Thread by @Historian_Steve

1. The last in my series of THREADS on Inflation and the Economy (Part 4 of 4) poses a media-centered explanation for Americans’ negative impressions of the economy and concludes with an exposition of key concepts intended to help us understand the complexities of our economy.

2. One of the best graphs that explains so much of our discourse was put together by @mcopelov. He used the database Lexis/Uni to look up stories on different topics over a 3-year period. You can see the outsized extent of inflation coverage.

3. Not only was the media covering inflation more than any other topic, but it was focusing on an inherently negative topic while an impressive economic recovery was under way. No wonder people have been so unhappy with the economy.

4. Copelovitch also notes that the volume, tone, and substance of media coverage shapes political debates and public opinion. He says we know this from decades of research.
intereconomics.eu/contents/year/…

5. If you consume conservative media, Copelovitch and a co-author found, then you’re more likely to view inflation and unemployment as serious problems. You’re also more likely to (wrongly) believe we’re in a recession.

6. It’s no surprise that media coverage is negative. “If it bleeds, it leads,” is the old phrase. But negativity in the news has gotten worse according to these two authors at Brookings. It’s not a minor shift, but a systematic one.

brookings.edu/articles/is-th…

7. Another structural bias is that much of the business press—the outlets most likely to report on inflation—will tell stories through the lens of business owners, CEOs, and investors. They’re unlikely to communicate the workers’ point of view.

8. I’d add my own personal observation that media coverage of inflation has been far too anecdotal. Anecdotes like the ones included here give us very little context when it comes to understanding the causes of inflation. These tweets were justifiably panned.

9. As a historian I often use anecdotes to develop an argument. People derive meaning from anecdotes. But what if your individual experiences lead you astray?

10. What if sinister, self-serving forces are deliberately cherrypicking certain anecdotes in order to nudge you toward a desired political outcome?

11. This is why we have data. A large data sample is indisputably a superior form of knowledge when it comes to questions of inflation and unemployment. It gives you a much better overview of larger trends than the meme of “have you seen the price of eggs lately?”

12. Right-wing media sources have deliberately selected context-free anecdotes on the price of gas and eggs to construct a narrative that inflation is out of control; that inflation is all Biden’s [or Harris's] fault; and that Trump will make things better.

13. According to Dr. Joanne Hsu, the director of the Surveys of Consumers at the University of Michigan, poll respondents highlighted the inflation rate as the chief drag on Joe Biden’s handling of the economy. Inflation far outweighed the multiple positive economic metrics.

14. Look at what else Hsu said. There are more negative stories about inflation reaching people today compared to the 1970s even though inflation was DEMONSTRABLY WORSE in the 1970s.

15. All of this points to a MASSIVE MEDIA FAILURE along the lines of WMD in Iraq in 2002, “But her emails,” in 2016 and the “Old Men in Diners” sub-genre.

16. Making sense of these failures requires that we adopt an analysis like the one advanced by the late, great media scholar, Ben Bagdikian, author of the seminal THE [NEW] MEDIA MONOPOLY.

17. Bagdikian and his like-minded contemporaries pointed to the perverse incentives inherent in the business model of mainstream media: ratings and advertising; the interlocking directories of ownership, etc. Bagdikian would surely be disappointed in the inflation rhetoric today.

18. Given this flawed media coverage it should be no surprise that the American public holds views of the economy that are fundamentally at odds with the facts and macroeconomic indicators.

19. Many of us reacted with horror at the results from a May 2024 poll that over half the country (56%) thinks that we’re in a recession. For the millionth time, WE ARE NOT IN A RECESSION! @DKThomp

20. 58% say the economy is worsening due to mismanagement from the Biden administration. Constant negative reporting on the economy that is devoid of context or educational value will induce the public to accept false or misleading ideas.
theguardian.com/us-news/articl…

21. Sadly, this highly coordinated and well-funded Republican disinformation campaign has worked. As of July 2023, voters trusted Republicans more than Democrats on the economy, something contradicted by historical evidence as I’ll show later.

22. Continuing with our analysis of how the American public holds on to mistaken beliefs, 51% in a September 2023 Harris poll said unemployment was near a 50-year high, an incorrect assessment that was more common among Republicans and independents.

23. These results suggest that conservative media is constructing a false narrative about the economy. Conservative voters have been told for 50 years not to trust anything from government, higher education, and mainstream media. A misinformed public is the result.

