The business cycle today is characterised by periods of growth, or ‘booms’, and periods of retrenchment or ‘busts’. Booms can be worsened by over-confidence, producing a ‘bubble’; busts likewise can be worsened by over-reaction, producing a depression. Confidence, and its opposite, are psychological factors not rational ones.
One of the first recorded booms was the Dutch Tulip Mania, though there have been plenty of others, most recently the period of boom just before the great crash of 2007/08. The world-wide extent of this crash was unusual. The Great Depression, after the US stock market crash of the late 1920s is perhaps the best-remembered bust; events after 2007/08 again differ because of their worldwide reach.
Governments can respond to recession in two broad ways. They may choose a reduction in state spending, often encouraged as being to ‘balance the books’, with emphasis on health and social welfare programmes. Alternatively, they can choose to invest more in people’s health and social welfare, and to try to stimulate the economy through ‘public works’ programmes.
‘Balancing the books’ is often associated with a desire to reduce or eliminate the National Debt (and often a desire for a ‘small state’). On a personal level, eliminating our debts is a ‘good thing’. For a state, it’s not so clever. The central bank is able to issue money because people have deposited savings with it; it can use these savings as ‘collateral’ against which to issue money. If there were no savings in the bank (a ‘National Debt’), any money it issued would have no backing.
After the US stock market crash, the initial economic policies followed were what we would recognise today as ‘austerity’. However, in the 1932 presidential election Franklin Delano Roosevelt was pressurised by the unions and labour movements into offering a ‘New Deal’. This New Deal had elements of Keynesianism, a stimulus to the economy in bad times.
One curious ‘effect’ of the crash and the depression was an apparent increase in health, as measured by death rates.
(All data and diagrams from Stuckler and Basu, 2013, The Body Economic)
Suggestions for this improvement included the idea that, because of poverty, many Americans were eating a much healthier, vegetable-based diet, and walking because they couldn’t afford to drive. However, other factors were lurking behind this improvement. This period is known as an ‘epidemiological transition’, a time when public health measures can be seen to be effective. Such measures included proper sanitation and the supply of clean, fresh water.
Prohibition of Alcohol, a significant ‘confounding’ factor, was lifted in 1933. In part, Prohibition was lifted because the supply of alcohol had become criminalised; it part because FDR reckoned it would be better to regulate and tax it. Deaths from alcohol-related disease immediately rose:
Mental illness, depression and suicide usually rise during recessions, and fall when the economy recovers:
What else changed? One major factor was a very significant reduction in death from road traffic collisions (‘accidents’). Many Americans simply didn’t have the money for petrol, and so couldn’t drive.