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Face time with strangers can boost economy

I hope your "face time" with family and friends over the holiday break wasn't done using a mobile phone.

A phone call may be better than nothing, but it turns out that regular, in-the-flesh, face-to-face communication reduces the risk of depression in older adults.

That's according to research by Alan Teo, a psychiatrist at the Oregon Health and Sciences University, and others.

"Meeting friends and family face-to-face is strong preventive medicine for depression. Think of it like taking your vitamins, and make sure you get a regular dose of it," Teo advised.

Thanks to my own painstaking research (I googled it), I can tell you we know from previous studies that having social support and staying connected with people is good for your physical and mental health. It even helps you live longer.

Teo and his mates examined the results of a survey of about 11,000 people aged 50 or more between 2004 and 2010.

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They found a correlation between the types of interactions people had with others and their likelihood of showing symptoms of depression two years later.

Phone calls don't cut it

"We found that all forms of socialisation aren't equal. Phone calls and digital communication with friends or family members do not have the same power as face-to-face social interactions in helping to stave off depression," Teo said.

But what, pray tell, has this to do with the economics I'm paid to write about?

Well, in the silly season it doesn't have to. But as it happens, it does. One of the most important discoveries of economists in the past decade or so is the almost magical economic properties of face-to-face contact.

For this new knowledge we're indebted mainly to the guru of urban economics, professor Edward Glaeser, of Harvard, as set out in his important 2011 book, Triumph of the City.

Economic geographers have long understood the significance of "economies of agglomeration". We crowd into ever-bigger cities because close proximity between a business, its workers, its customers, its suppliers and even its competitors does wonders to improve productivity.

Unfortunately, what's good for our material standard of living isn't necessarily good for the soul.

Glaeser's contribution was to realise that, in the era of the knowledge economy, firms want to crowd together in the very centre of the biggest cities – regardless of sky-high rents – because knowledge spreads most effectively though face-to-face contact between the smartest people.

Here in Oz, pioneering empirical work by Jane-Frances Kelly of the Grattan Institute, has shown how more and more of our gross domestic product is being generated in the CBDs of our four biggest cities.

While she was at it, she publicised Reserve Bank research showing convincingly that, in every capital city, house prices are rising fastest in those suburbs closest to centre and slowest in those suburbs furthest out.

So if you think the golden rule of real estate is position, position, position, you're behind the curve. In big cities these days its proximity, proximity proximity. And that gets back to the economic value of face-to-face contact.

Reaching out

Unfortunately, however, what's good for our material standard of living isn't necessarily good for the soul.

When we're crammed in together in trains, lifts or waiting rooms, we know almost instinctively to avoid invading people's "personal space", avoid conversation and even eye contact.

But research by Nicholas Epley, of the University of Chicago's Booth School of Business, and Juliana Schroeder, of the University of California, Berkeley's Haas School of Business, shows our instincts are wrong.

In a series of experiments, those commuters who were instructed to strike up conversation with a stranger reported having the most positive experience, compared with those instructed to sit in silence or behave as they usually would.

When it comes to the advent of the knowledge economy, the information revolution and digital disruption, there are two errors we can make: underestimating the extent to which it's already changing the way the economy works (see above), and overestimating the extent to which it's changing the way humans work – and are happiest working.

You can be sure the world's model-bound economists will make – are making – the first error. And since their model copes with human nature only by assumption, they won't even be conscious of the second.

For the rest of us, however, the thing is to remember new technology raises three distinct questions: first, what new tricks is it actually capable of doing for us, second, do we really want it to do that trick for us and, finally, assuming we do, what will we eventually feel about the wisdom of that choice? See intro.

Ross Gittins is the Herald's economics editor.

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