Neil Irwin, writing in the WaPo, is the latest to tackle the problem. He writes:
Ask Americans how the economy is doing, and their answer is stark: It is not just bad, it is run-for-the-hills terrible. Consumer confidence is at its lowest level in almost 30 years. Only 12 percent of Americans think the economy is in good shape. On the Internet, comparisons to the Great Depression are widespread.
But the reality is different. According to most broad measures of how the economy is doing, it's not all that grim.
Soft? You betcha. In recession? Quite possibly. And a crisis in the financial markets has rattled nerves for months now. But so far, the economy is holding up better than it did during the last two recessions in 1990 and 2001. Employers haven't shed as many jobs, the unemployment rate is still relatively low, and gross domestic product has kept rising. Things are nowhere near as bad as they were in the Great Depression, or even during the severe recession of 1982-83. The last time consumers were this miserable, in May 1980, the jobless rate was 7.5 percent and inflation was 14.4 percent. Now those numbers are 5.5 percent and 4.2 percent respectively.
Irwin points out that this pessimism carries dangers:
This paradox has created a unique challenge for those guiding the economy, who worry that Americans' pessimistic views will become a self-fulfilling prophecy. Two-thirds of the economy is consumer spending. So if people's negative outlook leads them to cut their spending, a steeper downturn could happen.
Ane he offers an explanation for it. He suggests that people's perceptions have been shaped by the high price of oil and the recent crisis in the housing market. These, rather than the statistical aggregates cited by economists, affect people directly and intimately and lead them to assume that everything is in crisis.
Read the whole thing here.
There are two problems with this analysis, though.
First of all, poll after poll has shown that, although people are convinced that the economy, indeed the whole society and the world, are plunging into disaster, they tend to be optimistic about their own lives. This would suggest that their fears are not experiential.
Secondly, the analysis ignores a huge factor influencing people's opinions -- the media. Reporting on the state of the economy, the society, and the state of the world tends to emphasize the negative [the famous "if it bleeds, it leads" phenomenon]. But even beyond that reporting has been unrelentingly negative in recent years.
Kevin Hassett and John Lott have studied the coverage and have another explanation -- Hassett writes:
Economist John Lott and I studied thousands of economic news stories written over the past 30 years or so, and found that coverage tended to be far more negative when there was a Republican in the White House as there is now.
The bias has an easy explanation. Yale University economist Ray Fair has shown that a weak economy hurts the incumbent party. If a Democratic-leaning press can convince everyone that the economy is in recession, then it can influence the election.
Our analysis indicates that the treatment of the economy would be much different if there were a Democrat in the White House today. If so, then the headline of each bad piece of news would be, more accurately, "Economy Hovering Above Recession."
But instead of that, we get doom and gloom.
Read it here.
So it seems that the most important factor in shaping public attitudes toward the state of things is how they are reported in the media, and far from being objective, the major media are politically driven.
Seems about right to me.
ht: Michael Novak