Thursday, September 26, 2013

People Think Crazy Things About Inflation

I don't recall every seeing this one; it doesn't surprise me, but, you know, this is just crazy talk:
Over the next twelve months, do you expect that the cost of living  – that is, what you pay for everyday goods and services  ─ will increase, decrease, or stay about the same?
Decrease........................................... 1
Stay the same ................................... 22
Total increase.....................................77
    Increase 1% to 3% ....................... 23
    Increase 4% to 5% ....................... 18
    Increase 6% to 10%...................... 15
    Increase 11% or more................... 15
    Increase not sure how much............  6 
So more than one in seven believe that inflation will be over 11% next year, and three in ten, total, have it at 6% or more. In real life, it's unlikely that inflation will hit 2% next year.

That's from a Hart/Public Opinion Strategies poll, which also has the somewhat helpful results that people think the budget deficit has become worse in the last year by a 8/66 (better/worse) margin, and that while Obamacare gets a 29/46 positive/negative split, "Affordable Care Act" returns a 24/37 result.

Click through for the long term trends, going back to 2007, on inflation. Just eyeballing it, my best guess is that it basically follows optimism and pessimism about the economy overall; people perceive prices going up more during hard times than good times, even though the truth is roughly the opposite. Unfortunately, all we get here is inflation expectations, not perceptions of how things have changed.

There is a famous finding that Democrats believed that inflation got worse during the Reagan years (contrary to the plain fact that it got much better). Hart/POS don't give us a partisan breakdown here.

I'd like to think that the 15% who expect Carter-level inflation next year are Tea Partiers who actually believe that Fed policies will produce runaway inflation, but it's probably more likely a combination of partisan Republicans who just select the worst possible option and people who have no idea what "11%" means.

No larger point here; just thought it was interesting that fear of inflation, or at least survey answers that look like fear of inflation, are incredibly persistent.

23 comments:

  1. I wouldn't be surprised if there's a partisan/ideological correlation as you suggest, but I suspect for most of the high-inflation group it isn't so carefully thought out. I'd be inclined to suspect pure innumeracy, and disconnection from facts. They probably significantly overlap with people who think Obama has presided over vastly increasing deficits.

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  2. "There is a famous finding that Democrats believed that inflation got worse during the Reagan years (contrary to the plain fact that it got much better)." What is better and what is worse. If unemployment is 10% is 1% inflation better or worse than 5% inflation?

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  3. JB, sorry, you got this one wrong.

    Poll asked if things aren getting more expensive, and you're talking about inflation.

    Two different measures.

    Hint: one doesn't include services, includes subsitution, and may or may not include fuel.

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    1. I have to agree with charlie. Official inflation statistics do not represent what people actually pay, nor are they supposed to. These poll numbers are probably a lot closer to the real inflation rate that people actually experience.

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  4. Honestly people are just really really bad when you ask them questions with numbers.

    I remember there were polls where people said that one of the areas of the government they most favored cutting was foreign aid. Then they were asked what percentage of the budget they think should be devoted to foreign aid, and the answer most people was several times higher than what we actually spend on it.

    So yeah, people don't know numbers, especially if you don't give them context. Note that that question didn't mention what normal levels of inflation are.

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    1. Poll I mentioned:

      http://www.csmonitor.com/Commentary/Opinion/2011/0307/Surprise!-Americans-want-to-slash-foreign-aid-to-10-times-its-current-size

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  5. Along with "people who have no idea what '11%' means," I have to continually remind myself what "15%" of the American population means: For any given proposition, no matter how lunatic, it's probably possible to find 15% who'd agree with it. Perhaps even 25%.

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  6. Perhaps it's time to ask my conservative sibling is they are experiencing hyperinflation yet, as they assured me it would occur if Pres. Obama was re-elected.

    They will probably say yes.

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  7. Would love a partisan break-down so we can see where the innumeracy lies.

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  8. This poll shocked me.

    I had no idea so many people (23%!!!) could accurately identify the likely inflation rate.

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  9. If 15% of respondents think that the cost-of-living will increase double-digits next year, that result is shocking only to the extent that 15% is way too high a forecast. As in, the real number is below 1% or somesuch.

    I think 15% is a bit high. But unlike the deficit doves, I think the global appetite for US commercial paper, currently at historic highs, will end...sometime. Maybe this year? Probably not. But maybe. And those double-digit cost-of-living increases would doubtlessly follow.

    15%? No. 5%? At least. Not following why these results are shocking.

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    1. The beauty of this, CSH, is that if inflation is allowed to rise at around 2-3% a year, we can wipe out a substantial amount of federal debt, as long as middle- and lower-class wages keep pace.

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    2. How many years now have the conservative Chicken Littles been predicting hyperinflation? I've been listening to it since Obama took office. If they are ever right, it will be purely accidental.

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    3. One of my biggest frustrations with the deficit doves, purusha, is that you deride the alarmists due to the US not having hit the wall of demand (yet), though when said wall is hit - whenever that is - lord knows you will not offer to take the alarmists' share of the resulting pain, as a consequence of your having been so dismissive in the runup to it.

      It comes across sort of like a teenager driving recklessly on a mountain road, scoffing at grumpy Grandpa's insistence that they "put on their damn seatbelt!" -

      - even though both the teenager and Grandpa are fully aware that, when the teen crashes his car, Grandpa is going to subsidize the cost of his recovery.

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    4. Well, you know us lib commie pinko socialist Deficit Doves, always riding on the economic coattails of you big manly libertarian Chicken Little types, who tend to live in the great economic engines like Mississippi and Idaho....

