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The Financial Crisis and the Well-Being of America

In: Investigations in the Economics of Aging

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  • Angus Deaton

Abstract

The Great Recession was associated with large changes in income, wealth, and unemployment, changes that affected many lives. Since January 2008, the Gallup Organization has been collecting daily data on 1,000 Americans each day, with a range of self-reported well-being (SWB) questions. I use these data to examine how the recession affected the emotional and evaluative lives of the population, as well as of subgroups within it. In the fall of 2008, around the time of the collapse of Lehman Brothers, and lasting into the spring of 2009, at the bottom of the stock market, Americans reported sharp declines in their life evaluation, sharp increases in worry and stress, and declines in positive affect. By the end of 2010, in spite of continuing high unemployment, these measures had largely recovered, though worry remained higher and life evaluation lower than in January 2008. The SWB measures do a much better job of monitoring short-run levels of anxiety as the crisis unfolded than they do of reflecting the evolution of the economy over a year or two. Even large macroeconomic shocks to income and unemployment can be expected to produce only small and hard to detect effects on SWB measures. SWB, particularly evaluation of life as a whole, is sensitive to question order effects. Asking political questions before the life evaluation question reduces reported life evaluation by an amount that dwarfs the effects of even the worst of the crisis; these order effects persist deep into the interview, and condition the reporting of hedonic experience and of satisfaction with standard of living. Methods for controlling these effects need to be developed and tested if national measures are to be comparable over space and time.

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This chapter was published in:

  • David A. Wise, 2012. "Investigations in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise11-2.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12447.

    Handle: RePEc:nbr:nberch:12447

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    1. Rajashri Chakrabarti & Donghoon Lee & Wilbert van der Klaauw & Basit Zafar, 2011. "Household debt and saving during the 2007 recession," Staff Reports, Federal Reserve Bank of New York 482, Federal Reserve Bank of New York.
    2. Christelis, Dimitris & Georgarakos, Dimitris & Jappelli, Tullio, 2011. "Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession," CFS Working Paper Series 2011/27, Center for Financial Studies (CFS).
    3. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, American Economic Association, vol. 91(1), pages 335-341, March.
    4. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(424), pages 648-59, May.
    5. Angus Deaton, 2008. "Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 22(2), pages 53-72, Spring.
    6. Di Tella, Rafael & MacCulloch, Robert J. & Oswald, Andrew J., 2001. "The Macroeconomics of Happiness," The Warwick Economics Research Paper Series (TWERPS) 615, University of Warwick, Department of Economics.
    7. repec:hal:wpaper:halshs-00586022 is not listed on IDEAS
    8. Graham, Carol & Eggers, Andrew & Sukhtankar, Sandip, 2004. "Does happiness pay?: An exploration based on panel data from Russia," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 55(3), pages 319-342, November.
    9. Andrew Clark & Andreas Knabe & Steffen Rätzel, 2008. "Boon or Bane?: Others' Unemployment, Well-Being and Job Insecurity," SOEPpapers on Multidisciplinary Panel Data Research 153, DIW Berlin, The German Socio-Economic Panel (SOEP).
    10. repec:pse:psecon:2008-67 is not listed on IDEAS
    11. Michael D. Hurd & Susann Rohwedder, 2010. "Effects of the Financial Crisis and Great Recession on American Households," NBER Working Papers 16407, National Bureau of Economic Research, Inc.
    12. Robert Metcalfe & Nattavudh Powdthavee & Paul Dolan, 2011. "Destruction and Distress: Using a Quasi‐Experiment to Show the Effects of the September 11 Attacks on Mental Well‐Being in the United Kingdom," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(550), pages F81-F103, February.
    13. Jesse Bricker & Brian K. Bucks & Arthur Kennickell & Traci L. Mach & Kevin Moore, 2011. "Drowning or Weathering the Storm? Changes in Family Finances from 2007 to 2009," NBER Working Papers 16985, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Carlson, Kyle, 2014. "Fear itself: The effects of distressing economic news on birth outcomes," MPRA Paper 56560, University Library of Munich, Germany.
    2. Dimitrios Christelis & Dimitris Georgarakos & Tullio Jappelli, 2011. "Wealth Shocks, Unemployment Shocks and Consumption in the Wake of the Great Recession," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 279, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 19 Oct 2011.
    3. Derek D. Headey, 2013. "The Impact of the Global Food Crisis on Self-Assessed Food Security," World Bank Economic Review, World Bank Group, World Bank Group, vol. 27(1), pages 1-27.
    4. Melissa McInerney & Jennifer M. Mellor & Lauren Hersch Nicholas, 2013. "Recession Depression: Mental Health Effects of the 2008 Stock Market Crash," CESifo Working Paper Series 4263, CESifo Group Munich.
    5. Grosjean, Pauline & Ricka, Frantisek & Senik, Claudia, 2013. "Learning, political attitudes and crises: Lessons from transition countries," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 490-505.
    6. Marta Lachowska, 2013. "Expenditure, Confidence, and Uncertainty: Identifying Shocks to Consumer Confidence Using Daily Data," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research 13-197, W.E. Upjohn Institute for Employment Research.
    7. Goebel, J.; & Krekel, C.; & Tiefenbach, T.; & Ziebarth, N.;, 2013. "Natural Disaster, Policy Action, and Mental Well Being: The Case of Fukushima," Health, Econometrics and Data Group (HEDG) Working Papers, HEDG, c/o Department of Economics, University of York 13/28, HEDG, c/o Department of Economics, University of York.
    8. Marcus Klemm, 2011. "You Don‘t Know what You‘ve got till It‘s Gone! Unemployment and Intertemporal Changes in Self-Reported Life Satisfaction," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0297, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    9. Cojocaru, Alexandru & Diagne, Mame Fatou, 2013. "How reliable and consistent are subjective measures of welfare in Europe and Central Asia ? evidence from the second life in transition survey," Policy Research Working Paper Series 6359, The World Bank.
    10. Angelucci, Manuela & Karlan, Dean S. & Zinman, Jonathan, 2014. "Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9811, C.E.P.R. Discussion Papers.
    11. Andy Sumner & Richard Mallett, 2013. "Capturing Multidimensionality: What does a Human Wellbeing Conceptual Framework Add to the Analysis of Vulnerability?," Social Indicators Research, Springer, Springer, vol. 113(2), pages 671-690, September.
    12. Ed Diener & Ronald Inglehart & Louis Tay, 2013. "Theory and Validity of Life Satisfaction Scales," Social Indicators Research, Springer, Springer, vol. 112(3), pages 497-527, July.
    13. Christopher Christodoulou & Stefan Schneider & Arthur Stone, 2014. "Validation of a Brief Yesterday Measure of Hedonic Well-Being and Daily Activities: Comparison with the Day Reconstruction Method," Social Indicators Research, Springer, Springer, vol. 115(3), pages 907-917, February.
    14. Headey, Derek D. & Ecker, Olivier, 2012. "Improving the measurement of food security:," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 1225, International Food Policy Research Institute (IFPRI).

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