The Body Economic

THE BODY ECONOMIC

THE

BODY

ECONOMIC

Why Austerity Kills

Recessions, Budget Battles,
and the Politics of Life and Death

 

DAVID STUCKLER
SANJAY BASU

BASIC BOOKS

A Member of the Perseus Books Group

New York

Copyright © 2013 by David Stuckler and Sanjay Basu

Published by Basic Books,

A Member of the Perseus Books Group

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.

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ISBN: 978-0-465-06397-0 (e-book)

10 9 8 7 6 5 4 3 2 1

Politics is nothing but medicine on a grand scale.

         
Rudolph Virchow, 1848

                      
Preface

                      
Introduction

PART I
           
HISTORY

Chapter 1
       
Tempering the Great Depression

Chapter 2
       
The Post-Communist Mortality Crisis

Chapter 3
       
From Miracle to Mirage

PART II
          
THE GREAT RECESSION

Chapter 4
       
God Bless Iceland

Chapter 5
       
Greek Tragedy

PART III
         
RESILIENCE

Chapter 6
       
To Care or Not to Care

Chapter 7
       
Returning to Work

Chapter 8
       
A Plague on All Your Houses

                      
Conclusion: Healing the Body Economic

                      
Notes

                      
Research Publications

                      
Acknowledgments

                      
Index

Thank you for participating in this clinical trial. You might not recall signing up for it, but you were enrolled in December 2007, at the start of the Great Recession. This experiment was not governed by the rules of informed consent or medical safety. Your treatment was not administered by doctors or nurses. It was directed by politicians, economists, and ministers of finance.

During this study, you were assigned, along with billions of others around the world, to one of two major experimental treatments: austerity or stimulus. Austerity is medicine intended to reduce symptoms of debts and deficits, and to cure recessions. It cuts government spending on healthcare coverage, assistance to the unemployed, and housing support. At the start of the trial, its potential side-effects were not well understood.

When the austerity experiment began, your prognosis was grim and uncertain. The US housing market bubble burst in 2007, battering economies across the world. Some politicians, such as British Prime Minister David Cameron, decided to pursue austerity to reduce deficits. Elsewhere in Europe, the International Monetary Fund and the European Central Bank pressured governments in Greece, Spain, and Italy to experiment with austerity: cutting billions of dollars from social programs. If you received an experimental dose of austerity, you might have noticed some serious changes to your world.

Meanwhile, other politicians chose to invest in health and social safety net programs. If you were in the stimulus group—that is, if you are currently living in Sweden, Iceland, or Denmark—your community was massively affected by unemployment and the recession, but was largely spared from austerity. Instead, stimulus funds were used to bolster health and social safety nets during the recession. If you lived in a stimulus country, you may not have
noticed many changes to your neighborhood, waiting lines at the hospital, food prices, or rates of homelessness.

This experiment was not the first pitting stimulus against austerity. Eighty years ago, one of the largest such tests took place in the United States. As a way out of the Great Depression, President Franklin Delano Roosevelt proposed a raft of programs known as the New Deal, and Congress adopted them. The New Deal created jobs and strengthened the social safety net. But while many state governments in the US adopted the New Deal programs, others refused to implement them. They experienced wildly different outcomes as a result. Public health improved in pro–New Deal states but not in anti–New Deal states. Two decades ago, austerity was also tested in post-Communist Russia, and in East Asia, with strikingly similar results.

These experiments provided critical insights about the central findings in this book: economic choices are not only matters of growth rates and deficits, but matters of life and death.

The Body Economic
is about data, and the stories behind those data. Over the past decade, we've been concerned about how our health is affected by economic crises—including this Great Recession. Our interest is not just academic—it is personal.

Both of us have experienced financial vulnerability, and the health consequences that attend it. David dropped out of high school to follow his passion and play in a band. Music didn't earn much money (and in retrospect, the band wasn't that great), so he worked odd jobs waiting tables and doing maintenance work at an apartment complex to make ends meet. But when he was unexpectedly laid off, he couldn't afford to pay rent. He variously lived in a tent, his car, and on friends' sofas. When winter came, he started to get sick. Having suffered asthma since childhood, he caught bronchitis and then pneumonia—while out of work, he had no health insurance, money, or a place to go of his own. Eventually he was able to get back on his feet and go to college with the support of his family. There, he studied health economics and statistics, and learned that his situation was not unique: all across America, people were one paycheck away from becoming homeless and needing help, just as he had done.

From a young age, Sanjay's life was affected by illness as well. His mother was sick for years from a lung infection called coccidiomycosis (the “Valley Fever” of the American Southwest). His father traveled across states to find
work and make ends meet. The family moved in and out of hospitals; oxygen machines were delivered every week to the garage. He was good at math, though, and when he enrolled as an undergraduate at MIT, he discovered the mathematics of life and death—how statistics described the reasons behind who lived and who died.

We met in graduate school, studying public health and medicine because we wanted to help others. Since that time, we have studied how social and economic policies affect our health. That's because ultimately these policies make more of an impact on who lives and who dies than any pill, surgery, or insurance plan. Good health doesn't start in hospitals and clinics; it starts in our homes and our neighborhoods, in the food we eat, the air we breathe, and the safety of our streets. Indeed, a top predictor of your life expectancy is your zip code. That's because much of what keeps us healthy has to do with our social environment.
¹

All of the research on health and social policy presented in this book has been subjected to extensive peer review. Leading independent economists, epidemiologists, physicians, and statisticians have checked our data, our methods, and how we present these findings. We draw on the most recent research in the field, as well as many studies of our own. Our work has been published in respected scientific and medical journals, such as The
Lancet, British Medical Journal
, and
PLoS Medicine
, in addition to economics and social science journals.

Academic journals can be obscure, however, and so this book is an attempt to translate that data into plain English. Our goal is to provide people with the information they need to make informed, democratic choices about their economy and their health. We also want to inject hard evidence into the debate about austerity—a debate that has been shaped far more by ideology than facts.

The political debate about the Great Recession has been intense. Free marketeers and proponents of austerity tend to believe in paying off debt, regardless of the human price. Some of their opponents believe in maintaining a strong social safety net, even if that means less economic growth. Their longstanding disagreement about these basic principles has devolved into a cacophony of shrill voices and combative viewpoints. And both sides have grossly failed to see the false dichotomy in this debate.

Making smart policy choices can boost growth without human costs. Often those choices require up-front investment in public health programs. These programs, if administered correctly, can help spur growth in the short run, in addition to their long-term benefits. In other words, our data reveal that we can have good health, and tackle our debts too. But creating this balance requires funding the right government programs.

To identify the best drugs and treatments in medicine, doctors use large, randomized controlled trials. But it is difficult, if not impossible, to enroll entire societies into randomized controlled trials to test out the best social policies. So to understand how policies affect our health, we use rigorous statistical methods to study what are known as “natural experiments.” These experiments arise, for example, when policy makers face similar problems such as a large recession, but choose different courses of action. This divergence creates the potential for us, as researchers, to learn how political choices ultimately come to affect our health, for better and for worse.

Can we afford to pay for social protection programs—for healthcare, mental health programs, food stamps, and housing programs—when 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 don't 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 recession—since 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 “triple-dip recession.”