Chapter 11. How painful is the crisis?

References [ CPB | General | Scientific ]     Summary

Authors

Marcel Lever, Mauro Mastrogiacomo, Bas Straathof & Herman Stolwijk
Contact: Marcel Lever

In this chapter

Incomes are lower than expected and asset losses are setting in. The crisis is leading to a fair distribution of wealth.

The consequences of the current crisis for families is difficult to compare with those of the 1980s, as more of today's households are home owners and they have more financial assets.

Newcomers to the housing market and consumers who profit from the huge pressure on prices tend to benefit from the crisis.

The Dutch are a happy nation; the credit crisis will do little to change that. People will soon get accustomed to the slightly lower standard of living.

Becoming unemployed during the crisis causes a significant decline in the level of happiness.

References

CPB

Macro Economische Verkenning 2008.

With a special section on the link between happiness and wealth.

Centraal Economisch Plan 2009, Chapter 4.

How the freezing of pension payouts to the over-65s is affecting their spending power.

General

European Social Survey, 2006. London.

The survey charts and analyses the changes in the attitudes, beliefs and behavioural patterns of population groups in Europe.

Europeanen en de economische crisis. Standard Eurobarometer, 24 March 2009.

Interviews with 27,218 EU citizens show the existence of a collective concern about the crisis.

Gilbert, Daniel, 2006. Stuiten op Geluk. Uitgeverij Bert Bakker, Amsterdam.

People strive towards happiness, but appear to be poor at predicting what will make them happy.

Layard, Richard, 2005. Waarom zijn we niet gelukkig? Uitgeverij Atlas, Amsterdam/Antwerpen.

The author calls for less attention to spending power and more to policies that encourage happiness. Once a certain threshold has been exceeded, income does little to improve happiness levels.

World Values Survey, 2006.

The World Values Survey collects data and conducts research into changing values and the influence of these changes on social and political environments. The survey covers almost 90% of the world's population.

Scientific

David Gunnell, Stephen Platt and Keith Hawton, 2009, The economic crisis and suicide.

The crisis is expected to result in a significant rise in the number of suicides.

John F. Helliwell, 2003, How’s life? Combining individual and national variables to explain subjective well-being. Economic Modelling 20, pp 331-360.

This article analyses data from the World Value Survey to find out what makes people happy.

Glyn Lewis and Andy Sloggett, 1998. Suicide, deprivation, and unemployment: record linkage study.

Research has revealed a link between unemployment and suicide.

David Lykken and Auke Telligen, 1996, Happiness is a stochastic phenomenon. Psychological Science 7(3), pp 186-189.

Twin studies showed that differences in happiness levels are for the most part attributed to a stable genetic component.

Thomas Piketty, 2003, Income inequality in France, 1901-1998, Journal of Political Economy, 111(5), pp 1004-1042.

Large capital owners lose a relatively large amount in times of recession and war. They are unable to recover from this loss in the following years.

Ruut Veenhoven and Aldi Hagenaars, 1989, Did the Crisis Really Hurt?, Universitaire Pers Rotterdam.

The crisis of the early eighties had little influence on the wellbeing of average citizens, although the number of suicides showed a slight increase.

Liliana Winkelmann and Rainer Winkelmann, 1995, Happiness and Employment: a panel data analysis for Germany, Konjunkturpolitik, 41(4), pp 293-307.

Unemployment has an enormous negative effect on individual happiness.

Summary

The financial crisis has affected us all. Some more directly, like those who have lost their jobs. Others have not perceived the effect yet, for example the future retiree with decreased pension wealth, the current retiree whose pension won't be indexed next year or the home owners with an equity portfolio for paying off their mortgage at the end of the term.

The reduction in wages, benefits, pensions, housing wealth and financial wealth have reduced our disposable income by about 5-7 percent on average. This crisis will take us back to the income level of 2003. This does not seem worrying, but it is an average figure. Specific groups will suffer more. Entrepreneurs who go bankrupt are probably the ones who will suffer the most. They are robbed of their wealth, their livelihood, and may need a long time to get back on their feet again. But job seekers, too, will feel the pain. This means that both the richer and the poorer will be affected. In the end, the crisis might end up levelling out the differences between these groups somewhat.

Is this enough to damage our well-being permanently? Will we all become unhappy? Money might not buy happiness, but poverty certainly does not! The effect of the crisis on happiness is difficult to measure. Economists can measure tangible factors such as reduced income or wealth, but not happiness directly. Those who have studied the long crisis of the 1980s in the Netherlands did not find strong effects of the economic downturn on happiness. However, most Dutch households did not own equity back then, nor did they own a house. This has changed during the 90s. We now have more possessions, and therefore more to worry about.

It seems that financial shocks have a modest and transitory effect on our happiness. We are equipped with a basic level of individual happiness that transitory events hardly touches. Happiness is also a relative concept, as we can be happy in unhappy times if we see that others around us are even more miserable.

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