The Downturn's Upside

Your retirement savings are swirling through the drain of the market meltdown, your home isn't worth what a Chihuahua's doghouse was a year ago, and the United States may be facing the most severe recession since the Great Depression. But cheer up, for this is a happy column! The economic misery is numbingly real, but it's also true that a downturn isn't uniformly bad and might even be good for you in several ways:

A recession could save your life. Christopher Ruhm, an economist at the University of North Carolina, Greensboro, argues that death rates go down during economic slowdowns. Professor Ruhm's research indicates that suicides rise but total mortality rates drop, as do deaths from heart attacks, car accidents, pneumonia and most other causes. For example, each one-percentage-point drop in unemployment in the United States is associated with an extra 3,900 deaths from heart attacks.

Some experts are skeptical. But in downturns we drive less and so car accidents decline, while less business activity means fewer job accidents and less pollution. Moreover, in recessions people have more leisure time and seem to smoke less, exercise more and eat more healthily.

A bear market might benefit you, if you are in your working years and won't have to sell your stocks soon. That's because you're probably accumulating stocks now in your retirement account, and you'll accumulate more when share prices are low. Americans are twice as likely to own a retirement account, like a 401(k) or an I.R.A., as to own a stock portfolio outright. For anyone a decade or more from retirement, a bear market is a chance to pick up bargains. For such people, today's bear market probably won't affect share prices when you have to sell. I hit age 70 in 2029, and I doubt that the market level then will be affected by today's turmoil.

(This is the view of the "revert to the mean" school of financial economists, who see share prices eventually returning to long-term trends. Conversely, some economists in the "random walk" school think prices won't necessarily ever catch up. In the absence of firm evidence about who is right, you may as well side with the former; you'll feel better as you survey the wreckage of your 401(k).)

Falling housing prices harm landlords and speculators but benefit renters and first-time buyers (if they can still get mortgages). These beneficiaries tend to be low-income families, thus in this respect the poor may benefit. Likewise, a recession lowers prices of gas, oil and food, which disproportionately affect the poor. More broadly, there's some evidence that falling home and stock prices will raise savings rates in the United States. That is necessary for the long-term health of the economy.

Income doesn't have much to do with happiness. Americans haven't become any happier as they have prospered in the last half-century. And winning the lottery doesn't make people happier in the long term. This is called the Easterlin Paradox: Once they have met their basic needs, people don't become happier as they become richer. In recent years, new research has undermined the Easterlin Paradox, yet it's still true that happiness has less to do with money than with friendships and finding meaning in a cause larger than oneself. "There's pretty good evidence that money doesn't matter much for how you feel moment to moment," said Alan Krueger, a Princeton University economist who is conducting extensive research on happiness. "What seems to matter much more is having good friends and family, and time to spend on social activities."

The big exception to all this is people who lose their jobs or homes, and the new president should act immediately to help them. Professor Krueger argues that for these people, the losses are greater than we have generally realized, for their losses are not only monetary but also the erosion of self-esteem and friendships as they are wrenched out of social networks that enrich their lives (and help them find new jobs). And for those who lose health insurance, a medical or dental problem is enormously stressful, even life-threatening. One lesson is that the government should try particularly hard to keep people in their homes. We should, for example, allow courts to ease the terms of mortgages to prevent foreclosures, while also boosting assistance to help the unemployed find jobs.

Obviously, a meltdown isn't good. Divorce rates spike in recessions. Credit evaporates, lives are upended, and for retirees counting on selling stocks to survive, a bear market is a catastrophe. Yet that's not the whole picture, and we shouldn't overdo the gloom the way we overdid the giddiness during the boom. For most Americans, those who keep their homes and jobs and are years from retirement, even the most bearish cloud might have a silver lining.

Source






Skinny models a turn-off in TV commercials

A QUEENSLAND study has found that skinny models in TV commercials and other advertising are a turn-off to consumers. University of Queensland psychologist Phillippa Diedrichs found images of super-thin models carried no advantage in encouraging young women to buy products. For most adult women, advertisements showing skinny girls discouraged sales, whereas plus-size models encouraged women to buy, the study found.

Ms Diedrichs created a series of mock ads for underwear, shampoo and party dresses using a skinny size 8 model and another featuring a size 14 woman. When the ads were shown to 300 young men and women aged between 18 and 25, they felt better - and more likely to buy - after viewing images of larger models.

"For anything to change, research has to be convincing, not just to government and health researchers but also to people in advertising who actually make the decisions," Ms Diedrichs said.

Recent fashion shows in Madrid and Milan banned "size 0" models deemed unhealthy by a body mass index measure.

Source