not feel too nervous about cutting public pay on Wednesday if it was widely known that public workers dont really care about pay. In the face of a group that feel strong indignation about pay cuts, his task in doing this becomes harder. Knowing this, any group should ensure that its members are sufficiently susceptible to anger consequent on their position being reduced. Over time though, people may forget that this was the purpose of the emotion and actually begin to feel them. Its hard to act a part without taking some of it in, and others never know its an act.

As Michael and others have talked about on the blog, the presence of negative emotions can make it difficult to exercise self-control in other domains. As far as I am aware, there has not been a lot of work on self-control and recessions. But if the general results in the self-control literature hold, then the heigthening of these types of emotions may lead to increased incidences of hurtful behaviour towards others, anti-immigrant sentiment, destructive thoughts about self and so on. The continuous priming of people with negative images may heighten these tendencies thus exacerbating the initial emotional reaction.


Gerard O'Neill said...

There is much here that I agree with Liam: I see some of the same sentiments coming through time-after-time in focus groups.

But here's a contrary thought (that dare not speak its name for now?): 'why do recessions feel good?' I've spoken to many people who have noted in themselves a sense of 'relief' that they don't have to keep up with the Jones; a sense of community as we realise we're all in this together (the 'blitz spirit'); and a sense of renewal as they recognise that the recession has changed the course of Irish society, perhaps for the better.

Ask yourself (as I have asked others): what good things have come out of the recession? You might be surprised by the answers ...

Kevin Denny said...

By of the MA students here in UCD is doing her thesis on why recessions are good: for example in the US there is a strong negative correlation between unemploymemt and mortality. Ruhm has worked on this; it may have featured on the blog some time back.

Martin Ryan said...

There was something in the Sindo yesterday about how life expectancy will fall as living standards drop:

This is of course at odds with a strong negative correlation between unemploymemt and mortality.

I haven't seen the Ruhm work, but the linked article mentions Richard Layte from the ESRI,
who says that in some parts of Eastern Europe after 1990, there was a collapse in life expectancy for men because of mass unemployment.

The socio-economic gradient is presumably a factor too. Prof John Monaghan of the St Vincent de Paul society said there is "little doubt" a 10 per cent decrease in living standards "will have a huge impact on the health of people who are already in great difficulty".

Liam Delaney said...

One factor that I haven't mentioned is the importance of attaining goals. For many of us, the recession is blocking off goals that we wanted to attain. Another framework is that emotional outcomes depend on the importance of those goals and our ability to adjust. We talked on the blog before on the seminal work on lynchings and crop price cycles in the Deep South, which was used to examine the frustration-aggression hypothesis in the context of economic cycles.

Related to goals is the identity context of not attaining them. Eimear, who works here, is going to be looking at the role of what are called "contingencies of self-worth" in conditioning response to negative consequences of recession. This is the idea that people whose self-worth is heavily bound up in recession-affected activity are the ones that suffer.

A few of the guys on one of the other blogs suggested I was engaging in a form of shamanism by raising issues of emotional response in the context of house prices in the daft report. In some sense, this comes from the fact that it is difficult to say exactly "what to do" with knowing about the emotional basis of fluctuations. For some of the guys on propertypin the idea of an emotional basis to the housing market clearly summoned up images of sandles and drum circles. For many, it is obvious that if the market goes up, people who own are happy and if the market goes down, then people are sad. All else is folly!

This mentality though blocks off thinking and discussion about how the economy actually affects us and what is the appropriate role for policies. It also makes it hard to gain perspective on what is actually at stake during the current turbulent times.

Having said that though, the Tony Quinn joke is funny!


Kevin Denny said...

Whats the joke? it seems to be gone. any joke at Tony Quinn's expense must be worthwhile. I like the idea of Liam-as-shaman,sure Tipp' is full of them.
To be more serious but ironic nonetheless one of the good things about the recession is that it is a huge natural experiment which will provide data for researchers for years to come. I was brought up, academically speaking, on the oil crisis so its nice to have a more recent reference point.
I think academics should start thinking now about how we hope to analyse the data for example the consequences for health,inequality etc

Liam Delaney said...

sorry - here it is.


Martin Ryan said...


You probably saw that there will be a focus on the impact of the recession on inequality at the follow-up to the Irish Economists' Conference on the Crisis: