Two Theories for Americans’ Dire Economic Outlook

A conversation with Rogé Karma about what economic measures fail to grasp

Latest Feb 27, 2024 0 53 Add to Reading List

Two Theories for Americans’ Dire Economic Outlook

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Even as many measures show that the economy is thriving, Americans have been feeling down lately—especially about grocery prices. I spoke with my colleague Rogé Karma, a staff writer focused on the economy, about how to understand the gap between consumers’ attitudes and standard economic measures, and how political polarization shapes Americans’ outlook on these issues.

First, here are three new stories from The Atlantic:

Two Theories

Lora Kelley: Why are food prices so central to perceptions of the economy, and why do some inflation measures fail to capture that?

Rogé Karma: Food prices are what we see every day—at the grocery store, when we’re ordering takeout or eating at restaurants. In a recent poll that we commissioned at The Atlantic, we asked respondents what factors they consider when deciding how the national economy is doing. The price of groceries was by far the top answer.

But there’s a disconnect. While food prices are the most visible to us, they actually don’t make up a ton of our budgets, and so they aren’t weighted heavily in inflation indexes. Most inflation indexes, like the consumer price index, are weighted by how much the average household spends on a given set of goods, and groceries make up less than one-tenth of an average consumer’s total budget.

Lora: Over the past 18 months, since inflation spiked in the summer of 2022, attitudes have been slow to improve even as inflation has abated. Do you think that, in time, consumer attitudes will start to reflect these changes?

Rogé: There are two dominant theories about the current gap between economic sentiment and the economic fundamentals. Theory No. 1 has to do with what we’ve been talking about: prices. The idea here is that people have a different conception of inflation than many economists do, but over time, people will get used to higher prices, especially because the rate of inflation has come down a lot, and start feeling better about the economy.

The second theory is that maybe the things that are driving people’s perceptions of the economy have nothing to do with the economy at all. Maybe it has to do with other factors, like partisanship or media negativity, and therefore, no matter how much prices get better, we might not actually see consumer sentiment continuing to recover.

Lora: What role does political partisanship play in how people view the economy?

Rogé: It is obvious that we are living in a time of extreme political polarization and that basically everything that happens, we filter through our partisan lenses. Partisans on both sides report feeling suddenly much more negative about the economy when someone from the other party is president, and more positive about the economy when their own party is in office; research shows that this type of sentiment approximately doubled from 1999 to 2020. The trend is much more stark for Republicans: Researchers from Stanford found that Republicans are about 2.5 times more negative on the economy when a Democrat is in office than Democrats are when a Republican is in office.

A lot of the reason we might see sentiment not recovering to where it was during the Trump years is because Republicans aren’t going to admit the economy is good, no matter how much better it gets. At the same time, it is curious that Democratic consumer sentiment is still well below the later Obama years. Over the past decade, we’ve seen a real shift in how Democrats think about the economy. The idea that the economy is rigged, that capitalism is a broken economic system, has become central to how progressives think, particularly younger Democrats.

Lora: What role do negative media narratives about the economy play in people’s outlook?

Rogé: The media is where the story of the economy—the story of really everything—is told to us. For a long time, I resisted the idea that the media could be partially responsible for people being so negative about the economy—not because I don’t think the media is important, but just because the disconnect between economic fundamentals and economic sentiment is pretty recent, and the media has always been negative.

But a new study from the Brookings Institution completely changed my view on this. Starting in around 2017, media coverage becomes more negative than the fundamentals would predict. And then, after Joe Biden takes office, that gap widens even more. One of the stats that blew my mind from the study was that from 2017 to 2023, the media’s “negativity gap”—the gap between economic reality and media coverage—was nearly five times larger than it was during the previous three decades.

It’s hard to say exactly what drove the media to get more negative on economic coverage in recent years. But I think part of it was a reckoning after Trump was elected. A lot of members of the media began to believe that, clearly, the economy wasn’t working for many Americans. There’s a lot of truth to the idea that the economy is extremely unequal. But it also seems like the extent to which the media coverage has changed has not fully reflected economic realities.

There’s no definitive causal link saying that this is what’s driving people to be negative about the economy. But it’s definitely suggestive. We all have our own lives—we go to the grocery store; we see our monthly or weekly paycheck—but a lot of our views are shaped by the stories we read and the media we consume.

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Today’s News

President Biden met with congressional leaders in the Oval Office in an attempt to prevent a partial government shutdown this coming weekend.
Michigan is holding Republican and Democratic primary elections today.
A storm front is spreading across the northern United States, bringing severe weather to the Midwest. It is predicted to reach the Northeast tomorrow.

Dispatches

Work in Progress: Rogé reports on a baffling feud over income inequality.

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Evening Read

Something Went Terribly Wrong With Online Ads

By Kate Lindsay

These days, turning on my Amazon Fire smart TV is like a reflex test. Hesitate for even a second, and the home screen starts blasting an ad for the latest show or movie from Amazon Prime. Even if I do manage to navigate away in time, I still have to scroll past an ad for, say, toothpaste. Only then can I access the entertainment I actually want to watch, typically on a once-ad-free streaming service that is now … showing ads.
This advertising assault—one that’s particularly acute when my cat attacks the remote at 4 a.m. and interrupts my sleep with a trailer for an explosive thriller—wasn’t as invasive when I purchased the TV three years ago. Online advertising is similarly exhausting whether you’re using a smart TV, phone, laptop, or really any other kind of screen. My fitness and nutrition app advertises Eggo waffles as I input my smoothie, my friends are enduring ads in exchange for swipes on dating apps, and when I do go searching for something to buy, it comes with a layer of distrust: Is the vacuum cleaner I’m looking at an organic result or another sneakily sponsored ad?

Read the full article.