As the country begins to emerge from the COVID-19 pandemic, state economies are attempting to reopen to aid the more than 40 million Americans who have filed for unemployment and get businesses up and running again.<\/p>\n
But as industries begin the slow journey back to full strength, there is an often-overlooked variable just as critical to economic success in times of crisis as public safety measures \u2013 the public\u2019s collective mental health.<\/p>\n
Instructional Specialist in Economics David Axelrod, whose research centers on the intersection of mental health and economic behavior, says society\u2019s mental state after months of trauma could impact buying decisions.<\/p>\n
With consumer purchasing typically accounting for 69 percent of the United States\u2019 Gross Domestic Product (GDP), the choices we make could cause the recovery to go much slower than anticipated.<\/p>\n
\u201cTraumatic situations like this cause us to put complex decisions, which often center around finances \u2013 whether or not to buy a product, make a home improvement, or make an investment in a stock \u2013 on the back burner,\u201d says Axelrod. \u201cOur current environment causes us to focus on the potential short-term risks associated with these behaviors, and less on the potential long-term benefits. This can prove problematic from an economic standpoint, because people may be more risk-averse in their decisions.\u201d<\/p>\n
The Economics of the Mind<\/strong><\/p>\n \u00a0<\/strong>From an economic perspective, mental health is a form of human capital.<\/p>\n \u201cA healthy mind has a scarcity of bandwidth and time pressures to deal with, even without traumatic events occurring around us,\u201d Axelrod says. \u201cIf our recent experiences are difficult and painful, it can take a while to process. Recovery uses much of our mind\u2019s available bandwidth, leaving less space for decision-making in other areas.\u201d<\/p>\n The mind also operates under a \u201cCertainty Principle,\u201d which causes people to downplay or even ignore much of the uncertainty around them and attempt to simplify the world as much as possible. In these uncertain times, these two dynamics can come together to create a psyche that could be more risk-averse in all areas of life \u2013 especially around money.<\/p>\n \u201cIn a crisis, we attempt to simplify things as much as possible and remove as many potential risks as we can, which is an important part of making buying choices.\u201d<\/p>\n The \u201cGrowing-Healing Cycle\u201d<\/strong><\/p>\n Risk is essential to growth as part of the \u201cGrowing-Healing Cycle,\u201d a concept critical in developing economic policies.<\/p>\n Axelrod explains: the cycle has six phases: taking the risk, feeling the pain, stopping the trauma, healing the wound, confronting the fear and transforming the spirit. According to Axelrod, the pandemic has placed the economy and the majority of the public in the healing phase, and it could be an extended period of time before patrons are willing to take the risk to shop in public \u2013 and subsequently restore and grow the economy.<\/p>\n \u201cHealing the wounds within the cycle requires the avoidance of risk-taking,\u201d he says. \u201cOnly then can we truly accept and take risks without fear. Because the pandemic isn\u2019t finished and the wounds are still so fresh, we as a society are still healing. So, even as things begin to reopen, the economic impact may not be as immediate as hoped because the majority of people aren\u2019t ready to take risks \u2013 both for their own health and for their financial well-being.\u201d<\/p>\n What We\u2019ll See<\/strong><\/p>\n Ultimately, the risks people have taken in other areas of their lives will mirror their economic decisions, says Axelrod.<\/p>\n \u201cYou\u2019ll see those who were risk-takers during the height of the pandemic \u2013 those venturing out without masks and gloves, and those who may not have been strictly practicing social distancing \u2013 replicate that behavior economically,\u201d he says. \u201cThese people are further along in their own personal Growing-Healing Cycle and they\u2019re ready to take the risks now that things are reopening, both in going out in public and in spending money.\u201d<\/p>\n It\u2019s these risk-takers who will determine the economy\u2019s fate. They are critical to the economy reopening because they will be \u201cearly-adopters,\u201d and will serve as the litmus test for the risk-averse.<\/p>\n \u201cIf the risk-takers venture out and there isn\u2019t an immediate spike in new cases, that could pave the way for a quicker rebound of the economy, because the risk-averse patrons will see a positive outcome and begin to venture out themselves.<\/p>\n \u201cIf there is a spike, however, it will only further elongate the road back, and those risk-averse will be even more reticent to change their behaviors moving forward. That will lead to a much slower rebound than hoped, which could lead to a long-term economic downturn that would exceed the recession of 2008.\u201d<\/p>\n For information on Montclair State University\u2019s academic offerings in economics, visit the Feliciano School of Business<\/a><\/u>.<\/p>\n For press inquiries, contact Senior Media Relations Specialist Andrew Mees at <\/em>meesa@montclair.edu<\/a><\/u><\/em>.<\/em><\/p>\n