What Americans Don't Know About The Economy
by Gabriel Lenz in Model Politics
Tue August 14, 4:33 p.m. PDT
After several years of negative or inconsistent growth, incomes grew at a robust annualized rate of 4.6% and 4.1% in the first two quarters of this year. As I summarized in an earlier Model Politics post, voters appear unduly influenced by election-year income growth. So, these numbers are great news for Obama, and may help explain his strength in recent polls.
As the campaign heats up and citizens tune in, they will encounter many more economic statistics like these, including GDP, nonfarm payroll, and the unemployment rate. What do they make of all these numbers? Can they put them in context? To find out, I asked participants on a recent YouGov poll about three aspects US economic history. The results reveal considerable ignorance.
First, I asked how much the nation’s Real Gross Domestic Product (GDP) increased over the last 50 years. The true answer is about 400% (240% per capita). What did respondents think? Most vastly underestimated the economy's growth. In fact, almost 30% said no increase at all. We wouldn't expect people to know this number precisely. But no increase in the nation's wealth since the early 1960s? Really? Almost 60% said that GDP growth was between 25% and 75%, and only about 10% said growth exceeded 100%.
I also asked how much personal income growth increased over the last 50 years for a typical person, and here the public fared better. During this period, average real personal income growth rose nearly 400% (230% per capita). The wealthiest households, however, secured most of this rise. For the median individual, 50-year income growth barely approaches a measly 25%. What did respondents think? More than a third incorrectly said no increase in the last 50 years. Another third got the right answer, saying about 25%—a substantial improvement over the GDP answers. The remaining third overshot the truth.
Taken together, only a small fraction of the public has a rough sense of economic growth over the last 50 years, at least as reported by standard government statistics. Since the economy generally does well in election years, citizens will regularly encounter strong economic news from government agencies, such as the personal income numbers above. Given that many citizens think incomes have not risen at all in the last 50 years, they may interpret the statistics they hear during the campaign—such as annualized income growth rates above 4%—as spectacularly good news.
I wondered whether lower-income individuals were underestimating income growth because their incomes stagnated during this period. However, I found little variation by household income. Instead, the variable that best predicted perceptions was partisanship. About 40% of strong Democrats said no increase in incomes over the past 50 years, but only about 20% of strong Republicans agreed. True independents also stood out with 47% saying no growth. (These patterns held when controlling for income and education.)
Finally, I asked about recessions. They are a normal part of the economy—the boom and bust cycle has occurred with regularity for 200 years. I wondered whether citizens understood this regularity. Instead of seeing recessions as a normal part of the business cycle, I had a hunch they would see them as rare events. So, I asked about the number of recessions the US experienced in the last 50 years. To a degree, their responses confirmed my hunch. The actual number of recessions the US has experienced in the last 50 years is about eight: one in 1960s, two in the 1970s, two in the 1980s, one in the 1990s, and two in the 2000s. However, about 70% answered between zero and five, and 26% picked between zero and two. Only about 20% chose the correct range, which was 6 to 10. This misperception may help us understand why voters throw out incumbent presidents during downturns. When the economy happens to experience a downturn in an election year—as it did in 1980 and 2008—they see it as an unusual event with ominous implications, not realizing that recessions regularly occur. As a result, they may more often vote against the incumbent party.
More generally, this YouGov poll reveals gaps in citizens’ knowledge of economic history. Citizens may often lack the contextual knowledge necessary to interpret economic information, raising concerns about their ability to cast informed votes.