Adapting to adversity: Happiness and the 2009 economic crisis in the United States

A wide body of research in the field of happiness economics shows that individuals adapt to both prosperity and to adversity and return to their natural levels of happiness.[1] There is also evidence that people are better able to adapt to unpleasant certainty than they are to uncertainty.[2] In this paper we used novel methods and data to further explore these questions through an assessment of the effects of the deep economic crisis of 2008 and 2009 on well-being in the United States.

The 2008–2009 global economic crisis affected the welfare of billions of individuals worldwide. Yet we know much less about the nature of those effects: how to accurately measure them, how wide and deep were their reach across income and nonincome domains, and how long they last. While we can measure the effects in terms of lost production or in the value of home foreclosures, it is much more difficult to quantify the effects on the well-being of individuals.[3] In this paper we take advantage of a new approach in economics—the economics of happiness—and a unique new data set from the Gallup organization to do precisely that.

Our objectives in the paper are twofold. The first is to better understand the welfare effects of the most extreme crisis in the U.S. economy since the Great Depression. The second is to explore if individuals
adapt to both bad and good news as the novelty of first the crisis and then the potential recovery become more common features of daily life. Citizens in other countries, such as Russia and Argentina, where we have previously studied the welfare effects of crises, are much more accustomed to macroeconomic volatility than they are in the United States and in most other Organization for Economic Cooperation and Development (OECD) economies.[4] The U.S. experience allows us to explore how quickly people adapt to such phenomena when they are novel occurrences—if indeed they do.

We examine the effects of the crisis on the reported happiness of a nationally representative sample of approximately 1,000 Americans, surveyed daily from January 2008 to July 2009. In addition to individual happiness levels, we examine how the crisis affects individuals’ assessments of their own living standards and of the country’s economic situation, as well as how they assess prospects for the future—both for themselves and for the country.

We examine how those reports fluctuate with key indicators of both crisis and recovery, as well as how they are mediated by individual characteristics. These range from innate character traits, such as optimism and pessimism, to socioeconomic and demographic factors such as income, education, and gender, to health status and behaviors, such as obesity, smoking, and exercising. We examine how the crisis affects particular cohorts: the precariously employed, those working in firms that were firing (or not), and those at or near the retirement age, among others.

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