The news cycle has swung back to recession talk, even as inflation is coming down and unemployment is at a 50-year low. Ask people what they've heard about the economy, and they'll tell you it's bad.
My rent has increased over $500 per month for the last 2 years. Maybe that’s not as much as people living in NYC or LA, but the area I live in doesn’t have high paying jobs. Also, my electric bill has almost doubled, since last year. For most Americans, our salaries have not been keeping up with increases in daily living expenses. The Federal Reserve doesn’t care about average Americans. They keep bailing out failing banks and corporations. Inflation is not due to increased wages, but monopolistic corporate greed. Most affluent Americans could care less about working class Americans. Even though I have a college degree in a field with an extreme shortage, it has not netted me much job security. It’s not the negative news coverage. It’s our economic reality.
Ah, the age old question of all experts; do I communicate purely the message? Or, do I tatter it with a white-wash, to make the message communicable to how I perceive that the target audience will interpret it(bias adjustment).
I vote for #1. As an expert in your field you do not necessarily have a deep understanding of the human condition. Aggregate data only takes us so far. It describes gross result of an action, not at all the 'how' or 'why' that aggregate result came about.
There's a lot there Claudia. The 1.8 negative bias ratio doesn't surprise me. We have remember the 70's or 80's compared to present-day is like oranges & apples different. This is because we are living in a present day with the individual emotional/cognitive affects of:
- an accelerating expansion in volume of daily alternate information presenting itself, from a multitude of directions 24/365
- at least an order of magnitude greater number of distractions, segues, to the individual's concentration, during the work day
- a regional war that has both implications for our allies, and some unknown substantial probability of going nuclear
- experiencing an America in the throes of a top Leadership Deficit for at least 2 Presidential election cycles now
- many of The People having a perception that our Congress is dysfunctional—incapable of 'compromise', and unable to move forward on Lawmaking of any substance
My wife has CNBC on while editing financial news working from home. (Mostly we need background sound on to keep our anxious dog from freaking out when there's noise in the hall). We're staying in a studio apt while renovating our main apt, so suddenly I'm exposed to it. The thing I pick up over and over on there is lots of recession talk--but the evidence and concern is for what they call an "earnings recession" -"We're already in one" --what does that mean? It means that the *growth* of companies profits is slowing down!
When I read this post of yours, it dawned on me that the real interest in recession comes from the business community--especially the big investors. Not jobs, wages, or overall prosperity, but overall yields for professional investors. There are many many economists employed by finance and investment corporations and the largest amount of news that is reported out is by business reporters, embedded to one degree or another with business interests. I'm pretty sure that they really don't realize how their views are skewed by this context. (My wife -who's been around the block enough and doesn't need to be impressed by big investors-assures me that this effect on journalists is real)
Good point. And an "earnings recession" is not a recession in any standard sense of the word. A recession is a broad-based contraction in economic activity such as GDP, income, employment, production, etc. Financial markets are not on the list. And yes, there are many connections between (some) macroeconomists and investors. That's not all bad. Well-functioning markets are a good thing, but we lose balance if it is treated as the only thing. Good luck with your dog!
That must have been jarring to buy something at a farmer's market and have a vendor ask you if you were scary because you were wearing a Women in Economics t-shirt, Claudia. Maybe next time wear a Nationals t-shirt lol except then you might be asked if you hate the Orioles ha ha.
Great post. From my perch, Each industry is in its own world post pandemic. The good news for the lower quartiles workers is that there is still demand. Thus wages are not going down. In the white collar jobs it depends on location and job type. I get this from asking my friends who own companies and friends working for companies ( all in US national ). If people feel their job is safe they hold back spending at first then start spending. If you live paycheck to paycheck you have no choice but to spend.
Agree. The pandemic hit industries differently. And in ways, unlike prior recessions. For example, in the freefall, construction boomed, and services tanked. The recovery has also had differences by industry. That's not uncommon, but everything is amplified this time. I also agree that how people feel about their job security and how much is in their paycheck are most important for spending. The survey questions on the news focus on the overall economy. Other questions are whether their own finances look better but are still downbeat.
Economists wouldn't be scary if more of them had their feet on the ground instead of their heads in the clouds. Like you. Such a fresh voice compared to almost every economics professor most of us had to suffer through.
I suspect another factor is at play that is often unappreciated: the asynchronous nature of activity in our vast and diverse economy. There are micro recessions going on all the time. Just not in the same place or industry. Or with the same severity or duration.
Insightful article on the disconnect between economic indicators and public sentiment. It's worrisome that the constant stream of negative news may contribute to a self-fulfilling cycle of economic downturn. In your view, how can we achieve a more balanced presentation of both positive and negative aspects of the economy in news reporting? Additionally, how can we motivate economists and policymakers to communicate more effectively and transparently with the general public to avoid misunderstandings or unwarranted fears?