24. While journalists need to take greater responsibility for the profound ignorance of the American populace when it comes to basic economic facts, the sad truth is that more and more voters are getting their “news” from Tiktok rather than traditional sources.

25. Nine in 10 voters in this poll were concerned about inflation. 61% blamed the Biden administration for the increase in gas prices. Yes, gas prices did go up, but we have to remember a few important things.

26. One, we would expect an increase in gas prices with any type of economic recovery. Need we remind folks that not too long ago, oil was trading at NEGATIVE THIRTY-SEVEN DOLLARS per barrel?

27. Those who are pining for the days of $2 gasoline under the Trump administration have forgotten or ignored that the reason it cost that much was because the entire world was experiencing an economic depression due to COVID lockdowns.

27 (part b). Two, the price of gasoline is determined by the price of oil, a commodity that is traded on a world market. Look to worldwide demand before you look at anything Biden did (who has by the way approved a record number of leases for drilling oil).

28. Point three, if we adjust for inflation, gas prices were higher in 2008 and 2012. See the graph.

29. The folks driving the media narrative about inflation and gas prices hurting the poor are not hoping for a rational discussion. If they really cared about the poor, they’d support a child tax credit, paid family leave, subsidized housing, or limits on CEO pay.

30. Nay, all the griping about gas prices is coming from friends of the oil industry. The people who link inordinately large SUVs and trucks with freedom and masculinity. The people who shout “Drill, baby, Drill!” as if it’s a serious policy position.

31. It amazes me that the solution for these folks is always to increase supply without ever thinking about demand. Increasing the supply might lower prices but so would lowering demand (consumption). Why not do both?

To see more of this thread, click on “Show Replies.”

32. They’ll never consider reducing demand because of their archaic, Troglodyte-ish notion of American freedom that conceptualizes cheap oil as a right alongside habeas corpus, innocent Iraqi people be damned.

nytimes.com/2022/11/05/opi…

33. They’ll never consider that buying smaller cars or EVs, or heaven forbid, walking, taking the bus, or biking might reduce your gas bill while improving your health. In short, they are chest-thumping cavemen.

washingtonpost.com/business/2023/…

34. I asked ChatGPT to tell me why there was such a disconnect between consumer sentiment and macroeconomic indicators. The answers were decent but still left me with an unsatisfying feeling since this disconnect is primarily American and relatively recent.

35. ChatGPT noted the problems of perception. It was talking about the anecdotal versus structural analysis that I mentioned before but there’s another problem of perception at play. When workers receive a raise, they usually attribute it to effort or talent.

36. Inflation, however, feels like something that is outside of their control. They don’t see increased prices or wages as responses to market conditions (even though they should).

37. Research by Alberto Binetti, Francesco Nuzzi, and Stefanie Stantchova is instructive. The public seems to place an inordinate focus on inflation rather than just seeing it as one metric among many and as a response to market conditions.

38. Much of the public wrongly thinks higher interest rates cause higher inflation and rarely sees inflation as a sign of a good economy. nber.org/system/files/w…

39. This is where I begin to depart with most mainstream commentators, who are unwilling to criticize average American voters or consumers for fear of appearing “elitist” or “condescending” or whatever.

40. To me that’s playing right into the Republican playbook of “coastal elites” who presumably look down upon “real Americans.” It’s anti-intellectualism. Note: it's decidedly NOT condescending to ask for verifiable evidence about some claim.

41. Perceptions can be wrong. No one wants to see others struggle with higher costs, but at the same time, we’ve seen over and over how easily people can be manipulated with politicized misinformation.

42. Buying into Trump’s schtick is a great example. There’s also anti-vaccine nonsense, climate denialism, QAnon, creationism, militia movements, Three Percenters, etc. If we know people fall prey to those scams, why is it so hard to believe they’re misinformed about inflation?

43. I agree with Eric Levitz. Compassion for others does not mean we should validate the spread of misconceptions. If people think we’re in a recession, we need to correct them. vox.com/24134257/biden…

44. In a way, that explains so much of what this hoopla is about. Conservatives who hate Joe Biden are manipulating liberals’ tendency toward compassion to drive an inflation narrative that is fundamentally divorced from empirical reality.

45. Consumers may have been justifiably angry about inflation in 2022 and then higher borrowing costs in 2023, but how many miss the connection that higher borrowing costs were a RESPONSE to inflation? The FED raises rates to tame inflation.

46. This brings me to an important point about education. For the rest of this thread I will provide some key concepts that are often omitted in discussions of inflation. For example, why do we aim for 2% inflation? Why not zero?

