Thursday's open line | Arkansas Blog

Thursday, August 20, 2015

Thursday's open line

Posted By on Thu, Aug 20, 2015 at 5:10 PM

**DIVORCE ECONOMICS: At the NYT's Upshot blog, Josh Barro and Justin Wolfers engage in some thought experiments about the economic dimension of the Ashley Madison leak, should it lead to even a moderate number of new divorces that otherwise wouldn't have occurred. Says Barro:

My instinct is that, economically, the impact of the Ashley Madison hack could look a lot like a hurricane. It is likely to unexpectedly destroy a lot of capital people invested time and money in creating – except, instead of buildings and infrastructure, this capital would consist of valuable human relationships. Divorce is costly, not just emotionally but financially. If you have to save up to pay a lawyer and rent a studio apartment, won’t you eat out less and put off buying a new car? Could this be felt at the level of the macroeconomy — a divorce drag? How many divorces do you have to precipitate to tip the economy into recession?

Conversely, Wolfers argues, might divorces stimulate demand in other parts of the economy?

I suspect the bigger economic issue is what these divorces would do for new household formation. If all these newly single people formed new households, then household formation will be 200,000 higher each year for the next four years, and that would fuel demand for construction. But that seems too big: In the United States, folks who have been divorced start by moving in with friends or family, and then very often move in quickly with new partners. A lot of this is musical chairs not leading to demand for an extra home.

Barro responds:

That strikes me as implausible. Divorce may create demand for more housing, but it doesn’t make people more productive. It probably makes them less productive, because it’s distracting and unpleasant and often acrimonious. If divorcing couples spend more on housing and lawyers but their income stays flat or goes down, they’ll have to cut back their consumption of something else.

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