Andrew Lansley is a prat. I say this not because he’s claimed that “recession can be good for us”, but because he has pathetically apologized for saying so, and withdrawn the post in which he said so.
However, his claim has some substance:
1. There’s some evidence that recessions do, as Lansley claims, cause people to live healthier. Smoking and obesity decline in recessions. And deaths from several (pdf) causes fall in recessions.
2. Recessions are minority activities. In the 1989-91 downturn, the worst-affected 20% of firms accounted for 94% of gross job losses. The vast majority of us keep our jobs in a recession. Which means that we gain in several ways. It’s easier to book restaurants and theatre tickets, and to get cabs; I spent a large part of the last recession being driven around in a big Merc. And of course inflation comes down - which is a considerable improvement in welfare.
3. It is possible that recessions help improve long-run growth by cleansing the economy of lame ducks.
4. People are not so risk-averse that fluctuations in average living standards over time cause them pain. In this sense, as Robert Lucas has demonstrated (pdf), the bad thing about recession is not that GDP falls 1-2%, but that the costs of the downturn fall disproportionately upon some people and we don’t have adequate institutions for spreading this risk.
These claims are of course arguable. But they are reasonable. They are certainly more so than the notion which I fear underpins some of the hysteria surrounding recession - the idea that all is well if the economy grows but catastrophic if it doesn’t.
Lansley’s cringing apology, then, represents a bad day for democracy. It shows us that our party system stops some quite reasonable beliefs from being considered.
However, his claim has some substance:
1. There’s some evidence that recessions do, as Lansley claims, cause people to live healthier. Smoking and obesity decline in recessions. And deaths from several (pdf) causes fall in recessions.
2. Recessions are minority activities. In the 1989-91 downturn, the worst-affected 20% of firms accounted for 94% of gross job losses. The vast majority of us keep our jobs in a recession. Which means that we gain in several ways. It’s easier to book restaurants and theatre tickets, and to get cabs; I spent a large part of the last recession being driven around in a big Merc. And of course inflation comes down - which is a considerable improvement in welfare.
3. It is possible that recessions help improve long-run growth by cleansing the economy of lame ducks.
4. People are not so risk-averse that fluctuations in average living standards over time cause them pain. In this sense, as Robert Lucas has demonstrated (pdf), the bad thing about recession is not that GDP falls 1-2%, but that the costs of the downturn fall disproportionately upon some people and we don’t have adequate institutions for spreading this risk.
These claims are of course arguable. But they are reasonable. They are certainly more so than the notion which I fear underpins some of the hysteria surrounding recession - the idea that all is well if the economy grows but catastrophic if it doesn’t.
Lansley’s cringing apology, then, represents a bad day for democracy. It shows us that our party system stops some quite reasonable beliefs from being considered.
The thing is you don't face an electorate or
have the media breathing down your neck or have a party chairman rocketing you, so bravery comes a little easier. Open-mindedness and a basic level of politeness towards other people, as usual somewhat less....
Posted by: kardinalbirkutski | November 25, 2008 at 04:27 PM
Point 3: Possible, but historically very unlikely. See this IMF paper for chapter and verse:
http://www.imf.org/external/pubs/cat/longres.cfm?sk=18392.0
Point 4: I'd think very carefully before citing Lucas. This recession - and every previous one - absolutely and decisively refutes real business cycle theories. Whilst the "Schumpetarian" theories you've highlighted I regard as being empirically implausible they are at least largely harmless. RBC theory is not just wrong, but dangerously so.
Posted by: Jonathan | November 25, 2008 at 05:17 PM
The question is: is this is a recession (U or V shaped) or is this a step change ?
Posted by: Marksany | November 25, 2008 at 05:18 PM
S&M: "There’s some evidence that recessions do, as Lansley claims, cause people to live healthier. Smoking and obesity decline in recessions."
And suicides went down in WW2. Should we therefore try to kickstart WW3 in the hope and expectation of a repeat reduction in suicides? Of course, the fact that some 40 to 50 million people got killed in the course of WW2 is a minor consideration.
The outrageous Kenneth Clarke, Conservative Chancellor of the Exchequer 1993-97, has actually said "this recession is not going to be good for anybody".
http://news.bbc.co.uk/1/hi/uk_politics/7748085.stm
What's worse:
"Cameron’s ability to oppose Vat cuts will be hindered by the fact that Kenneth Clarke, the former Tory chancellor, said in an interview yesterday that such a move would 'stimulate spending and consumer demand'. "
http://business.timesonline.co.uk/tol/business/economics/pbr/article5213582.ece
The cut in VAT as proposed by Darling in the PBR is estimated to cost the exchequer £12.5 bn, which is more than 60% of the total cost of all the measures proposed in the PBR.
Isn't it time for Kenneth Clarke to be drummed out of the Conservative Party?