47. One reason is that a small amount of inflation encourages people to spend or invest their money, which is what we want! Our economy would not function well and millions more would be unemployed if consumers chose not to spend money.

48. If you know that your money is going to be worth less in the future amid higher prices, you’re going to purchase something now instead of waiting. This is sort of a mind trick we play with ourselves that ends up working.

49. In a temporary sense, inflation is also beneficial for debtors. That goes for individuals, companies, and governments who have taken on debt. Let’s say you took out a loan for $50,000 with a low interest payment.

50. Then let’s say over the next few years, you live through higher inflation. Guess what? Your $50,000 debt becomes much easier to pay off. Five or ten years down the line, as your wages or salaries have gone up to adjust for inflation, you have more money to pay off that debt.

51. Let’s say you bought a house in 2019. You have mortgage debt with a fixed-rate loan. Now that you’ve gotten a 25% increase in your wages, you’re finding those fixed mortgages much easier to pay off. They’re a smaller share of your income. h/t @David_Charts

52. Thomas Piketty raised an interesting example in CAPITAL in the Twenty-First Century. Britain and France accumulated large public debts to win WWII. The inflation of the 1950s helped both countries pay off this public debt.

53. As I said, this is a temporary phenomenon. Central banks will eventually raise interest rates to compensate for inflation. Bondholders wish to stay ahead of inflation. If you need a new loan, you’ll be paying higher rates.

54. The notion that inflation helps debtors and hurts creditors was often the subject of treatises of political economy written by nineteenth century theorists. You see remnants of this discourse among many libertarians today who argue that “inflation is theft.”

55. Since American libertarians are often sympathetic to the interests of the wealthy (whether they intend it or not), and since the wealthy drive media coverage, one wonders whether the old “inflation is theft” canard is still lurking beneath the headlines of inflation.

56. A lot of this has to do with viewing contracts as sacrosanct. Loans are a type of contract. If a creditor lent money to a debtor, and the debtor benefitted from “currency debasement,” the contract was supposedly dishonored through theft.

57. Creditors are often rich people, and rich people hate inflation. It is hard to overestimate the degree to which nineteenth century theorists wished to avoid “currency debasement.” They thought it would spell the ruin of civilization.

https://x.com/Historian_Steve/status/1506894997706055683

58. Why else do we typically aim for a small amount of inflation? Because it’s a sign of a healthy economy. Imagine an economy where lots of people have jobs; people are spending money; the economy is growing.

59. That economy may very well have some inflation. That’s the trade-off we make. So much of economics is about trade-offs.

60. It used to be assumed that there was a trade-off between inflation and unemployment. When unemployment was higher, inflation was lower. When more people had jobs, inflation was the side effect. This was the Phillips Curve.

61. The Phillips Curve is not gospel as it has come under criticism. It was developed in the 1950s when the structure of the economy was different. But as a general rule, this inverse relationship between unemployment and inflation still holds.

62. If low inflation was your only concern, you might throw people out of work. Do you want to do that? This is the tough balancing act the FED must grapple with under its dual mandate of price and employment stability.

63. Another reason for the 2% target inflation rate is that it gives central bankers some flexibility when it comes to managing recessions. We often don’t know when a recession is under way until well after the fact. I remember this from the Great Recession of 2008.

64. For the first six or seven months of 2008, there were some signs of trouble in the news (Bear Stearns, e.g.), but I don’t recall hearing that we were definitively in a recession. Later, we found out that the recession had, in fact, started in December 2007.

65. Here’s the problem: If 0% inflation is your preferred policy, you’d quickly wind up in deflation territory once a recession began. Deflation has a number of pernicious consequences. It is something we take pains to avoid.

66. If inflation encourages people to spend money now, deflation does the opposite—inducing people to sit on their cash. Why go out and buy a car if you know it will cost less in the future?

67. Deflation can lead to debt-default spirals that are extremely difficult to escape. Bankruptcies can spread. Deflation was a major cause of the Great Depression of the 1930s. I actually did a thread on deflation, the gold standard, and the depression.

https://twitter.com/Historian_Steve/status/1506887873382924289

68. There is a very interesting conversation about whether 3 or 4% inflation targets are preferable. The 2% target was established by the world’s central banks in the 1990s. They didn’t arrive at this number with a very scientific process.
ecb.europa.eu/pub/pdf/sintra…

69. @paulkrugman, Olivier Blanchard, and Lawrence M. Ball have called for a target above 2%. Their conclusion is based on the concept of a liquidity trap and Zero Lower Bound (ZLB), the point at which you’ve lowered interest rates to zero but the economy remains depressed.

