The disconnect between economic statistics and public sentiment

A few weeks ago I blogged about Justin Wolfers’s interesting point that the psychology of inflation tends to feature the widespread assumption that increases in prices are something unjustly imposed on a consumer, while increases in wages are earned via merit. This is one reason why, especially recently, economic sentiment has tended to be much more negative than the macro statistics would suggest it ought to be (there are many other reasons of course).

Andrew Gelman has blogged about this here and here, with some interesting thoughts of his own, plus there’s a lively discussion in the comments.

A few observations/speculations:

(1) There’s a huge recency bias in attitudes toward the economy. If a recession starts to hit six months before an election, the fact that the economy may have been great for the previous three and half years is going to be basically meaningless in terms of voting behavior.

(2) Measures of inflation don’t account for all kinds of psychological factors, beyond the one Wolfers mentions. For example, consider this quote from Gelman’s post:

A survey was conducted in 1988, at the end of Ronald Reagan’s second term, asking various questions about the government and economic conditions, including, “Would you say that compared to 1980, inflation has gotten better, stayed about the same, or gotten worse?” Amazingly, over half of the self-identified strong Democrats in the survey said that inflation had gotten worse and only 8% thought it had gotten much better, even though the actual inflation rate dropped from 13% to 4% during Reagan’s eight years in office. Political scientist Larry Bartels studied this and other examples of bias in retrospective evaluations.

Part of what’s going here of course is just partisan bias: what these voters thought about what happened with inflation is in part just a stand-in for their views about Ronald Reagan. But there are a couple of other things going as well, I think.

One is that the meaning of the question of whether inflation has gotten worse is ambiguous to many a non-economist. For a lot of people, I imagine, the question of whether inflation had gotten better or worse in 1988 than it was in 1980 was interpreted to mean “have nominal prices gone up since 1980?” There is naturally a certain arbitrariness in defining inflation in purely year over year terms: for example, Joe Biden right now is having to deal with the fact that a year and half of moderate to low inflation has still come on the heels of two years of somewhat to quite high inflation, with those trends still reflected in current prices as a baseline from which the current lower inflation is measured.

Another, under-appreciated by Kids These Days I imagine, is that in 1988 it was actually pretty difficult to find the relevant stats even if you were looking for them: unless you had a professional reason to know them, you were necessarily depending to a great extent on vague impressionistic memories. Today, when anybody an Google the answer in 30 seconds, that sort of impressionistic take is a lot more vexing.

(3) This is really a topic for another post or posts, but I suspect a huge amount of consumer dissatisfaction these days is a reflection of what Cory Doctorow has termed “enshitiffication” — and in much broader terms than those Doctorow discusses (his focus in his original discussion of the term at least is exclusively on the dynamics that lead to terrible customer experiences in what in MBA-speak is called something like “the Internet social media and consumable delivery platform space.”)

Basically, the logic of consumer capitalism has been rationalized so thoroughly that everybody from Jeff Bezos on the one hand, to the private equity owners squeezing every last penny out of the Medicare rehabilitation facility space via just not quite in time understaffing, is making life worse for people, especially psychologically, right at that precious margin where the profits are extracting from all of us.

In other words, part of what people are expressing when they say “the economy” is bad is something like their frustration with running another phone decision tree and getting nowhere, even though they are assured that your welfare is our top priority, per our Corporate Mission Statement ™.