Reconciling Economic Perception with Economic Reality

The public perception of the economy is often worse than the actual state of the economy. Despite economic data showing growth, low unemployment, and increasing wages, many people still believe that the economy is in a poor state. There are several reasons why this happens.

One reason for the mismatch between the public perception and the actual state of the economy is that economic statistics often fail to capture the experiences of individual people. While a decrease in the unemployment rate may be positive for the economy as a whole, it does not necessarily reflect the reality for individuals who may be struggling to find work or are underemployed. Similarly, GDP growth and stock market performance does not always translate into tangible benefits for all people. This discrepancy between macroeconomic indicators and individual experiences can contribute to a negative public perception of the economy.

Another reason for the public’s negative perception of the economy is the influence of media and political rhetoric. Media outlets often focus on negative economic news, such as job losses, income inequality, or rising living costs, which can create a perception of economic distress. Politicians also play a role in shaping public opinion about the economy by framing economic data to fit their agendas. For example, during election campaigns, politicians may emphasize negative economic indicators to rally support for their policies.

Psychological factors can also contribute to the public’s negative perception of the economy. People are generally more sensitive to losses than gains, a concept known as loss aversion. This means that even when the economy is performing well overall, people may be more likely to focus on negative economic news and feel anxious about their own financial well-being. This psychological bias can lead to a skewed perception of the economy.

Furthermore, the public’s perception of the economy is also influenced by social and cultural factors. Economic anxiety and distrust in the government or financial institutions can lead to a more negative view of the economy. Experiences of economic hardship or inequality can shape people’s beliefs about the overall state of the economy.

So, while the actual state of the economy may be positive, the public perception of the economy can be influenced by a range of factors including individual experiences, media and political messaging, psychological biases, and social and cultural influences. Addressing this mismatch between perception and reality requires better communication of economic data, as well as policies that address the challenges faced by individuals and communities. It is essential to recognize the complexity of public opinion and work towards building a more accurate understanding of the economy.

Stephen Kyne CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs. Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities. 18 Division St, Ste 202, Saratoga Springs, NY 12866 518-583-4040