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Authors: David Stuckler Sanjay Basu
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worse.
Can we afford to pay for social protection programsâfor healthcare, mental health programs, food stamps, and housing programsâwhen we face a large national debt? The results of our research demonstrate that stimulus spending on specific public health programs actually helps to reduce debt by sparking new economic growth. Every $1 invested in these programs returns $3 back in economic growth that can be used to pay off debt. By contrast, those countries participating in steep short-term cuts end up with long-term economic declines. When the government cuts its spending during a recession, it drastically reduces demand at a time when demand is already low. People spend less; businesses suffer, ultimately leading to more job losses and creating a vicious spiral of less and less demand and more and more unemployment. Ironically, austerity has the opposite of its intended effect. Far from decreasing debt, austerity increases it as the economy slows. And so debt gets worse in the long run when we donât stimulate economic growth.
The economic consequences of austerity can already be seen in the early results of the US and UK experiments. As shown in Figure P.1 , the US and UK both had a major economic collapse after the financial meltdown on Wall Street. Starting in 2009 when President Obama came into office, the US began to pursue a stimulus path. That choice marked a turning point in the US recessionâsince then, the economy has been recovering, and now its GDP is greater than it was before the crisis began. In contrast, after the Conservatives came to power in 2010, the British government started cutting billions of pounds in government spending. Its economy has been recovering at less than half the rate of the US, has yet to fully recover, and now shows signs of entering a dreaded âtriple-dip recession.â
F IGURE P.1 US Economy Is Recovering After Stimulus but UK Still in Recession After Austerity 2
This patternâthe benefits of stimulus, the harms of austerityâplays out in nearly a century of data on recessions and the economy, from countries all over the world.
Conventional wisdom holds that recessions are inevitably bad for human health. Thus, we ought to expect a rise in depression, suicide, alcoholism, infectious disease outbreaks, and many other health problems. But this is false. Recessions pose both threats and opportunities for public health, and sometimes can even improve health outcomes. Sweden had a massive economic crash in the early 1990s, larger than it experienced in the Great Recession, but saw no increase in suicides or alcohol-related deaths. Similarly, inthis recession we have seen health improve in Norway, Canada, and even for some people in the US. 4
F IGURE P.2. Social Welfare Spending Increases Life Expectancy at Birth, Year 2008 3
What weâve learned is that the real danger to public health is not recession per se, but austerity. When social safety nets are slashed, economic shocks like losing a job or a home can turn into a health crisis. As shown in Figure P.2 , a strong determinant of our health is the strength of our social safety nets. When governments invest more in social welfare programsâhousing support, unemployment programs, old- age pensions, and healthcareâhealth improves for reasons weâll explain. And this is not merely a correlation, but a cause- and-effect relationship seen across the world.
Thatâs why Icelandârocked by the worst bank crisis in historyâdidnât experience rising deaths in the Great Recession. It chose to uphold its social welfare programs, and went even further to bolster them. By contrast, Greece, Europeâs guinea pig for austerity, was pressured to undertake draconian cutsâthe largest seen in Europe since World War II. Its recession was smaller than Icelandâs at first, but now has worsened with austerity. The human costs have become dramatically clear: a 52 percent
Can we afford to pay for social protection programsâfor healthcare, mental health programs, food stamps, and housing programsâwhen we face a large national debt? The results of our research demonstrate that stimulus spending on specific public health programs actually helps to reduce debt by sparking new economic growth. Every $1 invested in these programs returns $3 back in economic growth that can be used to pay off debt. By contrast, those countries participating in steep short-term cuts end up with long-term economic declines. When the government cuts its spending during a recession, it drastically reduces demand at a time when demand is already low. People spend less; businesses suffer, ultimately leading to more job losses and creating a vicious spiral of less and less demand and more and more unemployment. Ironically, austerity has the opposite of its intended effect. Far from decreasing debt, austerity increases it as the economy slows. And so debt gets worse in the long run when we donât stimulate economic growth.
The economic consequences of austerity can already be seen in the early results of the US and UK experiments. As shown in Figure P.1 , the US and UK both had a major economic collapse after the financial meltdown on Wall Street. Starting in 2009 when President Obama came into office, the US began to pursue a stimulus path. That choice marked a turning point in the US recessionâsince then, the economy has been recovering, and now its GDP is greater than it was before the crisis began. In contrast, after the Conservatives came to power in 2010, the British government started cutting billions of pounds in government spending. Its economy has been recovering at less than half the rate of the US, has yet to fully recover, and now shows signs of entering a dreaded âtriple-dip recession.â
F IGURE P.1 US Economy Is Recovering After Stimulus but UK Still in Recession After Austerity 2
This patternâthe benefits of stimulus, the harms of austerityâplays out in nearly a century of data on recessions and the economy, from countries all over the world.
Conventional wisdom holds that recessions are inevitably bad for human health. Thus, we ought to expect a rise in depression, suicide, alcoholism, infectious disease outbreaks, and many other health problems. But this is false. Recessions pose both threats and opportunities for public health, and sometimes can even improve health outcomes. Sweden had a massive economic crash in the early 1990s, larger than it experienced in the Great Recession, but saw no increase in suicides or alcohol-related deaths. Similarly, inthis recession we have seen health improve in Norway, Canada, and even for some people in the US. 4
F IGURE P.2. Social Welfare Spending Increases Life Expectancy at Birth, Year 2008 3
What weâve learned is that the real danger to public health is not recession per se, but austerity. When social safety nets are slashed, economic shocks like losing a job or a home can turn into a health crisis. As shown in Figure P.2 , a strong determinant of our health is the strength of our social safety nets. When governments invest more in social welfare programsâhousing support, unemployment programs, old- age pensions, and healthcareâhealth improves for reasons weâll explain. And this is not merely a correlation, but a cause- and-effect relationship seen across the world.
Thatâs why Icelandârocked by the worst bank crisis in historyâdidnât experience rising deaths in the Great Recession. It chose to uphold its social welfare programs, and went even further to bolster them. By contrast, Greece, Europeâs guinea pig for austerity, was pressured to undertake draconian cutsâthe largest seen in Europe since World War II. Its recession was smaller than Icelandâs at first, but now has worsened with austerity. The human costs have become dramatically clear: a 52 percent
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