The Economy, Real and Imaginary

Robert Samuelson speculates in the WSJ (I can’t link to it because it is a premium page) about why what people say about the economy doesn’t correlate with what they do. They are spending money and making home improvements. Since mid-2003, the number of payroll jobs has increased by 4.2 million. The unemployment rate of 5% is low. People are spending money. Gains in housing have more than made up for losses in stocks, which helps explain why household net worth is higher than it was in 1999 and per capita income is up 9% from 1999 to 2004.

Despite all the good news, people are pessimistic. Samuelson thinks it is because of fond but misguided memory of the golden age of 1999. It was not that the economy was really much better by the numbers, but people felt better about it. In those pre 9/11 times, everything seemed to be working out. The business cycle was still out there and Osama bin Laden was planning his next round of attacks, but the pundits told us we had repealed the former and many people thought Osama bin Laden was a type dish made with chick peas and garlic.

People's perceptions change more erratically than the underlying realities of their lives. Couple this with lag times in economic policies and human proclivity to remember the "good times" of the past, and it is easy to see the sources of confusion and how politicians can exploit them.

The whole thing reminds me of Coleridge poem.

Posted by Jack at November 10, 2005 11:04 PM