Connecting a Good Economy to Bad Health

It makes sense to assume that when the economy is better, we feel better, We should have less illness and live longer. Correspondingly, in a sick economy, we too feel sicker.

Not necessarily.

A Recession’s Mortality Impact

One study of European countries concluded that if unemployment is up 1% then the overall mortality rate drops by .5%. But we cannot simply say that joblessness and living longer connect. It depends on a bunch of variables.

For starters, we should look at whether we have an agricultural or an industrial economy. During a boom, a farming community can experience more longevity but not an industrial economy. The reason? Pollution. A burst in production can be accompanied by more factory emissions that create respiratory and cardiovascular disease.

Also though your age counts. With more employment and higher wages, in utero and after, kids and young adults can benefit from better nutrition and medical care. Especially if the boom is long lasting, it can buoy everyone’s lifespan.

So, where does this take us?

A recent NBER paper concludes that pollution is the biggest swing factor when assessing the impact of a recession on how long we live. When economic activity contracts, we may have reduced emissions, less driving, and fewer vehicular accidents. Unemployed, we have more time to exercise and to sleep. As a result, the plusses of an economic contraction can expand people’s lives.

Our Bottom Line:  Externalities

The impact of economic booms and busts can spill over onto uninvolved third parties. When they do, they create what economists call an externality. An externality is positive when its ripple creates something good for someone. A perfect example is a vaccine. Because an adult gets a flu shot, her friends enjoy its positive externality–not getting the flu from her. The opposite, a negative externality, could result when a homeowner neglects his lawn and the value of the real estate in the entire neighborhood declines.

When the pollution from an economic boom creates negative externalities, raising the cost diminishes the harm. Explaining, economists point to a supply and demand graph where the equilibrium price is too low. To elevate it, emission cutting technology could be required. When supply decreases because production became more expensive, so too does pollution.

Below, equilibrium price is up and production is down:

Because factories are increasingly required to limit their pollution, a recession’s positive externalities could soon disappear.

My sources and more: For the more popular discussion of mortality and the economy, this NY Times Upshot column,is excellent. Then for the academic perspective, I recommend this ungated version of an NBER paper. Both sources display the complexity of the topic.