A Skeptical Take on the Economy
"Who you gonna believe, me or your lyin' eyes?"
—Chico Marx, Duck Soup
Gregg Easterbrook of the Brookings Institution recently wrote an op-ed in the Wall Street Journal entitled, "Life is Good, So Why Do We Feel So Bad?" In it, he argues:
"The fact is that basically things are pretty good. Unemployment is at 5.5%, low by historical standards; income is rising slightly ahead of inflation; housing prices are down, but the typical house is still worth a third more than in 2000; 94% of Americans do not have threatened mortgages, and of those who do, most will keep their homes. Inflation was up in 2007, but this stands out because the 16 previous years were close to inflation-free; living standards are the highest they have ever been, including living standards for the middle class and for the poor."
Despite data like those cited above, the national disposition is bleak. A recent CBS News/New York Times poll showed 81% of respondents saying the nation is on the wrong track, and 78% saying the U.S. is worse off today than five years ago. Consumer confidence has been charting like a lead balloon. One can almost see the Joad family from The Grapes of Wrath in their overloaded, dilapidated truck, wending their way in an endless caravan stretching from the Dust Bowl to the promised land of California.
The Two Americas
It would seem that there really are two Americas, at least two American economies—the real economy and the perceived one. At first glance, the discrepancy can be explained by decreasing home prices and increasing energy costs. Home prices inform the fundamental wealth identity of most Americans, and fuel prices provide a weekly reminder that a fundamental change has taken place.
But there is an even greater discrepancy than the one between the real economy and the perceived, and it cannot be explained solely by the volatility in housing and energy. What really accounts for it is the way most Americans view their own situation and their impression of the economy as a whole.
In November 2007, only 19% of respondents to an Investor's Business Daily/TechnoMetrica Institute of Policy & Politics poll answering the question: "Do you consider yourself to be a part of America's haves or part of America's have-nots?" described themselves as "have-nots." An astounding 75% of the overall sample described themselves as "haves." In a 1988 Gallup survey with similar demographics, only 59% considered themselves "haves."
The Doomsday Drumbeat of the Media
Even more striking is a July 2007 Harris Poll that asked: "If you compare your present situation with five years ago, would you say it has improved, stayed about the same, or gotten worse?" A full 82% reported that their situation had improved or held steady. In response to the question: "In the course of the next five years, do you expect your personal situation to improve, stay the same, or get worse?" most people anticipated a bright future. Sixty-two percent expected improvement, with only 7% expecting their situation to get worse.
The truth is our impressions of our own economic well-being are based on actual experience, while our impressions of the national economy are shaped by the Chicken-Little loop of the media. The bad news is: The prognosis is not encouraging. With the increasingly competitive demands of the 24/7 news cycles, the doomsday drumbeat will only intensify. It seems that by today's media standards the traditional tempest in a teacup is unsatisfactory and is yielding to the perpetual quest for the Category 5 hurricane in a thimble.
High Gas Prices Not a Bad Thing
I'm not arguing that our economy is free of problems. Obviously, the credit problems are real and the recent stock market drops can't be ignored. The Case-Shiller home-price index of 20 cities fell by 15.3% in April vs. a year earlier, the largest drop since its inception (BusinessWeek.com, 6/26/08) in 2000. But a bubble can burst without the sky falling.
The vast majority of Americans bought their homes to live in, and the prospect of having to clean their garages and attics is enough to deter most from moving just because their homes have lost some of their value. This may in fact mark a pause in the second-mortgage-fueled spending spree—maybe not such a bad thing in the long term. The same goes for our comparatively low gas prices that have for years been the envy of my friends in Europe.
In times like these, it's wise to remember to take the headlines with a grain of salt. The media are, after all, in the provocative-headline business. With his ability to turn even good news into bad, we can hear the media-man saying: "Who you gonna believe, me or your lyin' eyes?"
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.