Those are big and important questions, and I admit I don't have good answers. My approach has been to try to elevate the good, even when explaining the bad in my work. You can see it in many of my posts. I did an interview yesterday where we got into the incentives of macro commentators and the gloom / inflation-focused speaking. When it's up, I will link to it.
I never understand this chart about recession and people hearing "bad news". I don't think it's an important econometric measure for anything. Why people say they think economy is bad? I think it has to do with political climate & turmoil which spills into social psyche. The political climate is highly polarizing, uncivil and also plagued with a lot of misinformation. GOP & Trump says "Dems are destroying America" (oh boy) , "we have worst inflation ever" (even when it has gone down remarkably), "i built best economy in the world but radical left drove it into the ground" (yeah right). People hear these kind of talk & now this get repeated day in & day out especially on sewers of social media. 10-15 years ago, we didn't have social media which is now a major source of information gathering. Social media is full of pessimism, disinfo, doomsday garbage which is mostly spread by right wing trolls. I hear on right wing platforms that World is gonna dump dollar, social security fund will go bankrupt in few years, national debt is exploding etc etc and a lot of non sense.
I am not saying that economy is great & perfect. It's not. A lot needs to be done for economic transition for energy security (climate change), addressing economic disparity (which is a grave problem), improving standards of living, pushing for economic rights (student debt relief, public healthcare, jobs program etc), upgrading national infrastructure etc. All that has to be done. But things are moving in the right direction and it's a particular party that holds nation hostage on things like Debt ceiling & blocking meaningful economic reforms.
Politics aside, does the average view matter? We don’t yet see an impact on consumption. Housing has softened, but little more in the economy. Financial indicators, except for the yield curve, don’t appear to be flashing red. Personally, I’ll get worried when there is blood in the financial markets. But, general nervousness may just be noise and uncorrelated with anything but partisan votes.
Sentiment (also in the survey and similarly dismal), as bad as it is now always, but not now, would directly precede or be in the start of a recession. Also in the "it matters" section I discuss the dynamic. It can happen pretty quickly. All that said, you are correct that it has not happened yet.
The premise of this article is wrong. The person you were talking to at the farmers market recognized that you might be one of those economists that are heard saying through the media that we must have a recession to halt inflation. And that is because our ruling class has decided to take the Volker crush the economy route to ending inflation rather than a more sophisticated and direct regulatory approach to limit price driven inflation through a bit of good old fashioned Truman style excess profits taxation.
At the end of the post, I talk about the need for Congress and the White House to take steps to fight inflation. Regulation and taxing extraordinary profits are two possibilities. The White House, by opening up the Strategic Petroleum Reserve did help push down gasoline prices after the invasion of Ukraine. I have written before that if we make the Fed go it alone on inflation, it will be more painful than it needs to be. More supply s is much better than less demand.
If you look at the demand end of gasoline prices you will find a peak in demand in 2006 and a steady decline in demand from there. Gasoline prices were not driven up by increased demand. They were driven up by ending export restrictions thus exposing the US consumer to world market prices. Both Dems and Rs had a hand in this. Nor was opening up more federal land to drilling any solution since American consumers were not driving up prices via demand nor was there any shortage of supply. To understand what happened you only have to look at the data an previous policy solutions pursued with the original Alaskan oil pipeline, the one that eventually polluted Prudhoe Bay. Opposition to that oil project forced a prohibition on exporting the oil outside the US to keep domestic prices down when there was an Arab oil boycott driving prices up. So no, allowing more drilling or depleting the US oil reserves to increase supply isn’t going to reduce prices because now there is no domestic shortage in supply. Instead of prohibiting the newly drilled oil from being exported the Biden admin is encouraging exports with these new unrestricted leases. gasoline price increases are clearly profit driven. Yet you still hold to the idea that an increase in supply will reduce prices.
Not if the oil monopolies are allowed to export that oil which they have every economic incentive to do. You may not like to hear it but liberal academic economists have been ignoring the most obvious example of price driven inflation. Condemning the Fed for bludgeoning the economy with interest rate increases is no substitute for coming up with targeted price driven inflation solutions. Genuflecting to supply/demand explanations is no excuse for not looking at what is really causing inflation and coming up with ways to directly target price gouging.
Given that the Fed is intentionally trying to reduce consumer spending to reduce services demand/inflation, wouldn’t the ideal circumstance be creating an ‘atmosphere of uncertainty’ that motivates consumers to slow spending, without first having lost their jobs?
It’s anecdotal, but from my own observations and reports from others around the country, people seem to still be spending enthusiastically, to say the least.
https://www.omfif.org/2022/04/structural-reforms-required-to-safeguard-democratic-future/
Excellent article. Thanks for posting it.
