How You Feel About Inflation May Depend on Your Politics
Polarization is driving the way we view everything, even the economy
During his days as a US Senator, President Lyndon Johnson told a story of an unemployed schoolteacher’s job interview with a school board in Depression-era Texas. At one point during the meeting, a rancher on the school board asked the teacher the following question: “How do you teach it? Is the world round or flat?”
The teacher was desperate to get the job, so he scanned the room, looking at each board member for a sign that would help him answer the question. Finally, the teacher responded, “I can teach it either way.”
When I opine on the economy, I do so with the following disclaimer: I am not an economist. But as any successful Wall Street trader will tell you, working in finance requires a high level of fluency on issues related to this discipline.
While I never met a trader who was also an economist, investors expect traders to digest and distill economic data and then provide an informed opinion, something I did for many years.
For that reason, the litany of views recently on the state of the economy reminds me of that depression-era school teacher, especially as it relates to the topic of inflation. In addition to the experts, cable news pundits and so-called contributors incessantly register their opinions, accompanied by out-of-work politicians who chime in, putting forth their bad-faith agendas.
Economic anxiety
The reality is that while prices have risen for just about everything, the economy has disproportionately hit families at the bottom of the economy. As economist Claudia Sahm writes in her Stay-At-Home Macro blog, the necessities account for over 80% of all spending at the bottom quintile in terms of income, versus 65% for families at the top quintile.
But a lot of the economic signals we receive conflict with each other. Indicators such as job openings, rising wages, and corporate earnings are incredibly positive. Goldman Sachs even predicts economic growth of over 4 percent for 2022, a level The Former Guy promised but never accomplished.
On the other hand, consumer sentiment, a statistical measurement of overall economic health based on consumer opinions, collapsed to its lowest level in a decade. So what gives?
And as Bloomberg’s Joe Weisenthal points out, while sentiment is down across the board, among Republicans, that indicator is lower than in March 2009, the worse days of the Great Financial Crisis. In my view, while there are many reasons for the disconnect, the media’s framing of the economy , the subject of inflation in particular , could bear some responsibility for the disconnect.
Last week, for example, CNN’s Brianna Keilar did a thoroughly embarrassing interview on the rise in the price of milk, featuring a family that, from all appearances, buys more milk in a week than my family of four consumes in a month.
I won’t even try to tackle everything wrong with the CNN piece, but as Sahm points out, the network’s focus on the rise in the price of a single grocery store item — with no mention of the family’s increased income — gives a misleading impression.
The interview totally ignored the extra income support the family is getting this year. The new Child Tax Credit for this family with nine kids totals at least $2,250 per month and adds to their $15,400 in stimulus checks in March. Together, this money must exceed the higher cost of milk and the other things they buy.
And if the Fox News view on inflation is any indication, America is a Hunger Games-style dystopia filled with barren grocery stores and gasoline prices so high no one can afford to fill their gas tank. To drive home their narrative, check out the takeaways from the network’s recent poll entitled “High voter worry on inflation as Biden economy ratings plummet,” released last month:
Seventy-three percent of voters, the highest since May 2020, rate the economy negatively — and nearly three times as many are falling behind as getting ahead financially (39 vs. 14 percent). The 39 percent who are falling behind is up from 27 percent in June.
In addition, 48 percent believe their savings would last three months or less. That was 34 percent the last time the question was asked 20 years ago (February 2001). Over that time, the number with more than a year’s living expenses saved went from 29 percent to 12 percent today.
Among those earning $50,000 or less annually, 48 percent are falling behind financially and 61 percent have three months or less in reserve. Overall, majorities of voters report empty store shelves (71 percent) and slower delivery times (55 percent) in the past month, and 83 percent say their grocery costs have increased — including 43 percent who say prices are up “a lot.”
It’s a safe bet that last June, a large number of the voters in the Fox News poll not only received stimulus checks as a result of the American Rescue Plan but also banked weekly enhanced unemployment, which expired last September. The loss of that extra income is more than enough to change any family’s financial outlook.
What stands out is that both CNN and Fox downplayed the effects of the pandemic, which likely is the root cause of the current economic uncertainty. So whether it’s polls or media interviews, what goes unsaid matters just much as what is said.
The media, like the teacher in LBJ’s story, can choose to present the narrative either way.
