In a mostly very good column in the Washington Post yesterday, Neil Irwin raises an interesting question. An extraordinarily high percentage of Americans think that the U.S. economy is in recession, even a very bad recession. The public gloom and doom has seldom been so low. But the actual economic numbers are not nearly that bad — so far, growth has become slower, but there is still growth. Therefore, Irwin reports, economists are asking why this gap between reality and public perception?
The most plausible theories in Irwin’s eyes are that high gas prices affect nearly all consumers — often regularly, every time they fill up. The decline in real estate prices leads people to think (not always correctly) that their own home is less valuable than it was even quite recently.
But there is one theory he does not consider. My colleague at the American Enterprise Institute, Kevin Hassett, has recently reported on a significant study he and John Lott did that gives a far more satisfying answer than Irwin offers. Remember as background that we have been hearing a non-stop battering of the Bush economy by Democratic candidates for the presidency for more than a year now, plus regular smashes to the jaw by Speaker Pelosi and Majority Leader Reid, with echoes throughout the halls of Congress. Here are Hassett’s more generalized findings, as they appeared in Bloomberg June 9:
The Hassett-Lott theory rings awfully true to me. Especially if you follow even informally the AP’s stories on the economy, along with many others. If economic reporters think the Democratic claims about recession need criticism, or at the very least a reality test, they certainly don’t offer it themselves.
Why has so much of the media accepted the deep recession story when the data is so mixed? The most plausible explanation is that many are motivated by political bias.
Economist John Lott and I studied thousands of economic news stories written over the past 30 years or so, and found that coverage tended to be far more negative when there was a Republican in the White House as there is now.
The bias has an easy explanation. Yale University economist Ray Fair has shown that a weak economy hurts the incumbent party. If a Democratic-leaning press can convince everyone that the economy is in recession, then it can influence the election.
Our analysis indicates that the treatment of the economy would be much different if there were a Democrat in the White House today. If so, then the headline of each bad piece of news would be, more accurately, “Economy Hovering Above Recession.”
But instead of that, we get doom and gloom.
The politically motivated pessimism, like the computer virus, can have real consequences. While the economic data has been mediocre, consumer sentiment, as measured by the Conference Board, has been driven by the negative drumbeat to its lowest in 16 years. Negative sentiment might well slow spending enough to give us a textbook recession in the second half of the year.
But another possibility lurks behind the numbers. The Federal Reserve and Congress have delivered a ton of economic stimulus, and that stimulus is set to juice up an economy that has been weak, but not terrible. If everything goes according to plan, the economy will grow faster in the second half of the year, and a recession will have been avoided.
If we follow that path, then you can bet that the media won’t admit it until Nov. 5.