The Economic Downturn Takes Its Toll on Well-Being

The usual economic data make it clear that the current downturn is causing financial pain. And now, thanks to an amazing new collection of data, we can also track the effects of our current recession on subjective well-being.

Since the start of this year, the good folks at Gallup have partnered with Healthways to create a new Well-Being Index. Every day, Gallup polls 1,000 Americans, asking a variety of questions about their subjectively experienced lives. These new data provide our first opportunity to track the national mood in such detail, presenting an amazing opportunity for researchers.

Let’s focus on responses to the ladder of life question:

Please imagine a ladder with steps numbered from zero at the bottom to ten at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?

The survey also asks about where you expect to stand on this ladder in five years. Answers to these two questions are combined to yield estimates of the proportion who are “thriving” (those on rungs seven or higher, who also expect to stand on rung eight or higher in five years), versus those who are “suffering” (people currently on rungs zero to four, who also expect to be in the same range in five years).

Those in between are termed “struggling.”

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Whatever you call these categories, there was a sharp decline in well-being during the financial decline, which followed a slow downward drift in the first part of 2008 as the economy slowed. The national mood has yet to hit a trough, and the post-election numbers don’t show any bounce.

All told, the proportion of the U.S. population that is “thriving” has fallen from around 50 percent to around 35 percent. Is this a big decline? While there are caveats involved in contrasting time-series and cross-country assessments, the following chart provides some context.

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A decline in well-being this big is roughly similar to the sort of decline you might see if average incomes declined by about a half.

That’s huge. Yep, this recession really is hurting.

Related research: Miles Kimball, Helen Levy, Fumio Ohtake, and Yoshiro Tsutsui on the unhappiness following Hurricane Katrina; Rafael Di Tella, Robert MacCulloch, and Andrew Oswald on happiness and the business cycle; and my own work on happiness and macroeconomic volatility.


Jamie

I pulled a screenshot of the "Thriving" chart above and viewed it side by side with a YTD Chart of the Dow. To my eye they look strongly correlated. I wonder if the numbers would agree?

Matt

I agree, in part, with Peter. I realized when I started my morning by looking at the business section of my newspaper, the day would seem much more bleak. I've discontinued this practice since I believe much of what I'm reading (aside from client's companies struggling, therefore my company struggles) does not apply to me.

That being said, the parts that did apply to me added more stress to what I was already experiencing during the day: job related stress (getting projects complete, client complaints, etc.) and life related stress (friendships, relationships, family matters, etc.). All of this compounding on a daily basis can really take its toll. Many people have a hard time dealing with this stress, and don't seek out help.

I believe the graphs are accurate and realistic.

Rob

One day people will stop using the word "personally" when they don't need to. And personally I think that will be a great day, personally.

a broke, unemployed, web-surfer

Ahhh....I can't even see the ladder

Peter

Much of the suffering surely is psychological rather than practical. Most people haven't lost their jobs and don't face huge mortgage interest rate increases. High gasoline prices may have hit almost everyone, but they're on the decline. The problem is, however, when you constantly hear about how tough times have become, you feel like things are bad for you even if they really aren't.

Jeff

"A decline in well-being this big is roughly similar to the sort of decline you might see if average incomes declined by about a half."

Or, if you moved to Singapore

DJH

Peter (#1) has a point about the problem being largely psychological. If the economy suddenly swung back upward today, I'd say that people's worrying was largely unnecessary, and out of proportion with the facts.

But we aren't out of the hole yet. At least some of the worrying may, in fact, turn out to have some merit. Many companies and most of the states still face financial problems; jobs may yet be lost that appear now to be solid, services the states had once provided may be curtailed or cut, and people who are prospering now may end up economically harmed within the next few months.

So while there may be something to the idea that people's fears are irrational, we don't yet know this to be the case. The next year will tell us for sure.

BSK

How much of people's sense of their own well-being is a result of people yelling CRISIS!!! every thirty seconds? I do not mean to downplay those who have been directly effected in a meaningful way, but what percentage of people have ACTUALLY been meaningfully effective by the recent downturn? I know that I have not been in any way that I would say has discouraged my outlook.

Also, I think it would be interesting to see people's sense of their own well-being compared to their actual place in the financial hierarchy. It seems as if the people who often complain the most happen to be those who have the most.

PaulK

Why did my comment not appear? Is this new system messed up?

I asked why the GDP graph shows the US around .6 (60), but the top graph shows US never even to 55 (.55)? This looks like a problem.

Jenn

"The national mood has yet to hit a trough, and the post-election numbers don’t show any bounce. "

I can tell you why I'm not bouncy in two acronyms:

MLK

JFK

I'm afraid for our president elect, and I'm afraid of what might happen in this country if my fears are realized. That and worrying about my job is plenty to keep me awake at night.

Prakash

More than what the numbers represent - there is an elevated sense of despair due to the omnipresent discussions of economic downturn.

So when everyone frets you feel a bit left out(even if u are unaffected finacially) and so you also fret. And when one frets too much one tends to get into health problems.

Michael

I always end up picturing myself on rung 5 even though my circumstances change drastically. I guess it comes from being realistic yet not pessimistic. Things can get much better and much worse.

Jim Kuemmerle

I'm so glad that this is starting to be tracked. Hopefully this paves the way for quality of life to become a quantitative factor in policy decisions, similar to the Bhutanese measuring Gross National Happiness.

Adam

It seems like a vast exaggeration to say that this decline in well-being is somehow similar to what we'd see if average incomes were cut in half. This is all about relative well-being-- people don't compare their well-being to some objective goodness, they compare it to what they've experienced. This is the type of reaction we'd expect from reading Tversky and Kahneman. Of course people are going to overreact to this news, but that doesn't mean they are really as unhappy/have lost as much well-being as they would have if incomes were cut in half. It's all relative to their starting point, and when the economy starts improving, even marginally, people will shoot up beyond what is rational as well.

anne

I suspect part of the problem lies in anticipating the future. My job is good for another two years then who knows? At that point a woman approaching 50 may not be a hot commodity on the job market unless something is done about health care. I'm fine now but my estimate of future well-being waivers considerably. The job market has become extremely unstable -- and that long predates the latest unemployment figures. I'd be curious to see the two figures used to arrive at the calculation broken out -- who's says they are struggling now; who's worried about five years from now. Americans have been a nation of optimists -- does that still hold now?

Mike Broderick

I fell off the ladder and broke my arm. Where does that put me?

kdg

I'm not sure it matters which rung you are standing on if the ladder is on fire...

Ellene Cain

Many people are suffering due to the breakdown of the American financial system. This is big news. Those who think they ae doing well now may soon be affected by this huge event.

Remember the "misery index". Maybe its time to bring it out again.

Even if you think you are not affected-where is your empathy for those that are suffering.

The situation will bring big changes abd those might affect you positively or negatively.

susan

Peter's #1 is the center of Buddhism - that the only thing that counts is the current moment - not the past one and not the next one. If we focus on the present moment, then that unhappiness does not exist.

Unhappiness or suffering comes with a comparison - of our current perceptions of ourselves within this moment with some other conception. (Note that one of the major tenets of Buddhism is that suffering comes from our view of oneself. as separate from all else including others.)

simeneide.com

If you stand on step 10 on a ladder, your head is somewhere around where step 15 should have been.

Just as important, it is impossible fall all the way down to step 1.