Economic Recession and Human Behavior - Thesis Example

ECONOMIC RECESSION AND HUMAN BEHAVIOR Contents …………………………………………………………………………2 2. Introduction………………………………………………………………………..2 3. Key Terms and Definitions………………………………………………………..4 4. Literature Review………………………………………………………………….5 5. Discussion and Analysis…………………………………………………………10 5.1. Impact on Income….…………………………………………………………..11 5.2. Impact on Education…….……………………………………………………..13 5.3. Impact on Health…………………………………………………………13 6. Conclusion……………………………………………………………………….13 Works Cited…………….………………………………………………………..14 List of Figures: 1. Rise in Unemployment……………………………………………………………6 2. U.S. Jobs by Sector………………………………………………………………..7 3. U.S. Consumption Expenditure Growth…………………………………………..7 4. Crime Rate……………………………………………………………………….10 5. Household Income……………………………………………………………….11 6. Impact on Education……………………………………………………………..12 1. Abstract The United States is in the midst of a major economic turbulence which is likely to trigger off a series of setbacks hampering human development in the process. This paper seeks to understand and assess the human behavior in times of such a crisis and study the manner in which individuals react to a given economic situation. In the process of this study, factors such as education, poverty, health, unemployment, crime rates, and mental health among others are taken into consideration. Thesis Statement Economic recession has a significant impact not only on a nation’s economy but also on the overall human behavior as well. 2. Introduction The United States currently finds itself engulfed in deep economic crisis which is likely to have far reaching consequences which is not limited to the macro economic factors alone. The extent and magnitude of the economic turbulence that the country is witnessing today is likely to have widespread psychological impact on the human behavior. The negative ramifications of such setbacks range from depression to violence and crime. The probable impact of the current economic recession threatens to disrupt the economic as well as social fabric of the society that we live in and hence requires adequate consideration. Economic theories are mostly concerned with availability and distribution of resources. Thus, any expansion or contraction of an economy has a direct impact on the labor market, wages and reduced opportunities leading to poverty and unemployment. Such apparent lack of legitimate economic opportunities available at the hands of the public leads to widespread discontentment increasing the chances of rise in crime and criminal activities1. Although the relation between crime and unemployment is highly debatable there are evidences presented by several researchers who link such type of human behavior during an economic crisis to cultural and societal attitudes. According to Urdang (2002)2 economic recession followed by lower wages as well as unemployment and layoffs is believed to have caused insecurities, which is associated with social shame and disgust and hence has led to extreme human behavior culminating in suicides. Historical evidence warrant the fact that economic recession leads to extreme changes in human behavior often culminating in violence and sudden outbursts causing physical harm or injury to those around them. The economic recession in the early 1890’s led to increased racial tensions in the labor market and further curtailed socio political gains3. This paper seeks to study, analyze and discuss the various likely consequences of economic recession on human behavior. 3. Key Terms and Definitions Economic Crisis: Economic Crisis can be described as a contraction of four percent or more of real GNP in a year. Economic Recession A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades4. GDP GDP or Gross Domestic Product refers to the total market value of all goods and services produced in a country in a given year and are indicative of the nation’s economic health. 4. Literature Review The ongoing 2008 – 2009 recession in the United States has witnessed a steep decline in private consumption in nearly 20 years which provides a fair idea of the extent and gravity of the country’s current economic crisis. The U.S. consumers have experienced severe setbacks in terms of a sharp fall in the housing prices and decimation of their pension savings affecting their confidence, security and thereby making them vulnerable to grave psychological imbalances such as depression and shock5. Reduction in Expenditure Economic recession leads to contraction of a nation’s economy thereby leading to loss of jobs leading to a simultaneous reduction in the aggregate disposable income at the hands of the consumer, thus creating a shortage of funds for spending. Owing to such factors consumers tend to reduce their overall expenditure partly because of shortage of funds and partly for saving for the purpose of investment. Research suggests that the U.S. consumers have scarce disposable income which is likely to contract further thus pushing them towards a further shortage of funds. Fall in wages and rise in unemployment6 are likely to occur on account of the current economic recession. According to an article published in the NY Times7 American consumers have developed innovative ways to deal with the heavy impact of economic slowdown which makes an interesting observation about the human behavior during varying economic cycles. The article stated that consumers are increasingly opting for brand substitutes and choosing lesser known and cheaper brands in lieu of their favorite and more expensive brands. The shift in human behavior is observed on account of stagnant wages, rising prices of household necessities and job losses. Rise in Unemployment The following graph shows the rise in unemployment during the current economic recession. (Source: Bureau of Labor Statistics, 20098) (Source: Los Angeles Times, Feb 7, 2009) These factors have driven the consumers to reduce their economic expenditure. Rise in Private Savings Human behavior is known to have experienced a change on account of the impact of such external environment. With the contraction of economy, leading to loss of jobs, reduction in wages, and hence poverty, individuals are likely to be drawn towards reducing their expenditure, as apparent from the above diagram and increasing their savings. According to statistics the U.S. personal saving rate has leaped by 0.8 % in merely one month, from 2.8% in November to 3.6 % in December 2008 and is likely to increase to 5.0% by the end of the year9. According to data collected through a recent survey conducted by USA Today10 in early November, 2008, to assess the trends in consumer savings in the United States it was observed that: - 32% of Americans are saving for more as a result of economic downturn - Almost 40% of those comprise of people between the ages of 18 – 29 and 39% of them are between