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Thursday, June 30, 2016

How Do People Really Feel about the Economy?

Ben Bernanke at Brookings:

How do people really feel about the economy?: Political outsiders have had quite a good year in the United States (and elsewhere), and many pundits have attributed their success to voters’ profound dissatisfaction with the economy. Certainly there is plenty to be dissatisfied about, including growing inequality of income and wealth and stagnation in real wages. But there are positives as well, including an improving labor market, low inflation, and low gasoline prices. How do people really feel about the U.S. economy?
This post will not tackle the substance of Americans’ worries about the economy but instead highlights a puzzle... I’ll show that, when Americans are asked specifically about the economy, in an apolitical context, they are for the most part not nearly as pessimistic as the conventional wisdom would have it. ... But, at the same time, when asked more generally about the way things are going in the United States, or about whether the country is going in the right direction, a strong majority gives downbeat answers... I end the post with a few thoughts on possible reasons. ...
There are of course multiple possibilities, not mutually exclusive. For example, traumatic national events, including the 9/11 attacks and the 2007-2009 financial crisis, may have had lasting effects on public confidence that are not captured in their near-term assessments of economic performance. (Satisfaction with the way things are going did begin a sustained decline around 2001, at about the time of 9/11, the end of the tech bubble, and the 2001 recession.) It may also be that, in responding to broad questions about the direction of the country, people are taking into account non-economic concerns, such as social problems and cultural fears. Such factors must certainly be part of the story, but it should be noted that many social indicators (such as teenage births and crime rates) have been moving in generally favorable directions.
I suspect that greater social and political polarization itself has a role to play in explaining reported levels of dissatisfaction. To an increasing extent, Americans are self-selecting into non-overlapping communities (real and virtual) of differing demographics and ideologies, served by a fragmented and partisan media. ...
In a highly polarized environment, with echo-chamber media, political debates often become shrill, and commentators and advocates have strong incentives to argue that the country’s future is bleak unless their party gains control. In this environment, it seems plausible that people will respond more intensely and negatively to open-ended questions about the general state of the country, while questions in a survey focused narrowly on economic conditions elicit more moderate responses. Without doubt, the economic problems facing the country are real, and require serious and sustained responses. But while perceptions of economic stress are certainly roiling our national politics, it may also be that our roiled politics are worsening how we collectively perceive the economy.

    Posted by on Thursday, June 30, 2016 at 09:31 AM in Economics, Politics | Permalink  Comments (81)


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