Confidence in the economy is up, but economic performance is down. New figures show over-all growth stalled at 1.3 % annually, while unemployment hovers between 8.1 and 8.3%. That’s disappointing to economists as well as the rest of us, but according to national polls people are feeling more secure. How could that be?
“The economic data has grown so dismal that the Federal Reserve this month announced a major new bond-buying effort to resuscitate the recovery once more,” wrote The New York Times. Lawrence Mishel, president of the liberal Economic Policy Institute, notes: “There is a recovery. There are jobs. There is more income. There is some improvement. But the improvement is obviously disappointing.” (See, “United States Economy Still Weak, but More Feel Secure.”)
Economists are speculating that the surprising surge in confidence is attributable to the election, but that is implausible. What could it possibly be about the loud and repetitive accusations and charges of incompetence and deception that the candidates are hurling at each other that would make voters want to buy more goods? This looks like another example of economists’ grasping for psychological explanations when they don’t actually understand human behavior.
The fact is that people tire of pessimism. They want to feel optimistic, especially in the U.S. where positive thinking is easily mistaken for signs of mental health and good citizenship. And if the economic trends are not clearly down, that may be enough for them to justify believing what they would prefer to believe. Moreover, when the trends are relatively stable, that, in itself, offers a certain amount of relief. If things are unlikely to get worse, people can continue to adjust to how they are. The reality may be “disappointing,” as the economists say, but that is not the same as insecurity and further threats to economic stability.
Perhaps the key point here is that the worst is over. The underwater mortgages have been foreclosed. The jobs have been lost. The retirement accounts, college funds and nest eggs have already lost much of their value. The recovery is slow, uneven and unequally distributed, but now there is nowhere to go but up. We had gotten used to faster recoveries in previous recessions, but a recovery is, after all, a recovery.
This may have some kind of link to the election, as economists think, but not as cause and effect. At first economists thought voters would favor Romney because they blamed Obama for the economy being down. Now some think they may vote for Obama because it is slowly coming back. But perhaps the fact that the economy is neither dramatically rising nor collapsing takes that issue out of the equation. That may make it possible for voters to be swayed by other issues: their trust in the candidates, the values and social policies they espouse, national security, and so on.
Economists tend to think it’s all about the economy, but that may be because that’s all they see. It is up to the rest of us to put that in perspective.