Alan Blinder says the economy is good why don’t people know it?
There is so much wrong with this...let's look at the 'allegations of excellence' VS poll responses in detail
If you’re happy and you know it
clap your hands!
If you’re happy and you know it
clap you hands!
But…
If you’re unhappy and you know it
and you think Joe Biden’s blown it
The only thing to do do is take a stand!
Sooo… we look at this phenomenon below assessing the allegations and sifting through the ‘FACTS’ that Alan Blinder presents in his WSJ Op-ED in which he maintains that his perception of reality Trump your opinion. Shades of Anthony Fauci here I’m afraid
Lets look at his contentions…(Article is here for reference)
As we do this, take note of how hard it is to know what someone else is thinking or why they see things differently from you. Unless someone is an economist and specifically looks at numbers there are many opportunities for people to be active and engage in the economy and see things differently from the way ‘official statics portray them. After all Democrats right now are embarked on a crusade to try to get the Fed to look at inflation without housing costs included. This is an out and out campaign to impugn the official data. Keep that in mind later in this report when Blinder ‘accuses the media’ of distorting opinions about the economy. Isn’t irony delicious?
Below are three sections excerpting the comments that Mr Blinder uses as fodder for his argument that people are misgauging an excellent economy…
Blinder one
In a mid-May poll, 41% of respondents told the Pew Research Center that they rate their personal finances as “excellent or in good shape,” but only 23% rated the country’s economic conditions as “excellent or good.”
Blinder 2
Interestingly, respondents’ ratings of the economy improve as polling questions get more local. A Wall Street Journal poll of seven swing states in March found that 54% of respondents rated their state’s economy as excellent or good, but only 36% said that about the national economy. Could those state economies really be so different from the national economy?
Blinder 3
Some polls show an even more stark contrast between sentiments and reality. A Harris poll conducted a few weeks ago for the Guardian found that 49% of Americans believe that unemployment is at a 50-year high, 72% think inflation is increasing, and 56% think the U.S. is in a recession. Not one of these propositions is remotely true. That same poll even found that 49% think the S&P 500 stock market index is down for the year. Your brokerage statement will assure you otherwise.
So these are examples of how people are out of touch with at least Mr Blinder’s reality…
Response to Blinder one:
Meanwhile here are some data from the University of Michigan
Form this survey I rank responses in the categories on data back to 1978. What do we learn? Well for one despite what the Pew Poll said, the U of M poll that is conducted monthly shows that these survey members rate their current personal finances as worse only 7.7% of the time. The expectations for their personal finances are worse only 15.8% of the time. Maybe there is more than one way to ask people about their personal finances? Could I gladly pay you Tuesday for a Hamburger today? The overall U of M sentiment gauge is weaker only 9.7% of the time- not much different from the way people assess their own personal finances. So I find Mr Blinders first point wanting.
Response to Blinder 2
Here I have no data… however, there is this from Investopedia:
“There is nothing to prevent state and local governments from running budget deficits in the same manner as the U.S. federal government. However, most state governments are required by law or their constitution to balance their budgets.” (Source)
Covid (with Trump as President) started the surge in the ratio of debt to GDP. But there was no pull back under Biden after the crisis passed. He milked it and used the wafer thin Democrat majority to ram though more stimulus and spending - agenda stimulus - not Covid stimulus. Actual debt and future commitments rose sharply as Biden’s ‘Build Back Better” program squeaked through. Much of that commits Federal spending and debt for the future – ENJOY!
One of the things that was done after Covid was to distribute monies to states. The chart below is from the Dallas Fed and shows how net savings among states rose sharply. So states actually DO have far superior finances to the Federal Government which took on more debt then handed money out without strings to the States. WEEeee! Some of them were large Democrat-leaning states with budget issues that the transfer helped to ameliorate or fix.
The Answer to Mr Blinders question about could states and local government be better off than the federal government is YES! They could and they are. If people are wary about giving the economy good grades for past economic performance because they know it has been achieved by borrowing from the future that is a rational, insightful, response by the surveyed consumer not an indicator that the surveyed participant is clueless. He is just not as prone to being duped as some policymakers would like…
Response to Blinder three
First, here is the link to the Harris Poll Blinder refers to (link) that was commissioned by the Guardian. It offers some strange brew…
Unemployment at a 50-year high?
The statement about the unemployment rate being at a 50-year high is odd. It is in fact just a few months removed from having made a 50-year low! This is the most suspicious answer in the survey. And no one no press, not even the most conservative has been touting a 50-year high as true- so I really wonder how Harris got it that response in the survey. However, the U6 unemployment rate that counts discouraged workers as unemployed is at 7.4%. On data back to 1994 the current U6 unemployment concept has been lower less than 18% of the time). Beyond pointing out that the U3 rate is not the only game in town, I have no push back on this number except to agree that the survey response is odd. However, people experience the concept of unemployment and not the U3 definition. That may be why they see things differently as U6 suggests. Blinder can use it as an example that Americans are out of touch, but I would use it to impugn the quality of the survey as out of touch with what Americans think and know... Different folks, different strokes.
And...apart from being unemployed or not (or retired) the proportion of people NOT in the labor force has been rising sharply – although it plateaued under Trump’s presidency at least until Covid hit. This is the ratio of people NOT working to the size of the labor force. We last saw ratios like this back in the late 1970s. The rise in the ratio could also account for a feeling that fewer people are working…
Inflation is accelerating? Is it?
