In the Austrian school’s theory of the business cycle, the “boom”—even though it sounds good—is the cause of the business cycle and all its attendant problems. The “bust”—even though it sounds bad—is the recovery where all the problems of the business cycle are put right. The Austrian view is shared by many economy and stock market professionals who dub any retreats from overdone conditions as “corrections.”
The mainstream of economists however has the exact opposite perspective—the expansion is good and the contraction is bad. Some, including Milton Friedman, even hold to a “plucking model” of the business cycle where the boom is the normal condition and any contraction is just some misguided government policy “plucking” the economy temporarily downward off its normal trajectory. In this view, the boom is an unmitigated good state of affairs, and the bust is an unnecessary and absolute bad event.
One very large body of statistical data that hints the Austrians are correct—and the mainstream has neither paddle or rudder—is the evidence on human health and mortality. The evidence strongly supports the idea that when an economy goes into recession, humans become healthier and the rate of death decreases.
Sustained long-term economic growth, of course, is good for human health and life expectancy. Americans today are healthier and have longer life expectancies than Americans of 1900 or 1800. Life expectancy is longer and child mortality is lower in wealthy countries compared to poor countries. Americans are healthier than Africans and Asians because of higher levels of wealth and income. Poverty is clearly not good for your health.
But what about the business cycle when government generates periods of overly speculative investing and even stock market hysteria followed by unemployment and bankruptcy? What are the health consequences of an economic frenzy fueled by money creation?
Four statistical studies using data from all 50 American States, 50 Spanish Provinces, 16 German States and 23 OECD Countries have found that increases in unemployment correlate with a decrease in the rate of death. For example, Christopher Ruhm, an economist at the University of North Carolina at Greensboro found that a one-percent increase in the unemployment rate is correlated with a one-half percent decrease in the rate of death.*
Surprisingly, no calls have been forthcoming from the economics profession to decrease the money supply by 99% which would supposedly increase the unemployment rate to 99% and therefore lead to virtual human immortality. Not surprisingly, even when mainstream economists and government bureaucrats become enlightened to the fact that health improves during recessions, they fail to make the connection that the boom phase of the business cycle is bad for human health and life expectancy.
The reasons for the statistical relationship between health and the economy should be obvious for all to see, but most are blinded by obedience to the notion that stock market and economy-wide booms are all-out good for us. Here are some reasons to think otherwise:
- During the boom more people are working than normal and they are working longer hours. This means that we collectively have less time for exercise—a prime ingredient of good health.
- During the bust, people have more time to exercise. Not surprisingly, after the “longest peacetime expansion in U.S. history” Americans had become the fattest people in the history of the planet.
- The boom also means that people have less time for sleep, while during the bust there is more time for sleep, rest, and relaxation. Not only does a good night sleep make you more productive at work, better able to learn, and have fewer wrinkles on your face, it also helps you live longer.
- As the great boom of the 1990s came to an end, Americans had become the most sleep-deprived population on the planet, popping record amounts of sleeping aids to go along with all their psychotherapy pharmaceuticals.
- The combination of fatter paychecks, larger stock market portfolios, and less free time during the boom phase mean that people are more likely to eat “fast food,” engage in thrill seeking activities, and to overtax themselves with duties and obligations—thus driving up their stress levels.
- Recessions are difficult too, especially for the unemployed breadwinner, but people are more likely to return to normal lifestyles and engage in less stressful activities and home production—like home cooked meals, gardening, and fixing things around the house.
James Grant ends his great book, The Problem with Prosperity** with a chapter titled “Reversion to the Mean.” His point is that all booms cause and eventually result in a bust.
In Ruhm’s statistical analysis he finds a similar type of “reversion to the mean” behavior related to health. When the economy goes into recession, or the correction phase, not only do people lose weight, but the fattest people lose the most weight. Also, the recession leads smokers to moderate their habits and for obsessive smokers (40 or more cigs a day) to cut back the most. Both results suggest a return to moderation, normalcy, and healthier lifestyles.
I’m sure that the more lifestyle statistics and surveys examined, the more evidence that would pile up in favor of the notion that the “boom” is bad for you. The Austrians have taught that inflation is analogous to a drug that “stimulates” and eventually kills the patient. Bastiat has shown that the inflation mentality can lead to perpetual world war. Health statistics have now conclusively shown how inflation of money and credit, along with the boom in the economy and stock market, kills us in our individual daily lives.
