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Financial Crises, C-Sections And Government Shutdowns

inthepapersEvery Monday, the National Bureau of Economic Research, a nonprofit organization made up of some of North America’s most respected economists, releases its latest batch of working papers. The papers aren’t peer-reviewed, so their conclusions are preliminary (and occasionally flat-out wrong). But they offer an early peek into some of the research that will shape economic thinking in the years ahead. Here are a few of this week’s most interesting papers.

Title: “New Evidence on the Impact of Financial Crises in Advanced Countries”

Authors: Christina D. Romer, David H. Romer

What they found: Financial crises don’t necessarily lead to slow economic recoveries.

Why it matters: In 2009, economists Carmen Reinhart and Kenneth Rogoff published a book, “This Time Is Different,” that argued that economies usually recover more slowly following financial crises than after other types of recessions. Their timing was remarkable: The book came out in the wake of the worst U.S. financial crisis in generations and, as they predicted, the ensuing recovery was historically weak. But while Reinhart and Rogoff’s thesis was widely accepted, the authors of this paper argue it was overly simplistic. Among their criticisms: Reinhart and Rogoff treat financial crises as binary — either a recession was caused by a financial crisis or it wasn’t — instead of recognizing that the financial sector can play a larger or smaller role in sparking a recession. In this paper, the Romers, a husband-and-wife team at the University of California, Berkeley, grade countries’ financial health on a 15-point scale. Using that measure, they find a much less consistent relationship between financial crises and economic recoveries: In some cases, financial crises had little impact on a country’s economy; in other cases, the impact was significant but temporary; and in some cases, notably that of Japan in the late 1990s, the impact was severe and long-lasting.

Key quote: “In the conventional view that the aftermath of financial crises is uniformly awful, the policy focus is naturally just on preventing crises. But our finding that there is substantial variation in outcomes suggests different questions. Are there policies that can be undertaken in normal times not just to reduce the chances of crises, but to make their consequences less grave if they occur? What policy actions when a crisis occurs — in addition to steps to lessen the crisis and resolve it quickly — could minimize its effects? The answers to these questions are important for ensuring not just that each time is different, but that none is terrible.”

Data they used: The Organization for Economic Cooperation and Development’s Economic Outlook, “a semiannual publication that describes economic conditions in each member country of the OECD.”

Title: “Physician Incentives and the Rise in C-sections: Evidence from Canada”

Authors: Sara Allin, Michael Baker, Maripier Isabelle, Mark Stabile

What they found: Paying doctors more for delivering babies by cesarean section than for vaginal deliveries leads to more C-section births.

Why it matters: Rising health care costs across the developed world have led policymakers to look for ways to discourage unnecessary medical procedures. Many experts have identified C-sections as a potential target: C-sections have become dramatically more common in virtually all developed countries even though the procedure is more expensive and in many cases more dangerous than vaginal delivery. Past studies have linked the increase in C-sections to the way doctors are compensated: In many countries, including the U.S., doctors earn more from C-sections than from vaginal deliveries. But studies based on American data are made more difficult by the complex structure of the U.S. health care system. In this paper, the authors focus instead on Canada, which has a single-payer system that doesn’t allow doctors to choose among patients as easily (thereby removing a possible confounding factor in the analysis). They find that rising compensation for C-sections relative to vaginal deliveries explains part — but not all — of the increased prevalence of C-sections in Canada.

Key quote: “As C-sections represent, by far, the main cause of surgery in Canada, these findings constitute an insightful basis for policy initiatives that would seek to improve the efficiency in the allocation of resources within the health care system. Moreover, our results indicate that other factors such as improvement in fetal monitoring technology, delayed motherhood, and the practice of defensive medicine to avoid suits for medical malpractice are likely to have also contributed to the increase in C-section rates over the last decades, since price incentives can only partially explain this rise.”

Data they used: The Hospital Morbidity Database and the National Physician Database, both from the Canadian Institute for Health Information.

Title: “How Individuals Smooth Spending: Evidence from the 2013 Government Shutdown Using Account Data”

Authors: Michael Gelman, Shachar Kariv, Matthew D. Shapiro, Dan Silverman, Steven Tadelis

What they found: Even the brief 2013 government shutdown had long-term consequences for some federal workers.

Why it matters: When the federal government shut down in 2013, millions of government workers were left without a paycheck. The shutdown lasted only two weeks, and Congress agreed to provide back pay to the affected employees, so the shutdown had no effect on their lifetime earnings. But it did affect workers’ cash flow, which led them to cut their spending by nearly half during the shutdown. On the surface, that’s a troubling finding, since it suggests most workers had so little money in savings that they couldn’t withstand even a brief and temporary drop in income. But the authors find that in many cases, workers were merely delaying mortgage, credit card and other payments at little or no cost; for them, the practical impact of the shutdown was small. But for workers without access to cheap credit, the impact was much greater. They were forced to put spending on high-interest credit cards and couldn’t pay them off immediately; they still held the excess debt nine months after the shutdown.

Key quote: “The paper also shows, however, that an important subset of the population is still too constrained to cope effectively with even a brief shock that leaves their lifetime income unchanged. For this subset of most constrained individuals, who deferred payments of credit card debt with revolving debt, the shock had lasting effects in that the deferred balance payments were not made up even months after the shutdown. Hence, those who are in precarious financial situations in advance of a shock, even if it is completely temporary, may suffer sustained consequences.”

Data they used: Anonymized data from Mint Bills, a mobile banking application.


Ben Casselman was a senior editor and the chief economics writer for FiveThirtyEight.