This Economic Moment
Continued disjunctures between perceptions and the indicators.
Via Vox comes another piece that notes that the macroeconomic indicators and the public opinion polling are not in synch: Wages are rising. Jobs are plentiful. Nobody’s happy. The key factor continues to be the inflation.
Inflation also feels like a thing happening to people outside of their control. When things go well for people at work — when they get promotions and raises — they often attribute it to their unique circumstances and talents, not macroeconomic conditions.
This strikes me as a plausible theory of the general psychology of most people. If prices go up, this is due to factors outside of my control, but if I get a raise, it is because I worked hard! Or, more to the point, I don’t deserve to have prices on steaks go up, but I most definitely deserve to be paid more.
When it comes to actual behavior, however, people are not acting especially pessimistic about the general economy.
Many Americans are better off financially than they were pre-pandemic, and many of them are acting like it, too. Consumers and businesses have kept spending. New businesses have been created. None of this is to say that all is hunky dory. If you’re trying to buy or sell your house right now, things are far from ideal. Credit card debt is on the rise. I cannot say this enough: Higher prices suck. Still, actions speak louder than words.
“If people were actually pessimistic about the future of the economy, they’d start saving, when in fact they’re spending like crazy,” Wolfers said. “If you look at the behaviors that would reflect the belief that the economy was good or bad, all of those behaviors suggest they’re incredibly optimistic, and they’re roughly as optimistic as you would expect based on things like the unemployment rate.”
This strikes me as a telling indicator that the polling is based more on feelings than objective reality when it comes to the economy. If people really were are bad off as the polling suggests, spending would demonstrate this fact.
And yes, it is certainly the case that individuals can have different experiences than the overall economy.
As the piece, notes, these are odd economic times, especially given the robustness of the job market.
I recommend the whole piece.