When Bill Clinton ran for president, James Carville, Clinton’s lead strategist said, “it’s the economy, stupid” and that phrase caught on. I’m not an economist, but it’s clear to me that the use of “stupid” in this phrase could have many meanings, intended or otherwise. More importantly, I used “It’s the economy, stupid” as a title for a post already, so I had to mix it up a bit for this one. But more and more, I think there’s a lot of stupid when it comes to the economy, or at least how people talk about the economy.
First things first, I’m not an economist. I’m a staunch believer in listening to experts, so if you probably should have stopped reading before getting here. But this whole Hitting Bregma thing is more about me thinking (in writing) than expecting or even wanting anybody else to listen/read, so take this with a grain of salt, but if somebody happens to find this and read it, and has some expertise to offer, I would love to hear it in the comments.
What’s on my mind this morning is that I can’t stop I thinking that the way people talk about the economy is flawed. Let’s take “supply and demand” as an example. Because I’m not an expert with no advanced training in the theory behind these economic ideas, I have no idea if this is true, but I suspect that to experts, “supply and demand” and the popular understanding of the relationship is flawed. Not totally wrong, just not quite right. Kind of, maybe, sort of, like the way “correlation isn’t causation” makes me cringe. Correlation can absolutely mean causation, but things that are correlated are not always causally related. But, importantly, everything that’s causation is also correlation. Everything. So, sometimes correlation is causation. Either way, I have this image in my head of some pedantic economist getting fired up about how the public thinks about “supply and demand” the same way I get fired up when somebody on TV says “correlation isn’t causation.” From my amateur view, it makes sense to me that supply and demand play a role in prices, and that supply and demand are especially important in establishing an initial value of something in some new market. It also makes sense that when they move in opposite directions, especially suddenly, it can cause a large change in prices. But at the same time, I imagine that prices change for lots of reasons that are independent from supply or demand.
Applying this to today’s world, republican strategists are pushing the narrative that Biden’s policies are causing inflation, while democrats are saying that it’s the global supply chain. For example, republicans have been saying that the surge in oil prices is because Biden is hurting supply, but democrats are pointing out that gas prices are surging in countries where Biden isn’t president (to make the point that this isn’t all Biden’s responsibility). I think the point made about prices in other countries is somewhat compelling, but at the same time, it’s not hard for me to imagine that other countries follow the world’s largest economy on many things. In the current world, is it really possible for a change in the US to not have a ripple effect on the rest of the world?
But more than supply and demand, I wonder how much social psychology rules this day. Maybe it’s because I spent most of my career in a psychology department (paying at least some attention to the social psychologists around me), but can’t stop feeling like almost all of this is social psychology. Some attitude, some herd mentality drives it all. I say this because it’s easy for me to imagine a completely different path, at least for the stock market, over the past six months.
The current path is not rosy. The stock market is not a good place to have money right now and hasn’t been for a while. Biden has been president for 488 days and in that time the Dow has gone up 1.1%, the S&P is up 2.2% (and is officially in a bear market), and the NASDAQ is down 11.3% (also officially in a bear market). Even though the Dow and S&P haven’t dipped into negative territory, they are well behind inflation, so money there has lost value. Not surprisingly, there is a lot of negative sentiment in the market right now and was leading up to the decline. Any up days have been followed by lots of selling because the market is expecting another down day. My guess is that this will continue for some time, until there’s some event that completely changes the pessimism to optimism. Maybe some very positive economic news? An end to the fighting in Ukraine? Some COVID breakthrough? But I suspect that it’s got to be something pretty big to see a bull market emerge for the S&P and NASDAQ (and I wonder if a bear market is needed for any real sustained gains in the Dow).
But, back to my point, if we went back in time a bit, when inflation started to become front and center in the news (which coincided with the market downturn) and replayed things with a twist. The rise in inflation came on the heels of the largest uptick in GDP that the country had seen in a long time. Anti-Obama folks used to refer to economic gains in the 3-4% range as stagnant, but Q4 2021 GDP is estimated to have risen by 6.9%. Imagine all that still happened, but news about inflation was dominated by a narrative that the inflation increase was all part of a strong and growing economy. Folks saying, “of course prices will go up when the economy booms.” “Of course we’ll see some inflation with the best economic expansion since the 1980s.” Suddenly, the response to the rising prices isn’t that we’re doomed, but that we’re doing great.
I’m not saying that I know which narrative, the one that happened or the one in my pretend time-machine generated world, is correct. They’re both factual, just different views on things.
And this is how it all feels with the economy. It all feels like narrative, and not facts. That’s uncomfortable for me, for sure.