Vibes, the Economy and the Election

[robosmith]

Vibes, the Economy and the Election

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For two years, the public has said the economy is doing poorly, even though it appears healthy by many traditional measures. This has prompted a fierce debate over whether the public’s views are mostly driven by concrete economic factors like high prices or something noneconomic — like a bad “vibe” brought on by social media memes or Fox News.

To cut right to the heart of the problem underlying this debate: High prices do not seem to fully explain why voters are this upset about the economy.

“Yes, voters are upset about high prices, and prices are indeed high. This easily and even completely explains why voters think this economy is mediocre: In the era of consumer sentiment data, inflation has never risen so high without pushing consumer sentiment below average and usually well below average. This part is not complicated.”

But it’s harder to argue that voters should believe the economy is outright terrible, even after accounting for inflation. Back in early 2022, I estimated that consumer confidence was running at least 10 to 15 percentage points worse than one would expect historically, after accounting for prices and real disposable income.

I could run through the numbers, but just consider this instead: The low point for consumer sentiment in 2022 wasn’t just low; it was a record low for the index dating all the way to 1952. 

Hmmm.... maybe it was COVID which killed economic PERCEPTIONS.