What is Driving Misperceptions about the Economy?

What if Americans view the condition of the economy through a partisan political lens rather than judging it based on facts?

For decades, economists and political scientists used economic conditions to predict election outcomes.  But a widely read Harris Poll conducted last month strongly suggests that partisanship drives our views about the economy. This should prompt some introspection.

Americans are surveyed almost every week about their feelings toward the economy. The University of Michigan runs a monthly consumer sentiment survey. These are surveys of perceptions rather than facts. For more than a year, perceptions have diverged significantly from the actual data on inflation, consumption, unemployment rates and growth.

In May, the Harris poll changed its approach. Instead of asking respondents how they felt about the economy – an inherently subjective question – it asked them a series of objective questions. Is the economy shrinking or growing? Is the stock market rising or falling? Is the unemployment rate at a 50-year high or 50-year low? Is inflation increasing or decreasing?

The answers to all these questions could be compared to underlying facts, but fewer than half of respondents got them right. A whopping 55% said the economy is shrinking, when in fact it has been growing steadily for four years.

Moreover, we’ve enjoyed the fastest post-COVID recovery in the developed world. Fewer than half said the stock market has risen, even though it has hit record levels every few weeks for more than two years and was up 24% in 2023 and 12% so far in 2024.

A full 49% said the unemployment rate is at a 50-year high, even though the unemployment rate is at its longest period of 4% or lower since the late-1960s. Most surprisingly, 72% of Americans thought inflation was increasing, when it has been in steady decline for almost two years.

Much of this ignorance is understandable. I don’t know who is ahead in the National League divisional races, or whether we’ve had good planting weather for corn this season. Nearly all Americans are experts at something and lack of knowledge on other matters.

But, increasingly, political partisanship is driving perceptions of the economy.

The Harris poll asked respondents about political party affiliation. Republicans had far more dismal perceptions of the economy than Democrats. Or, to put it more bluntly, Republicans were much more uninformed about the economy than Democrats.

This challenged my preconceptions, since I’ve spent much of the past few decades arguing that Democrats were less informed about economic matters than Republicans. Something has changed, but it isn’t really a partisan matter.

It turns out that Democrats also judge the economy wrongly when Republicans are in power. This is a relatively new problem that appears to be getting worse.

I searched a global archive of research studies for the words “political partisanship and consumer confidence.” From 1890 to 2000, there were 2,130 studies published on the matter. But, from 2000 to 2010, the number of studies exploded to 7,370, and, since 2010, a stunning 16,200 such studies were published.

While the focus of academic researchers is not a perfect measure, it is evidence of an emerging problem. But what might be happening to cause more Americans to be mistaken about simple facts now than a generation or two ago?

I think there are three reasons. 

First, we are in a much more disaggregated news environment. Americans over 50 came of age with three big TV news channels, a couple of cable news stations and perhaps two local papers. This environment didn’t place many demands on viewers. These outlets all reported the same data, even though they each may have offered differing analysis. If one outlet got their basic facts wrong, the others would jump at the chance to embarrass them and maybe win over a few viewers. Those days are behind us.

Today’s media, particularly national broadcast media, aren’t trying to switch viewers. MSNBC isn’t trying to woo Fox News audiences and vice versa. Both try to make their current viewers watch more regularly.  Feeding them less nuance and more partisanship is the key to selling advertising and making money.  Ironically, at a time when there is a far broader set of news options available, the breadth of news coverage or analysis on any one broadcast outlet is far less diverse, and far more partisan.

Second, social media algorithms give us a distorted view of the broader landscape of news and opinion.  If you “like” a news post, or read an opinion piece on social media, you will be bombarded with similar stories. The marketing algorithms on Facebook, X (Twitter), Tik Tok or other social media platforms reinforce what you read rather than expose you to differing facts or opinions.

If you click on a social media post that claims the economy is bad, over the coming days, you’ll receive more and more posts about a flagging economy and any good news about the economy will be diverted.  These algorithms are built to make you click on more stories, which drive advertising revenue for the social media platform.

On social media, you are the product, not the consumer.

Third, our enemies are adept at exploiting these weaknesses. Russia, China, and Iran amplify social media algorithms to polarize Americans. The goal isn’t to elect a particular candidate, but to disrupt political life in general, weaken national resolve on important foreign policy issues and to sew distrust among citizens. Russia is actively seeding disinformation about Ukraine targeting GOP leaning voters, while funding a different disinformation about the conflict in Gaza targeting progressive groups.

We live in a perfect storm of disinformation that touches all of us. I tell my students that the only remedy to this is ruthless intellectual bravery. Read opinions you dislike and force yourself to understand those positions.

Take the ideological Turing test, which is to learn to argue an opposing position so well that no once can tell that you disagree with it. Of course, that’s a bit dangerous, because it might cause you to change your mind, or at least respect those who disagree with you.