Americans have a very different understanding from economists of what inflation is and how the economy works.
The last Kos/Civiqs daily survey notes that pluralities of Americans – across party lines – believe that the problem of inflation will not be resolved until prices fall back to the level they were a few years ago; that in a good economy, prices will naturally fall; and that when inflation falls, prices fall or stay the same.
The vast majority also say something has gone seriously wrong in the economy in recent years. Much of the public even says that the recent surge in inflation has been worse than what we experienced in the 1970s and 1980s.
We have recently seen many economists tout the strength of the latest economic figureswith low unemployment, much lower inflation and significant growth – and, best of all, reduced inequality, which means profits accumulate more to those who need it most. And when we talk about this good news in the press or on social networks… repression is fierce and intense. Which brings us to the question: why is there this disconnect between the data and the public?
The answer, according to many, is simply and obviously that the economy is actually in a very deplorable state. In fairness to this view, even when the overall economic figures indicate good news, this is in no way inconsistent with tens of millions of Americans are worse off– and the motivation to speak out is greater when you see data contradicting your lived experience.
But polls show that this negative view of the economy is widespread. The majority of the public, particularly young Democrats, believe that the economy is in bad shape right away. And the culprit? Inflation.
Our new survey results suggest an even more fundamental disconnect: People don’t use economic terms in the same way that economists do. Language itself is an obstacle to understanding. Furthermore, the public has certain expectations of the economy that it can never meet.
The price increases
THE last read Food inflation stands at 2.1% on an annual basis. That means that on average, Americans paid $102 in October for rides that would have cost them $100 a year ago. This is a small difference, and most people would have a hard time noticing this change.
However, when asked what happened to food prices in their area over the past year, almost everyone – 88% of those surveyed – said prices had increased. Only 5% said prices had “stayed about the same.” Or almost everyone keeps very careful monitoring of grocery prices, where people inadvertently compare current prices to what they were used to more More than a year ago.
It is easy to understand price increases and remember what prices were in the recent past. It’s much harder to remember When exactly the price has increased. Recent research suggests that effect of inflation on consumer confidence has a half-life of about a year, meaning it would take several years after the end of a period of high inflation before high prices no longer weigh on economic views.
It’s also easy to confuse absolute price increases with inflation itself. We go to the store, see that our favorite cheese now costs $7.99 instead of $5.99, and immediately understand that the price has increased. For what? Well, inflation, of course – the news says so. And now we have engraved in our minds “inflation = rising prices”.
People are unhappy with the high prices and want them to come down. They want them to get off so badly that they I would rather see lower prices than a salary increase. Full 50% of Americans agree that “to solve the problem of inflation, prices must return to their level of a few years ago”. It’s understandable! Who wouldn’t want things to go back to normal, right?
Well, economists tell us that no one should be happy with that idea. If prices fell by around 20%, a reversal of increases since the start of the pandemic, this would imply something quite serious has occurred in the economy and will likely lead to – or be caused by – a serious recession.
Paul Krugman, Nobel Prize winner recently observedFor example, when the United Kingdom sought to lower prices after World War I, the result was a decade of high unemployment, even as the United States prospered through much of the 1920s.
This of course does not mean that those who want to see prices fall are heading into recession (although some partisan Republicans might). On the contrary, people are probably unaware that it would probably take a recession for prices to come back down.
The good, the bad and the expensive
We asked another question to see what people think of a good economy: “In a “good” economy, what do you expect the prices of things like gasoline, groceries, and consumer goods to be like over time?”
A majority of 44% said prices would slowly decline over time – what economists call “deflation” – which would likely indicate weak economic growth and imply widespread misery. Only 26% said prices would rise slowly over time (in other words, low inflation), which we actually observe during periods when people call the economy “good”.
Inflation is not an intuitive concept to begin with. It measures how quickly prices move changing. But when you start talking about the change in inflation itself, it comes to the change in prices, which is even more difficult to grasp. And indeed, the news these days is talking about falling inflation. But what do people think this means? So we asked, “If inflation goes down, what do you expect for prices?” » to see how people interpret what they might see in the news.
If inflation continues to fall (economists call this “disinflation”), it could return to the level we’ve become accustomed to over the past few decades – around 2% per year – where prices continue to rise, but not as quickly . Or it could fall to zero, meaning prices would stay the same; We I am very close to that in 2015. It could even fall to negative values, which would mean deflation and falling prices. We saw it right once since 1960 on an annual basis, during the depths of the recession in 2009 (and barely thereafter).
So what do people do think what will happen? Well, 67% said they would I expect prices to drop. or remain the same if inflation decreases.
The public, generally speaking, has expectations when they hear about falling inflation that are unlikely to be met and that do not match their observation of the recent rise in prices. And when you think the government is telling you one thing, but your own eyes are telling you something else… well, who are you going to believe? And who are you going to get angry with?
It’s easy to see how this could happen. If we have equated in our minds “inflation = rising prices” as a shortcut to understanding inflation, then the absence of inflation must mean falling prices. Or at least stop going up. This is intuitive, unlike the definition of inflation given by economists.
What is normal, anyway?
But wait, there’s more. Americans also believe, overwhelmingly, that the recent surge in inflation is a sign that something is fundamentally broken in our economy: it is not something that happens occasionally, like a recession or high unemployment, but it’s something that happens occasionally. should not arrive.
To be exact, 70% said recent price increases “This should not have happened in a well-functioning economy; something went seriously wrong.” Only 18% said such increases “can occur even in a well-functioning economy; This is not a sign of a more serious problem.”
This This question (unlike most responses in our survey) presented a major partisan divide, with Republicans almost universally eager to criticize Joe Biden’s presidency, while only 43% of Democrats say price increases would not have had to happen in a healthy economy.
But what is interesting is that this time East a clear age gradient among Democrats and independents. Older voters, who experienced the inflation of the 1970s and 1980s as adults, are more likely to say that price increases can occur in a healthy economy. In fact, 53% of Democrats over 65 say so, compared to only 22% of Democrats under 35.
This age gradient appears again, and for the same reason, in the last question we will address in this article (but you can find more questions in our survey). When asked which inflation cycle was the worst— the most recent or that of the 1970s and 1980s — a plurality of Americans (37%) choose the most recent fight. Once again, we have a partisan motivation here: half of Republicans say this. However, among Democrats, half of those over 65 (correctly) believe that inflation 40 years ago was worse. Young Democrats mostly say they don’t know enough to compare.
From a political perspective, however, it is worth noting that 28% of Biden voters believe that recent inflation has been as bad or worse than that of the 1970s and 1980s. That’s almost a voter Biden on three.
Listening to people
It is therefore clear that voters have different expectations and understandings of how the economy works. Politicians must meet voters where they are in order to communicate. And since economic behavior can arise from economic expectations, economists need to know how people believe economics works whether or not these beliefs conform to formal definitions.