My rent has increased over $500 per month for the last 2 years. Maybe that’s not as much as people living in NYC or LA, but the area I live in doesn’t have high paying jobs. Also, my electric bill has almost doubled, since last year. For most Americans, our salaries have not been keeping up with increases in daily living expenses. The Federal Reserve doesn’t care about average Americans. They keep bailing out failing banks and corporations. Inflation is not due to increased wages, but monopolistic corporate greed. Most affluent Americans could care less about working class Americans. Even though I have a college degree in a field with an extreme shortage, it has not netted me much job security. It’s not the negative news coverage. It’s our economic reality.
Ah, the age old question of all experts; do I communicate purely the message? Or, do I tatter it with a white-wash, to make the message communicable to how I perceive that the target audience will interpret it(bias adjustment).
I vote for #1. As an expert in your field you do not necessarily have a deep understanding of the human condition. Aggregate data only takes us so far. It describes gross result of an action, not at all the 'how' or 'why' that aggregate result came about.
There's a lot there Claudia. The 1.8 negative bias ratio doesn't surprise me. We have remember the 70's or 80's compared to present-day is like oranges & apples different. This is because we are living in a present day with the individual emotional/cognitive affects of:
- an accelerating expansion in volume of daily alternate information presenting itself, from a multitude of directions 24/365
- at least an order of magnitude greater number of distractions, segues, to the individual's concentration, during the work day
- a regional war that has both implications for our allies, and some unknown substantial probability of going nuclear
- experiencing an America in the throes of a top Leadership Deficit for at least 2 Presidential election cycles now
- many of The People having a perception that our Congress is dysfunctional—incapable of 'compromise', and unable to move forward on Lawmaking of any substance
My wife has CNBC on while editing financial news working from home. (Mostly we need background sound on to keep our anxious dog from freaking out when there's noise in the hall). We're staying in a studio apt while renovating our main apt, so suddenly I'm exposed to it. The thing I pick up over and over on there is lots of recession talk--but the evidence and concern is for what they call an "earnings recession" -"We're already in one" --what does that mean? It means that the *growth* of companies profits is slowing down!
When I read this post of yours, it dawned on me that the real interest in recession comes from the business community--especially the big investors. Not jobs, wages, or overall prosperity, but overall yields for professional investors. There are many many economists employed by finance and investment corporations and the largest amount of news that is reported out is by business reporters, embedded to one degree or another with business interests. I'm pretty sure that they really don't realize how their views are skewed by this context. (My wife -who's been around the block enough and doesn't need to be impressed by big investors-assures me that this effect on journalists is real)
Good point. And an "earnings recession" is not a recession in any standard sense of the word. A recession is a broad-based contraction in economic activity such as GDP, income, employment, production, etc. Financial markets are not on the list. And yes, there are many connections between (some) macroeconomists and investors. That's not all bad. Well-functioning markets are a good thing, but we lose balance if it is treated as the only thing. Good luck with your dog!
That would also explain why labor is largely ignored as a metric. When you’re wealthy, wages going up means costs going up.
That must have been jarring to buy something at a farmer's market and have a vendor ask you if you were scary because you were wearing a Women in Economics t-shirt, Claudia. Maybe next time wear a Nationals t-shirt lol except then you might be asked if you hate the Orioles ha ha.
Great post. From my perch, Each industry is in its own world post pandemic. The good news for the lower quartiles workers is that there is still demand. Thus wages are not going down. In the white collar jobs it depends on location and job type. I get this from asking my friends who own companies and friends working for companies ( all in US national ). If people feel their job is safe they hold back spending at first then start spending. If you live paycheck to paycheck you have no choice but to spend.
Agree. The pandemic hit industries differently. And in ways, unlike prior recessions. For example, in the freefall, construction boomed, and services tanked. The recovery has also had differences by industry. That's not uncommon, but everything is amplified this time. I also agree that how people feel about their job security and how much is in their paycheck are most important for spending. The survey questions on the news focus on the overall economy. Other questions are whether their own finances look better but are still downbeat.
“Fear not!” One of my favorite, all-time quotes.
'We have nothing to fear except fear itself.'
Economists wouldn't be scary if more of them had their feet on the ground instead of their heads in the clouds. Like you. Such a fresh voice compared to almost every economics professor most of us had to suffer through.
Thank you!
I suspect another factor is at play that is often unappreciated: the asynchronous nature of activity in our vast and diverse economy. There are micro recessions going on all the time. Just not in the same place or industry. Or with the same severity or duration.
Insightful article on the disconnect between economic indicators and public sentiment. It's worrisome that the constant stream of negative news may contribute to a self-fulfilling cycle of economic downturn. In your view, how can we achieve a more balanced presentation of both positive and negative aspects of the economy in news reporting? Additionally, how can we motivate economists and policymakers to communicate more effectively and transparently with the general public to avoid misunderstandings or unwarranted fears?