Posted by: Bob B | November 25, 2008 at 07:37 PM
There's a time and a place for this sort of considered thinking. He'a a member of the Shadow Cabinet. Pravda and the Labour Party will quote the soundbite version of this this, along with Mrs May's gross 'Nasty Party' foot-in-mouth episode, ad nauseam. They are still quoting Lamont decades after the event. Lansley should have known better - he's supposed to be a politician. Didn't he think about what the headline writers would make of his words? There's a progaganda war on, for pete's sake.
Posted by: Prodicus | November 25, 2008 at 09:38 PM
Prodicus: "Lansley should have known better - he's supposed to be a politician."
Ahem - but it's not just Lansley. Why did John Maples, a deputy chairman of the Conservative Party, find it necessary to apologise:
"for saying on Monday that the recession should 'take its course'. He told the House of Commons yesterday: 'I realise I may have caused offence to people who are the victims of the recession. I regret that. What I meant, and what I believe, is that the economy cannot recover until levels of private debt have been reduced. I do not believe, and I did not mean to convey the impression, that the Government should not help victims of the recession. I fully support borrowing to do that.'"?
http://www.independent.co.uk/news/uk/politics/business-backs-brown-and-darling-1028233.html
And that's not all. In Monday's FT, in an egregious piece which I regard as mostly tendentious nonsense, Nigel Lawson comes out against a fiscal boost to the economy:
http://www.ft.com/cms/s/0/c0b72eb2-b977-11dd-99dc-0000779fd18c.html
Lawson, as Chancellor 1983-9, resigned when the 1980s boom he had engineered through monetary policy became unsustainable and led to resurgent inflation. Evidently, monetary policy didn't work too well.
His plan had been to aline the Sterling exchange rate up for entry into the European Exchange Rate mechanism which was duly implemented in October 1990 by his successor, John Major. And what a complete disaster that turned out to be.
Kenneth Clarke was a far more successful Chancellor although he built upon the policy frame of targeting inflation introduced by the much maligned Norman Lamont as Chancellor - on the advice of Alan Budd as chief economic adviser.
Btw when Lawson writes of the booming 1930s in Britain, he omits to mention the unemployment rates then and - crucially - that the low interest rates which promoted the boom in house construction became possible because Sterling was decoupled from Gold in September 1931. Why then did Lawson want to re-peg the Sterling exchange rate in the European Exchange Rate Mechanism which meant, effectively, losing control over interest rates?
Lawson deserves an award for rewriting history.
Posted by: Bob B | November 25, 2008 at 11:03 PM
There's an interesting comparison in attitudes to bankruptcy in the US vs UK. See this from Mitt Romney: "Managed bankruptcy may be the only path to fundamental restructuring". http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article5218239.ece
Posted by: Matthew Cain | November 26, 2008 at 11:39 AM
I absolutely agree. On the whole recessions will always be a downward spiral in any economy, as with everything there are very few benefits but lansley is merely attempting to appease the people here without any real thought behind his comments.
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Posted by: Ren | November 26, 2008 at 02:11 PM
This from the Acheson report into inequalities in health (1998):
"Unemployed people are found to have lower levels of psychological well-being, ranging from symptoms of depression and anxiety to self-harm and suicide … Among younger men, mortality from injuries and poisoning, including suicide, was particularly high. Unemployed women had high mortality from coronary heart disease and injuries and poisonings, including suicide. The wives of unemployed men have been found to have an excess risk of death. Even after taking account of the more disadvantaged circumstances of unemployed people, an excess risk of death of more than 20 per cent remains.”
I'd take busier restaurants and theatres happily to stop this sort of thing being visited on anyone!
Posted by: Adam Lent | November 26, 2008 at 02:35 PM
During boom times, everyone laughs at, not with, the doom harbinger (hello, Vince). During depression, it is unwise to deliver the positive notes. Just join the group, CD, and think like they do. Historically, it makes no sense but at least you'll be in good company.
Keynes and Roosevelt weren't group thinkers. Nor Churchill between world wars. I'd prefer not to mention Thatcher, because she should have listened more to conventional wisdom. In science and arts, non-group thinkers dominated the 20th century.
Posted by: Charlieman | November 26, 2008 at 09:28 PM
Try this recent news report about research into what is called: epigenetics:
"Malnourishment in the womb causes genetic changes that can still be seen when people reach middle and old age, according to new research that shows how strongly environmental influences can interact with the human genome to shape health.
"A study of children born during the Dutch 'Hunger Winter', a famine that struck at the end of the Second World War, has found that some still bear its lasting genetic legacy more than six decades on. . ."
http://www.timesonline.co.uk/tol/news/uk/health/article5029679.ece
Posted by: Bob B | November 26, 2008 at 10:01 PM
This is interesting and useful blog. I believe previous financial system had lots of loop holes,that was over inflated during a decade or so. Present financial crisis is just a result of the older unstable economic model. We are in a different world now, so we got to think more to come up with a new and well structured financial system that has a capacity to hold inflation peaks.
Posted by: abr verzekering | March 02, 2009 at 10:00 AM