UNITED STATES RECESSION

United States Recession

United States Recession

Economic recessions periodically occur in all the world's economies. Despite the importance of recessions, there has been relatively little conclusive research conducted on their impact on a population's health and healthcare providers. Those few researchers who have studied the issue tend to break into two camps. In the one camp, economists and public health researchers argue that recessions and health are countercyclical; that is, as the economy deteriorates, more individuals become ill and seek out healthcare services thereby placing a strain on healthcare providers. In contrast, researchers in the other camp argue that recessions and health are procyclical; that is, as the economy deteriorates, fewer individuals have the economic resources to pursue unhealthy behaviors such as overeating, smoking, and consuming alcohol, which lead to improved health and decreased healthcare utilization. Both camps study the issue by focusing on mortality data and/or healthcare utilization data.

Definition of Economic Recession

Economic recession is defined in macroeconomic theory as two or more calendar quarters of consecutive decline in a nation's gross domestic product (GDP). The National Bureau of Economic Research (NBER) more broadly defines recession as a significant decline in economic activity spread across the economy, lasting more than a few months. Recession may also have accompanying declines in employment rates, among other measures of a nation's economic health such as business profitability, stock market performance, and inflation.

The largest recessionary period that the United States has experienced occurred from 1929-1933, the Great Depression (Johnson 2006).  Recessions are still present in the economy, but not to the same extent.  The Great Depression was marked by a negative growth rate of real gross domestic product (GDP), bursts of inflation, and 25 percent unemployment.  The production of goods and services dropped by 30 percent (Baumol and Blinder 2006).  A recession occurs when actual GDP is lower than potential GDP(Baumol and Blinder 2006).  During this time workers my experience wage reductions, and price reductions will also accompany the slow right shift of the aggregate supply curve.  The economy will eventually find a new equilibrium at the potential GDP (see Figure 1).   Without changes in aggregate demand (AD) this can be economically painful and may take a long time to self correct (Johnson 2006). 

No country in the world was spared from the woes of the Great Depression, and so great the hardships that fiscal policy has evolved to prevent such catastrophes from reoccurring.  The government has fiscal policies that can help avert massive recessions, and help pull the economy out of minor recession.  Aggregate demand  is more easily changed by fiscal policy than aggregate supply (AS), therefore AD is targeted by the most common fiscal policies (Schmitt 2003).

The most common fiscal policy actions during a recession are:  tax cuts, increased spending, and automatic fiscal polices such as unemployment insurance.  Tax cuts and increased spending try to shift aggregate demand to close recessionary gaps while unemployment insurance acts as an automatic stabilizer (Baumol and Blinder 2006).  Fiscal policies tend to have larger effects than ...