70. When we consider all of these benefits of small inflation, we see that inflation is not inherently bad, as many people assume. In economics there are trade-offs. There are winners and losers.

71. If you want to be a sophisticated person when it comes to evaluating the economy, you can’t just see every problem through the lens of inflation. You need nuance and the ability to consider multiple variables.

72. Another important lesson: this isn’t the 1970s. Stop saying it is. It sounds like you’re trying to turn Joe Biden into Jimmy Carter. And it’s obvious. Inflation was higher and lasted much longer back then. Have some historical perspective.

73. If we had to raise interest rates 5-6 points to address recent inflation, but 14-15 points in the 1970s, that should tell you something about comparing the two eras. Inflation coverage today so rarely gives consumers this necessary historical context.

74. As we head toward another election in November, we know that Republicans will once again attack Democrats for inflation. Economic historian @Johnny_D_Fulfer writes that this is a tried-and-true GOP playbook that goes back to Eisenhower in the 1950s.
time.com/7001702/republ…

75. Fulfer shows how the GOP playbook is consistently filled with exaggerations and fear-mongering that ignore the nuances and causes of inflation.

76. The fear-mongering sometimes works, and all of that in spite of the fact that Democratic presidents have compiled a much stronger economic record compared to Republicans. No matter which metric you choose, the record is not close.

nytimes.com/2021/02/02/opi…

77. The stronger performance among Democratic party presidents remains whether you’re talking about GDP, employment, incomes, or stock prices. It’s a significant gap. Here is the underlying research: aeaweb.org/articles?id=10…

78. If you’re wondering why this is the case, the article by Blinder and Watson suggests something most of us who study this issue have known for a long time: supply side tax cuts are NOT that stimulative.

79. Apparently the much maligned Jimmy Carter was better on jobs in one term than Reagan was after his first term. And while inflation was certainly high in Carter’s time, the rates under Biden are barely higher than Reagan’s, despite the latter’s saintly status among many voters

80. All of this would seem to be essential information that mainstream has failed time and time again to adequately convey to an otherwise apathetic public.

81. It turns out that ChatGPT is aware of this trend, too.

Does that mean that there is hope that something like this will be absorbed by the general public? Or will that depend on the public's reading habits and trust in ChatGPT?

82. @David_Charts has been great on this topic. He’s put together some wonderful charts.

I feel like this information should be more widely known, but for some corrupt or nefarious reason, mainstream media refuses to give it adequate attention.

https://x.com/David_Charts/status/1331714369487589381

83. Trump is the only president since Herbert Hoover way back in 1932 to finish his term with less Americans holding jobs compared to when he entered office.

84. Why is Trump given a free pass for this? They assume that a global disruption with global causes was not his fault. But what do you think inflation is? Is inflation not a global disruption with global causes?

85. Historians evaluate presidents on how effectively they respond to crises. Whether he caused the COVID crisis or not, there is no doubt that Trump responded abysmally. And yet, American voters seem to have a case of collective amnesia on this point.
theatlantic.com/politics/archi…

86. Trump suppressed the release of information on COVID for political purposes.


His rallies may have infected 30,000 people and led to 700 deaths.

cnn.com/2021/12/17/pol…
axios.com/study-trump-ca…

87. Columbia Univ researchers found that approximately 36,000 COVID-19 deaths in the U.S. could have been prevented by May 2, 2020, if social distancing measures had been put in place a week prior to March 1.


This is the study: washingtonpost.com/opinions/2020/…
medrxiv.org/content/10.110…

88. This article includes missteps by the Trump administration when it came to handling COVID.


We see now that there is very good reason for historians to rate Trump as close to the worst president of all time, if not the worst.nytimes.com/2020/08/06/us/…

89. Trump is hoping that public angst over inflation will help put him back in the White House (he’s already received significant help from the Supreme Court). I wonder, for all the people who complained about inflation, how did they feel during the Obama years?

90. There was low inflation during the Obama years. Were the voters currently complaining about inflation happy during those years? No, there were legitimate concerns over a depressed economy, but a lot were childishly aggrieved by “socialism” or whatever.

https://x.com/Historian_Steve/status/1822575974762066312

91. There’s nothing wrong with asking people to be consistent. If you feel inflation is the most important topic today, appreciate the times when it was meeting the FED targets. If you let a president off the hook for COVID, do the same for inflation.

Thanks for reading.

END