      That is called treating your argument with all of the respect that it deserves.

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    5. Well, you know us lib commie pinko socialist Deficit Doves, always riding on the economic coattails of you big manly libertarian Chicken Little types, who tend to live in the great economic engines like Mississippi and Idaho....

      That is called treating your argument with all of the respect that it deserves.

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    6. Here's another answer to your question: are you doing anything with your money to hedge against the hyperinflation that you claim that you think is coming? If not, then you really don't believe that it's coming, you're just mouthing anti-Obama garbage like the rest of the right wing.

      here's a link to get you started.

      http://www.survivalistboards.com/showthread.php?t=255894

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  10. The authors of the poll are actually fairly innumerate themselves, it seems.

    Check out the summary statistics presented below those numbers JB references (they're on page 4 of the imbedded .pdf or whatever that is..scroll down).

    Mean: 7.3
    Median: 3.3

    I want you to contemplate those numbers. What's a mean? It's the mathematical average of the numbers people gave. The data summary presented summarizes those numbers, so we can give them the benefit of the doubt and say that they actually got numerical responses back. I'm not sure how they would have treated "increase--not sure how much"...probably called it missing? Or assumed 1% to be charitable (positive, but small)?
    Since 22% of the responses were zero, apparently, to get an average of 7.3 would mean the average of the positive responses is even higher. Let's be INSANELY charitable and assign the top value in the range given to everyone in that range, and 1% to those who said "positive--not sure how much". That totals 314% for the 85% outside of that top category, meaning that the top category has to total 416% amongst the 15% of the sample. The mean of this 15% is....27.7% inflation. Either these people are just screaming out big numbers, or these numbers are really not trustworthy.

    I lean towards #2, because they also report a median of 3.3 among the responses. After insisting on getting whole numbers. 3.3. As the MIDDLE response. Of WHOLE numbers. Even allowing that they have 812 respondents, and it is thus possible that the median falls between two responses, that median would end in .5. .3 is impossible. In fact, in their whole time series, only two "medians" are, in fact, possible (there's a 4.0 and a 4.5 in there).

    Now, maybe they don't push the "whole number" thing very hard. But, it's also not believable that, given their question wording and the way people behave in surveys, that they very rarely get whole numbers in the middle. Once you allow for any number, a whole is just as likely as any other, and given that people tend to reduce choices to nice, round options, they're much more likely.

    I call shenanigans.

    Until and unless you see documentation of how they get to their calculations, I would call them bullshit. The mean was 12.1% back in 2011 for cripes' sake!

    Don't just ignore these polls! Actively make every attempt to erase them from your memory!

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  11. Off-topic, but as the resident dumping crank in this community, I feel duty-bound to point out the following:

    Q 15a/b - In the past year have you lost your private health insurance coverage?

    (Yes) because of new health care law --- 3%

    The exchanges haven't even opened yet, and we're already - apparently - almost halfway to the CBO's total year 1 dumping forecast (7%).

    YMMV

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  12. Look at the question asked:

    Over the next twelve months, do you expect that the cost of living – that is, what you pay for everyday goods and services ─ will increase, decrease, or stay about the same?

    It is quite inappropriate to compare this answer to the official inflation rate. This is not just because of the sensible points made by charlie and couves, but because of the actual question posed: "everyday goods and services." It would not be particularly surprising we saw, say, a 5 or 6% rise in these prices over the next year or so. The kind of regular grocery purchases that people make do tend to go up at a higher rate than inflation, but we see deflation in the prices of expensive, occasionally-made purchases (e.g. white goods, cars, consumer electronics, etc). Inflation is measured across the whole basket of purchases, so focusing on the everyday ones is bound to result in a measure higher than the expected inflation rate. And the average consumer is well aware of this.

    I believe the current score is American Public 4872 Political Scientists 0.

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  13. I suspect that part of the issue is that economists (correctly) weight the spending, but that is very hard to do correctly.

    I suspect that most people see things they buy frequently going up in price 10% per year. (Gasoline has doubled in price in the last 6 years; milk has gone up about 10% in the last year, as have frozen vegetables.)

    The overall inflation rate has large components that are going down, but none of those are on everyday purchases.

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  14. Every time my conservative Dad starts talking about inflation I pull out my wallet and take out a twenty. I then say, "Dad, I got this twenty out of an ATM last week, and when I was in high school 15 years ago and got my first bank account, I got twenties out of the ATM. If inflation is as terrible as you say, shouldn't the ATMs be dispensing Fifty Dollar Bills by now.

    He hasn't caught on to the 'purchasing power' counter argument (and my response will be to point at his TV and ask why he has a bigger and better and newer TV he bought for cheaper than his old tube TV if his purchasing power has gone down).

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    1. You can tell your Dad that I agree with him ;)

      Just because we aren't experiencing Weimar-level inflation, that doesn't mean that those twenties are retaining their value. They're not. That's why wealth preservation doesn't involve just putting cash in the bank -- it requires investments like stocks, bonds and real estate, which involve higher risk in return for [hopefully] higher returns that will keep pace with inflation. That's not necessarily the end of the world, but when stimulative monetary policy is itself a significant cause of bubbles in those very investments, that's where people are really put in a difficult position.

      Regarding your Dad's TV -- that's an argument I've heard from free market advocates who want to explain-away stagnant working class wages. There's definitely something to it, but I'm skeptical. Do people really feel like they're better off because they have access to cell phones and new medical technologies that might extend their lives for a year or two? I think a lot of people would trade that for greater economic security.

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