Mind Games: The Negativity Gap

  • 040124
  • 4 minutes

The version of history we learn in elementary school is simplified for our young brains: this war happened, the good guys won; Columbus sailed the ocean blue in 1492. As we mature, we begin to realize that things are rarely as simple as they first appear. Society's past is made up of countless individual perspectives and experiences, and what we refer to as “history” is ultimately limited to a rough average of all of them.

Today being tomorrow’s history, it can be tricky to grasp the big picture as current events are unfolding. The state of the US economy is a case in point. The macroeconomic factors that aligned with consumer sentiment in the past suggest that we should all be feeling financially content right about now. But polls consistently show that the average American is pretty pessimistic about his wallet.

A simple economic indicator, the “misery index,” had followed consumer confidence well since its creation for some 40 years. Calculated by adding the unemployment rate to inflation, this straightforward datum seemed to encapsulate everything necessary for a general outline of the health of an economy—and the current misery index is looking remarkably good. Unemployment has stayed below 4% for the last two years, and inflation is back to historical norms. Economic growth has even caught up with and surpassed losses sustained during the pandemic.

But polling data tells a different story. A survey conducted by the Wall Street Journal in August of last year reported less than a quarter of respondents felt that the economy was headed in the right direction. The Michigan Index of Consumer Sentiment, a consumer confidence index that has been published monthly for over 70 years, showed levels throughout 2023 similar to those during the Great Recession of 2009. And the share of those surveyed in a recent Pew poll with a positive view of the US economy was close to just half of 2016’s percentage of the same.

What’s to account for this negativity gap? Former Treasury Secretary Larry Summers makes an argument for high borrowing costs in a working paper published in February of this year. The well-known Consumer Price Index, for example, doesn’t factor in things like the cost of credit or mortgage rates—things that Summers argues are an intrinsic part of the cost of living. Then there’s the lingering post-inflation sticker shock: although inflation rates are back to normal, consumers are still getting used to where prices have settled. And while it’s true that on average wages have risen faster than inflation, it’s likely going to take a while before $5.29 for six English muffins starts to feel affordable to the average American.

But there may be more to it than just consumer costs. A research article first published in 2021 quantified the growing partisan divide reflected in consumers’ perception of the economy. They found that the gap in economic perceptions just about doubled in the first two decades of this millennium. Moreover, while economic crises tended to unify the perceptions on both sides of the aisle, that no longer seems to be the case. An article written by former White House economists Ryan Cummings and Neale Mahoney outlines evidence for what they call “asymmetric amplification.” While partisans universally view the economy more optimistically when their party controls the White House, their research demonstrates that this bias is two-and-a-half times larger for Republicans than for Democrats.

Media bias catches a lot of flak for these stark partisan divides—and not without reason. A whitepaper entitled “Bias in Cable News: Persuasion and Polarization” found a clear connection between higher consumption of ideologically biased news and increased political polarization. And research published by the Brookings Institution in January of this year implicates economic news sources in today’s negativity gap. They found that from 1988 to 2016, macroeconomic data and economic sentiment in mainstream newspapers tracked one another closely. But from 2017 to 2023, things markedly changed: the gap between data and media sentiment grew to almost five times larger than it had been in the previous three decades.

Of course, a study like this isn’t perfect—sentiment itself is necessarily a subjective matter and is tricky to quantify. Even still, the magnitude of the change from 2016 to 2017 is hard to dismiss. But before we jump on the media-blaming bandwagon, a case could be made for the chicken-and-egg question: Is the economic negativity in journalism a cause or an effect? Is it driving consumers’ perceptions, or is it merely reflecting them?

Maybe it’s both. Regardless, whatever answer we come up with now will almost certainly be subject to revision by those with the benefit of hindsight. In the meantime, our strategy remains as it always has: stay the course, mind your quiet eye. Once today’s anxieties become another entry in history, perhaps we’ll look back and wonder what we were all so worried about.

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