There is a constant refrain that hard times will encourage people to look after each other. In fact they bring crime and racism
Chris Dillow
One way that people try to cheer themselves up as the economic climate worsens is by hoping that recession will make us a less materialistic, more sharing nation. It won't. If anything, it will make us nastier and meaner.
Start with the basics. A recession is not the zeitgeist or the new black. It is merely a fall in national income. And a small fall. The consensus among economic forecasters is for real GDP to drop by 1.5 per cent this year. Even if they are wrong - it has been known - and GDP falls by more than 2 per cent, this would be only equivalent, on average, to us all taking a week's unpaid holiday this year. That would be only a mild inconvenience.
How, then, can recession be such a bad thing? Because the pain is not so evenly spread. It falls upon the small proportion of folk who lose their jobs or businesses, or who find it harder to get into work; recession causes job creation to slow as well as job destruction to rise.
Recessions, then, are a minority activity. A study of the last serious downturn by the late Paul Geroski and Paul Gregg, of Bristol University, estimated that the worst-hit 10 per cent of companies accounted for 85 per cent of job losses between 1989 and 1991.
The problem is that few of us know for sure that we will not be in this minority. For most, then, the main effect of recession is not to cause poverty, but insecurity. And when people are insecure and anxious, they care less for others. As Adam Smith said: "Before we can feel much for others, we must in some measure be at ease ourselves." Recessions mean that we are not at ease - and, as Smith recognised, more selfish as a result.
Smith was anticipating Abraham Maslow's theory of the hierarchy of needs. This says it is only after we have satisfied our basic needs for financial security that we care about others. When our security is in doubt, concern for others takes a back seat.
In his book The Moral Consequences of Economic Growth, Benjamin Friedman, of Harvard University, gives historic evidence for this. He shows how times of economic insecurity, such as the 1880s, the early 1920s or the 1970s, were associated with increasing intolerance, racism and hostility to immigration, while better times led to more liberal attitudes.
The same thing is true for the UK. In the good times of the 1960s, people wore flowers in their hair. When boom turned to bust in the 1970s, they watched Love Thy Neighbour. At the peak of the 1980s boom, 2.2 million voted for the Green Party in the 1989 European Parliamentary elections. In the 1994 elections - after the recession - this slumped to under half a million. So much for recessions making us greener.
They also make us meaner in another way - some of us turn to crime. In September a leaked Home Office report said that a recession would lead to a rise in burglaries. It might have added that the Pope is Catholic.
People commit crime for the same reason that I am writing this article - because the benefits outweigh the costs. In a boom, the costs of crime exceed the benefits for many people. Why go to the hassle of robbing someone when you can make money by working overtime? And the costs of being caught are greater if you are in work; going to prison or doing community service can cost you your job.
But if you are out of work, this calculus changes. If you can't make money honestly, making it dishonestly becomes more attractive. And a big cost of getting caught - the threat of losing your job - disappears.
Unemployment, then, increases the incentives to commit crime. This does not, of course, mean all the unemployed become criminals. We are talking about what happens at the margin. But this margin can be quite extensive. The best research here comes from the US, where economists can look at variations in unemployment by state and so control for nationwide factors such as demography (younger people commit more crime than older ones) or culture. One paper by Rudolf-Winter Ebmer, of the University of Linz, and Steven Raphael, of the University of California, San Diego estimates that a 1 percentage point rise in unemployment is associated with a 4.5 per cent rise in the number of burglaries and 6.5 per cent rise in car theft. A huge chunk of the fall in US crime in the 1990s, they concluded, was due merely to falling unemployment.
There is worse. Recessions can also increase racism. The last one hit black workers harder than whites. Between 1990 and 1992, the unemployment rate among white workers rose by 2.6 percentage points, from 6.8 to 9.4 per cent. But the jobless rate among black people rose by 9.4 points, from 12.5 to 21.9per cent.
In large part this is because black men are, on average, less qualified than their white counterparts and employers prefer to shed less-skilled workers. But it can also be that recessions give bosses freedom to indulge racist attitudes. When the labour market is slack, they can pick and choose more freely who to hire and fire. Guess who gets the dirty end of this stick? Kenneth Crouch of the University of Connecticut has shown that the US racial unemployment gap varies over the business cycle in a manner consistent with the fact that discrimination is easier in recession.
All this means that the standard view is plain wrong. This regards recession as a macroeconomic calamity but a cultural blessing. The truth, however, is the exact opposite.
In macroeconomic terms, recessions are no big deal: even a big one would leave 2009 the third-richest year in British history, and it's an open question whether recessions are good or bad for long-run economic growth. But in ethical terms, the effects of recession are usually pernicious.
Chris Dillow is an economics writer at the Investors Chronicle
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