Those are big and important questions, and I admit I don't have good answers. My approach has been to try to elevate the good, even when explaining the bad in my work. You can see it in many of my posts. I did an interview yesterday where we got into the incentives of macro commentators and the gloom / inflation-focused speaking. When it's up, I will link to it.
Looking forward to it!
I never understand this chart about recession and people hearing "bad news". I don't think it's an important econometric measure for anything. Why people say they think economy is bad? I think it has to do with political climate & turmoil which spills into social psyche. The political climate is highly polarizing, uncivil and also plagued with a lot of misinformation. GOP & Trump says "Dems are destroying America" (oh boy) , "we have worst inflation ever" (even when it has gone down remarkably), "i built best economy in the world but radical left drove it into the ground" (yeah right). People hear these kind of talk & now this get repeated day in & day out especially on sewers of social media. 10-15 years ago, we didn't have social media which is now a major source of information gathering. Social media is full of pessimism, disinfo, doomsday garbage which is mostly spread by right wing trolls. I hear on right wing platforms that World is gonna dump dollar, social security fund will go bankrupt in few years, national debt is exploding etc etc and a lot of non sense.
I am not saying that economy is great & perfect. It's not. A lot needs to be done for economic transition for energy security (climate change), addressing economic disparity (which is a grave problem), improving standards of living, pushing for economic rights (student debt relief, public healthcare, jobs program etc), upgrading national infrastructure etc. All that has to be done. But things are moving in the right direction and it's a particular party that holds nation hostage on things like Debt ceiling & blocking meaningful economic reforms.
Sentiment measures align closely with recessions. That's why economists track them carefully. Of course, many factors go into it.
Politics aside, does the average view matter? We don’t yet see an impact on consumption. Housing has softened, but little more in the economy. Financial indicators, except for the yield curve, don’t appear to be flashing red. Personally, I’ll get worried when there is blood in the financial markets. But, general nervousness may just be noise and uncorrelated with anything but partisan votes.
Sentiment (also in the survey and similarly dismal), as bad as it is now always, but not now, would directly precede or be in the start of a recession. Also in the "it matters" section I discuss the dynamic. It can happen pretty quickly. All that said, you are correct that it has not happened yet.
The premise of this article is wrong. The person you were talking to at the farmers market recognized that you might be one of those economists that are heard saying through the media that we must have a recession to halt inflation. And that is because our ruling class has decided to take the Volker crush the economy route to ending inflation rather than a more sophisticated and direct regulatory approach to limit price driven inflation through a bit of good old fashioned Truman style excess profits taxation.
At the end of the post, I talk about the need for Congress and the White House to take steps to fight inflation. Regulation and taxing extraordinary profits are two possibilities. The White House, by opening up the Strategic Petroleum Reserve did help push down gasoline prices after the invasion of Ukraine. I have written before that if we make the Fed go it alone on inflation, it will be more painful than it needs to be. More supply s is much better than less demand.
If you look at the demand end of gasoline prices you will find a peak in demand in 2006 and a steady decline in demand from there. Gasoline prices were not driven up by increased demand. They were driven up by ending export restrictions thus exposing the US consumer to world market prices. Both Dems and Rs had a hand in this. Nor was opening up more federal land to drilling any solution since American consumers were not driving up prices via demand nor was there any shortage of supply. To understand what happened you only have to look at the data an previous policy solutions pursued with the original Alaskan oil pipeline, the one that eventually polluted Prudhoe Bay. Opposition to that oil project forced a prohibition on exporting the oil outside the US to keep domestic prices down when there was an Arab oil boycott driving prices up. So no, allowing more drilling or depleting the US oil reserves to increase supply isn’t going to reduce prices because now there is no domestic shortage in supply. Instead of prohibiting the newly drilled oil from being exported the Biden admin is encouraging exports with these new unrestricted leases. gasoline price increases are clearly profit driven. Yet you still hold to the idea that an increase in supply will reduce prices.
Not if the oil monopolies are allowed to export that oil which they have every economic incentive to do. You may not like to hear it but liberal academic economists have been ignoring the most obvious example of price driven inflation. Condemning the Fed for bludgeoning the economy with interest rate increases is no substitute for coming up with targeted price driven inflation solutions. Genuflecting to supply/demand explanations is no excuse for not looking at what is really causing inflation and coming up with ways to directly target price gouging.
Something to consider for sure.
Given that the Fed is intentionally trying to reduce consumer spending to reduce services demand/inflation, wouldn’t the ideal circumstance be creating an ‘atmosphere of uncertainty’ that motivates consumers to slow spending, without first having lost their jobs?
It’s anecdotal, but from my own observations and reports from others around the country, people seem to still be spending enthusiastically, to say the least.
That's a very risky way to cool demand. But so is lax supervisory oversight of a bank.