the age group of 30 – 49 Of those interviewed admitted to cutting down their holiday expenditures. According to data made available by private research firms, people falling in the age group of 25 – 34 have planned to cut down their holiday spending to an average of $377 a reduction of average $96 (19% fall) from that of the spending in the year 2007 and across all age groups the spending is likely to fall by 11%. Rise in Crime Rate Although there have been contradictory statements made by several researchers and authors regarding the relationship between increasing criminal activities and economic recession a common consensus have hardly been reached. Statistics reveal that with shrinking economy which has a direct impact on rise in unemployment and layoffs, poverty is the ultimate result thereby leading to individuals resorting to criminal activities and other such illegitimate means of economic gains. As observed by a noted sociologist Richard Rosenfield11 “Every recession since the late ’50s has been associated with an increase in crime and, in particular, property crime and robbery, which would be most responsive to changes in economic conditions”. Similar concerns were voiced by police officials, which indicated a rise in crime in suburbs on account of mass home foreclosures12. (Source: The New York Times, October 9, 2008) 5. Discussion and Analysis Macroeconomists and researchers over the years have increasingly focused on the negative impacts of economic crisis in relation to the country’s GDP growth and other economic indicators, while ignoring the consequences of its impact on human behavior. This study strives to highlight the effect of economic recession on human behavior and analyze and discuss the extent and scope the probable long term repercussions. Economic theories suggest that there is an implicit positive relationship between the state of the economy and human behavior and that the human development is directly dependent on the economic health of a nation. The human impact of the economic recession can be discussed and analyzed by taking into consideration the factors associated with the Human Development Index (HDI) i.e., income, education, and health. 5.1. Impact on Income Fall in income on account of layoffs or unemployment has a direct impact on household disposable income as well as savings and investments ultimately resulting in poverty. Steady decline in household income may push households towards poverty line and hence in order to avoid such dire consequences individuals tend to reduce their consumption expenditure and increase their savings. Other likely effects of reduction in household income are sale of private property and increase in school drop out rates. (Source: U.S. Census Bureau13) *All figures are in thousands 5.2. Impact on Education Owing to reduced household incomes people belonging to economically poor backgrounds might be forced to drop out of schools and colleges and seek employment in order to boost household income. The tendency of human behavior towards choosing a particular course of action is hence directly related to the market forces. (Source: U.S. News, 200914) The above graph shows a decline in college / university endowments on account of the current economic downturn which dropped by 3% in 2008 and is likely to fall further in the year 2009. 5.3. Impact on Health There is a clear link between deteriorating mental health and economic recession as established by various studies conducted in the past. According to a study conducted by Vinamaki (2000)15 there was a steep decline in women’s health during recession in Finland. This fact was further supported by Dooley’s theory which linked the decline in mental health with job insecurity, lay offs and the resultant economic insecurity which causes anxiety and depression and hence affects an individual’s mental stability16. Economic instability may lead to recession fatigue prompting civil unrest resulting in increased crime rates and violence. According to Brenner (1979)17 economic recession gives rise to high insecurity and stress, leading to unstable lifestyles, disruption of social networks and social and domestic life, thereby leading to high mortality rates. 6. Conclusion The study seeks to reaffirm the belief that economic crisis have the potential of influencing human behavior. The analysis and discussions further seek to assert that the immediate effects of economic setbacks has long term and far reaching impact on human development since it affects the average household income, education, and drives major decisions related to saving and investment. The psychological impact such as depression, mental health problems and stress are also an aftermath of economic downturn. In conclusion it can be claimed that in order to sustain human development it is advisable for a country to adopt crisis management policies and thereby avoid long term repercussions of economic setbacks in the future. Works Cited Buczynski, R. J., Bright, M., (2009). Economic Crisis: When will it End?, IBIS World, viewed: March 2, 2009 available from: Brenner, M. H. ( 1979). Mortality and the national economy: a review, and the experience of England and Wales, Pp. 568 Dooley, D., Catalano, R., Brownell, A., The Relation of Economic Conditions, Social Support and Life Events to Depression, Journal of Community Psychiatry; volume 14, 103-119, April 1986 See, L. A. (2007) Human Behavior in the Social Environment from an African American Perspective, Haworth Press, Inc., Pp.33 Urdang, E., (2002). Human Behavior in the Social Environment, Haworth Press, Inc., Pp. 519 Viinamaki, H., Hintikka, J., Kontula, O., et al, (2000) Mental Health at Population Level During an Economic Recession, Nordic Journal of Psychiatry, 54, 3, 177-182 Walters, G. D., (1990). The Criminal Lifestyle: Patterns of Serious Criminal Conduct, SAGE Publishing, Pp. 45 National Bureau of Economic Research, (2009), viewed: March 2, 2009, from: FinFacts (2009) US Personal Savings Rate rises, viewed: March 2, 2009, from: < US Personal Savings Rate rises; Asian countries led by China and Japan forced to reassess over-dependence on exports> Los Angeles Times (2009). 598,000 Workers Lose Their Jobs in January, viewed: March 3, 2009 from: http://www.latimes.com/business/la-fi-jobs7-2009feb07,0,153859.story The New York Times (2008) Keeping Wary Eye on Crime as Economy Sinks, viewed: March 3, 2009 from: http://www.nytimes.com/2008/10/10/nyregion/10crime.html?fta=y USA Today (2008). Police agencies fear more crime in financial crisis, viewed: March 3, 2009 from< http://www.usatoday.com/news/nation/2008-10-16-crime-economy_N.htm> Bureau of Labor Statistics (2009) viewed: March 3, 2009 from: U.S. News (2009) Recession Hits College Campuses, viewed: March 3, 2009 from: http://www.usnews.com/articles/education/2009/01/27/the-recession-hits-college-campuses.html Read More