McArdle wonders about the long-term psychological affects of the financial crisis:
The economy does seem to be easing back into a slightly more normal pattern of jobs and growth (at least, as long as we think that the dismal December jobs report was a fluke, rather than a harbinger of worse to come). But it still faces a big test: Can people who survived the Great Recession shed the fear they acquired during those wretched years? The people who survived the Great Depression, particularly its early years, bore permanent scars. There were labor market scars – then, as now, being out of work for a long time was not good for your long-term earnings prospects. And there were psychological scars. My grandfather used to hide money in the house in case the banks closed, to the point where my grandmother found $10,000 stashed in a teapot she was about to donate to the church jumble sale. (Thank heavens she decided to clean it first!) U.S. household savings rates began to decline just as the last children of the Great Depression began to retire and let the baby boomers take over, and while a lot of factors contributed to that, struggling through the Great Depression may have made those generations more conservative in their financial habits.
A recent study suggests that growing up in a recession has a lasting effect on young people’s belief in a just world:
It turns out that a severe regional recession strikingly alters the attitudes and beliefs of individuals growing up there. Recessions do alter perceptions, especially of people between the ages of 18 and 25. Recession-influenced respondents expressed a stronger preference for government redistribution and tended to believe that success in life was more a matter of luck than hard work; as a result they are also more likely to vote for a Democratic president. Four points are worth noting:
- First, the effects of a severe recession experienced are large when the individual is between the ages of 18 and 25 – the so-called formative age – during which social psychologists think most of social beliefs are formed; the effects are not so strong when the recession is experienced later in life.
- Second, these effects are permanent because attitudes of recession-stricken individuals remain significantly altered many years after the severe recession ends.
- Third, we control for individuals’ endowments such as income, level of education, and ownership of a house that could also have an impact on beliefs. We thus measure the direct effect of a recession on beliefs; this effect could be even bigger if we added also the indirect effect through the personal endowments, which are also affected by a recession.
- Fourth, our estimation represents a lower bound of the effect of a recession on beliefs because our identification strategy relies only on regional shocks implicitly ignoring the effects of nationwide recessions.
That same pattern is found in an analysis of the World Value Survey, which includes data from 37 countries. When we worked with this larger sample of countries, we also found that coming of age in a lousy economic environment breeds the belief that success in life depends more on luck than effort, which in turn leads to more support for social welfare policies.
The Dish 