Open letter to John Weeks by José A. Tapia

On the cost of catastrophes: Recessions are not into the league of wars, famines and pogroms

Hello John:

I liked very much your book on Capital and exploitation when I read it years ago. In the last two years I have been reading your blogs, which I find always interesting, though not always convincing. This time I want to comment on something you have recently written (2 September 2011). You say in a comment on the cost of natural and unnatural catastrophes that to match “the devastation, suffering and dead-weight loss of the Great Depression of the 1930s and the recent Financial Crisis, we move into the league of wars, famines and pogroms.”

I believe this is a quite misleading assertion. In general, to present recessions or de-pressions as social catastrophes as bad as wars, famines or pogroms is quite wrong. In all of the three aforementioned kinds of social disaster there are major losses of human life (in wars and pogroms as a direct consequence of human voluntary actions, which adds moral perversity to the numbers). I am not going to deny that recessions cause a lot of suffering. Millions get unemployed, which in spite of Lucas et al. is an involuntary situation that makes very unhappy to those who suffer it. Savings may evaporate as consequence of bank failures (as happened just a few years ago in Argentina), homes are lost when mortgage payments go unpaid, and many business, mostly small businesses, go bankrupt. All of that is quite ugly.

However, to compare all the ills of an economic business cycle downturn with “wars, famines and pogroms” in which thousands or millions are killed is quite improper. Indeed, statistics of population health as measured by the major health indicator, the mortality rate, reveals that it is the movement of the economy from recession to expansion what generates phenomena which are “into the league of wars.” Let me explain.

According to estimates by Christopher Ruhm (“Are recessions good for your health?”, Quarterly Journal of Economics 2000) in the US each percentage point decrease in the unemployment rate translates into a 0.5% increase in mortality rates. Considering that in the US there are some 2.4 million deaths per year, the mortality effect of a macroeco-nomic expansion would be about 12,000 more deaths per year and per percentage point decrease of the national unemployment rate. That implies that an economic recovery in which the unemployment rate would fall from the present level, around 9%, to 4% (an achievement that many would consider a major victory over the forces of evil), would be associated with some 60,000 extra deaths (that is 12,000 times 5), which is of the order of magnitude of the US death toll of the Vietnam war.

I have written in Proceedings of the National Academy of Sciences about the evolution of health in the United States during the 1920s and the 1930s. Considering the statistics on death rates, it was the so-called “Roaring Twenties” rather than the depressed 1930s which actually were “into the league of wars.”

During the early 1930s, when the economy was quickly contracting, there were major decreases in death rates, for the population at large and, particularly, for African American males. When the economy recovered in the mid-1930s, mortality rates dramatically increased, to fall again during the so-called Roosevelt recession of 1938. During the period 1922-1929 life expectancy at birth (measured in years) for the US population oscillat-ed without a clear trend around 60 (which means that mortality rates were also oscillating without a clear trend), while life expectancy of African American males dropped in the same period from 52 to 44 years (which means mortality rates were strongly increasing in this population group). In spite that Lord Keynes referred to the period 1924-1929 as a “wonderful outburst of productive energy”, the aforementioned statistics show that in the United States the “Roaring Twenties” was a period quite harmful for some popu-lation groups and without any progress for population health in general. All throughout the period 1920-1940, each recovery of the economy was also an upturn of death rates. Conversely, mortality declined dramatically when the economy went into recession. That was also what happened during the whole century in the United States. Research by myself or others shows the same oscillation of mortality, upward in expansions and down-ward in recessions, in other countries (including Germany, Sweden, Spain, Japan, Argentina, Mexico and the OECD countries taken as a panel) during macroeconomic fluctuations of recent decades. Some of this research is still controversial, but in the case of the United States the weight of evidence seems overwhelming. Expansions are associ-ated to upturns in death rates.

The view that recessions or depressions are the major or perhaps the only problem of our “free enterprise system” was largely linked to the emergence of Keynesian economics. It was a movement toward reality, after decades in which recessions and depressions were seen as just “residues” unexplained by economic theory, as in the famous Essay by Lionel Robbins. But looking at economic slumps as the major or the unique problem of our society and economic system reveals a very limited scope which is not supported by the evidence. It has a lot to do, however, with the perspective of the business community. Writing on business cycles in 1941, Wesley Mitchell noticed that in a money economy “the quest for money profits by business enterprises is the controlling factor among the economic activities,” though, at times, to avoid bankruptcy is the major goal. However,

to make profits and to avoid bankruptcy are merely two sides of a sin-gle issue—one side concerns the wellbeing of business enterprises under ordinary circumstances, the other side concerns the life or death of the same enterprises under circumstances of acute strain (Business cy-cles and their causes, University of California Press, 1941, Preface).

Since the views of the business community are the views that predominate in our society, it is not surprising that periods in which the economy is “under circumstances of acute strain” are viewed as the worst of all evils. However, in some major aspects, particularly in the ability of our economic activities to enhance or to damage population health or the environment in which we live, expansions are indeed much worst than recessions. Of course, wars are much worse than any of the former. If there was something really bad originating from the Great Depression of the 1930s, it was the World War that fol-lowed. However, some see the war as a great time, because it brought back full employ-ment.

There is a saying is Spanish, las comparaciones son odiosas, comparisons are hateful. Yes, indeed, they can be.

José A. Tapia
Institute for Social Research
Ann Arbor, Michigan
September 6, 2011