This is easier to understand. Economists calculate inflation over specific periods. Consumers are just more aware that they are STILL paying more for something than they used to. So when inflation is falling, usually prices are still rising, but rising more slowly. But these are prices that are rising on top of some past really large price increases so the sting of past inflation and its perceptions may linger. Also, people do not feel CPI or PCE inflation they feel a ‘personal index’ depending on their circumstances; that further complicates things. See the chart below on the core CPI on different horizons 3-mo, 6-mo and 12-mo. Notice that the long trend for core inflation is lower. But 3-mo inflation hit is recent low in August of last year and since then has been increasing. It has only broken off that acceleration in the last two months. Look at the chart tell me is inflation accelerating or decelerating? I want your OPINION on this FACT. See what I mean? Subjectivity is everywhere As for year-on-year inflation, it is slowing but very slowly. People are more attuned to the prices they pay than to the inflation rate. When they go into a store they pay the price…not the inflation rate. Inflation is still above its 2% target pace. Prices are very high and still rising. Have pity on consumers don’t vilify them because they are reacting to reality.
The US is in a recession?
Well, no, it is not yet. But the unemployment rate has been rising and it is up by 0.6 percentage points from the cycle low. And since the late 1950s every time this has happened the economy has been in recession or went there shortly. See the chart below for the signal in action (blue bars/ recession is fuchsia).
While the economy is NOT in recession it is not ridiculous to think recession is a clear and present danger. In fact, a number of economists, even including those at the Federal Reserve Board, were forecasting a recession within the last year. So why make this such an issue? And if that is such a far-fetched concern why are so many Democrats clamoring for the Fed’s to cut rates? If you act like it’s a duck, and if you order hunting great for Duck season, people would not think it a quackers to believe a duck is coming.
The stock market is lower on the year… no, but
Stock market performance is skewed higher by just a few key stocks known as the ‘magnificent seven.’ In 2023 the S&P rose by 25.1%. but the S&P re-expressed with equal weights to all shares to reduce the impact of the magnificent seven, sends stocks up by only 11.9%. The point is not that the other stocks are not ‘up’ on some horizon, but about how much the magnificent seven distort the S&P. If people are invested in the S&P as a fund and do not have these seven stocks, their perception of the S&P’s performance could easily be very different. Blinder’s assumption that everyone in some sense should know how some stock index is performing (the S&P, the DJIA, the NASDAQ, EAFE?) is simply wrong – and it’s too much to ask without reference. Even if your 401 is stock-market invested you might not follow it closely. And not knowing what the S&P 500 has done is not a flaw or a sign of economic illiteracy. It may be the sign post of a long terms investor with an investment advisor..
Summing up
As a final summation Blinder attempts to excuse peoples ‘poor survey responses’ to the national survey as due to ‘The Media.’ He notes that people ‘experience the local economy,’ like local weather, but find the ‘national economy’ a remote abstraction they don’t really engage. So if people have poor views it must be ‘the media’
That is interesting since the media nationally is far more dominated and controlled by liberal, progressive, and liberal-leaning news entities. Why would they be selling Joey B and his economy down the river? In any even there are various news sources available and the internet with a spectrum of opinion on these things. I would say one of the real problems here is quality of education we have inculcated in our youth by advancing them to the next grade based on their passing their birthday instead of by passing a test showing some competence. A lot of people misperceive recessions, have a different take on inflation, see the stock market differently and also see the job market is a different light. If Alan Blinder wants to rephrase and ask questions of people about economic literacy, that is different than taking these responses on the actual economy and vetting people though existing government statistics.
Turning Mr Blinders analysis back on him, the question is this: if people do experience their local economies as doing so well and are disconnected from the nation’s economy why would they -for no reason at all- think the national economy is doing so much worse? For another approach that agrees with Blinder see this (Poynter). Poynter scores out as an unbiased media source (Here).
A Pew survey (Late Jan 2024 - Here) is less constructive and provides more reasons for the beliefs of those surveyed. One of the interesting features of this PEW survey is something that has NOTHING TO DO WITH DATA or PAST DATA. The survey cites a growing block of Americans who simply DO NOT THINK Biden will be a successful as President. One way to read that is even if they think the economy has done well, they don’t think that those gains can be repeated.
Once again this is the difference between trust and no trust and looking forward Vs looking backward.
In Mr Blinder’s account of Mr Biden he establishes how excellent the economy is and how it can be viewed. If we let Mr Blinder aim the rearview mirror everything is fine. But aren’t we really more interested in where we are going?
I don’t think this is an accident I think people are really worried about the socio-economic changes they see and that when they assess the national economy they look at national policies broadly. That includes concerns people have about the border security, crime, the cost of all these immigrants, the adoption of DEI, a system that is not performance based as well as BLM. Many Americans do not recognize the America they knew by these policies and it makes them feel less economically secure. They know there is war in Ukraine and instability in the Middles East and the Middle East has a blow-back of antisemitism. I do not believe for one minute that when you ask about the economy and how people feel they set all those things aside. People are aware that Social Security in financial trouble and AMERICA IS AGING! Hello?? Does anyone think it’s a problem that Joe chose to Build Back Better instead of fix Social Security and Medicare?
On balance Blinders WSJ opus extraneous does not impress me. The survey he cites seems out of touch with the reality I know and all too many Americans know. Democrats can remain in denial with Mr Blinder and blame people for not giving credit to Biden for such excellent past results. But WE, THE PEOPLE, see it differently. And continuing to throw it in our face that we don’t get it when the problem is that ‘They don’t get it’ will only bring them a worse defeat in November.
Cheers