Just in time for Mother’s Day, a report has crossed my desk that presents a compelling argument in favour of new motherhood: Pregnancies prevent recessions.
Okay, that’s not exactly what the report says. But a recent working paper published by the National Bureau of Economic Research (NBER) – a highly respected source of independent U.S. economic research, and the recognized authority on the U.S. business cycle – did find that the growth rate of conceptions fell significantly several quarters in advance of each of the past three U.S. recessions. Indeed, the researchers found, the rate of conceptions did at least as well as, if not better than, other prominent forward-looking economic indicators – the consumer confidence index, housing prices and purchases of durable goods – in anticipating recessions.
It would be preposterous to suggest that declines in pregnancies actually cause recessions. By the same token, it makes intuitive sense that fertility rates could slow during recessions as families suffering from economic hardships might decide to delay having children. Canada’s birth rates slowed substantially during the downturns of the early 1990s, early 2000s and 2008-09.
But what possible logical explanation could there be for pregnancy rates to slow long before a recession even arrives?
“We do not interpret our finding … as evidence that people have a supernatural ability to see the future. Instead, we think that the factors behind the last three recessions also had a profound and rapid effect on fertility decisions,” the paper’s authors said.
“Declining conceptions might be a proxy or early warning for whatever shocks did create the recessions.”
The Socionomics Institute, a Gainsville, Ga.-based group that studies links between social behaviour and economics, points out that the findings of the NBER study are similar to those produced by Robert Prechter, the father of socionomics, in 1999. In his paper, Mr. Prechter, a stock-market analyst by trade, found that conception rates tend to rise and fall along with the stock market – which also has a reputation as an early-warning indicator of recessions.
The common denominator, according to Mr. Prechter’s socionomic theory, is that something he calls “social mood” is behind the shift in behaviours in both the stock market and in the bedroom. He argues that when feelings of “friskiness, daring and confidence” are high, that mood fuels both stock market and sexual activity. When something causes them to wane, both investor confidence and procreative activities drop off.
What we’re talking about here is the same turn toward risk aversion that shows up in those other leading economic measures – which all basically gauge consumers’ willingness to spend. The socionomics proponents argue that this societal mood swing feeds the economic downturn. And because behaviours such as investing, or making big purchases, or feeling in the mood for love, can all change much more quickly than businesses can shift their strategies from confident expansion to cautious contraction, all of these things surface in the data well before economic growth turns south.
The Socionomics Institute says these “social mood” effects can be seen in other things seemingly unrelated to financial markets and the economy. For example, it recently identified a correlation between the number of home runs and strikeouts in Major League Baseball and the performance of the stock market. It linked both to a “swinging for the fences” attitude permeating throughout society; when the prevailing mood in the population is high, both investors and batters take risks.
It’s at this point that it’s wise to remember that just because two things are statistically correlated doesn’t mean there’s a cause-and-effect relationship – or, indeed, any relationship at all. There’s such a thing as coincidence. If you want some good laughs, check out the website www.tylervigen.com, which is dedicated to “spurious correlations” – two sets of comically unrelated data that coincide freakishly closely.
Nevertheless, all of this is a reminder that an economy isn’t some monolithic thing in space, but is made up of real people making real decisions, often driven by mood and emotion. These concepts fall under the broader umbrella of behavioural economics, which is grounded in the premise that individuals who make up markets – both financial and economic – make decisions that aren’t always rational.
Behavioural economics have earned much more respect in the wake of the financial crisis and Great Recession; both the housing mania that triggered the collapse, and the nagging fears of risk that bogged down the recovery, defied any rational interpretation of the economic data. The mood that drives people to do a lot of things – including having babies – might be a key to our next level of understanding of economic cycles in the post-crisis era.