Wednesday, February 04, 2009

4 Lessons from Recession

What we always care is what lesson we can get from the present recession. A good article from the NY times caught my eye.

Tyler Cowen of George Mason talks to us about the social and cultural effects of recession. I just list the effects I think interesting:

(1) Stay-at-home effect
People spend more time on self-improvement and relatively inexpensive amusements (listening to the radio and playing parlor and board games).

(2) Health-care effect
Physical health seems to improve on average. People may take fewer car trips, thus lowering the risk of accidents, and spend less on alcohol and tobacco. They also have more time for exercise and sleep, and tend to choose home cooking over fast food.

(3) Lower-death-rate effect
The death rate falls as unemployment rises. In the United States, a 1 percent increase in the unemployment rate, on average, decreases the death rate by 0.5 percent. Another research finds that Australia’s suicide rate spiked in 1930, but overall health improved and death rates declined; after 1930, suicide rates declined as well.

(4) Prudent-generation effect
A generation that grows up in a period of low stock returns is likely to take an unusually cautious approach to investing, even decades later, the paper found. Similarly, a generation that grows up with high inflation will be more cautious about buying bonds decades later.

In other words, today’s teenagers stand less chance of making foolish decisions in the stock market down the road. They are likely to forgo some good business opportunities, but also to make fewer mistakes.

I also care Harvard psychologist Daniel Gilbert's point: people often have rosy memories of very trying periods, which may include extreme poverty or fighting in a war. I agree on this point. Many grandfathers talk proudly about their hardship like the world war 2.

However, a recession or depression is always severe to us.

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