Thursday, September 10, 2009

Growing up in a recession

This is from the abstract of a very interesting paper just out of the NBER (

“. . . we show that individuals growing up during recessions tend to believe that success in life depends more on luck than on effort, support more government redistribution, but are less confident in public institutions. Moreover, we find that recessions have a long-lasting effect on individuals’ beliefs.”

I have some thoughts on these three findings that I would like to share.

First, layoffs are more likely during a recession (obviously). And because of the fundamental attribution error, people who are laid off are more likely to blame bad luck rather than themselves for it happening (which is often true, but even if it isn’t). And since being laid off is such a salient event, I think it is clear that recession increases the population’s belief that luck is an important factor in life (I could provide more details on the development of long term memories and the generalization of memories to overall life perspectives, but I think you get the point). This will be more of a permanent belief for those who grow up in a recessionary environment because they don’t have existing “good times” schema to anchor the development of their societal beliefs.

The second finding also makes sense. When you think life has treated you unfairly (see #1), you are more likely to want “the government” to compensate you. Many people see government support as this vague entity and don’t realize it has to be paid for by the rest of us in taxes and slows economic growth to the detriment of the very job market they need to recover. It is kind of like wanted "life" to compensate you for the bad luck that it caused. And even for those who recognize that other people ultimately pay for government support, they owe it to us because our layoff was bad luck, not our fault.

And yet the reduced confidence in public institutions also makes sense. Even as we want the government to fix our problems and expect it to because it was caused by bad luck, the fact that the recession happens in the first place is evidence that the government doesn’t know what it’s doing.

Ironically, government is often the least efficient way to help the unemployed population recover from a layoff. But this combination of beliefs increases our desire to want it to.