Now is the perfect time to think whatever the heck you want about the U.S. Economy. Do you want to think that the economy stinks? Well, you could cite that inflation is at a four-decades high. Or, you could point out that real GDP has fallen for two quarters in a row, a common definition of a recession. Then again, you could take an optimistic view. The unemployment rate sits at 3.5 percent, the exact same rate as February 2020 and historically low. And, gas prices have been falling, leading to a decline in inflation last month. Whatever view you take, one thing seems likely: that view contains your own personal bias.
Political Affiliation, Presidents, and Biased Thinking
Each month, the University of Michigan releases its Index of Consumer Sentiment. This index is a single number, but reflects the answers of a sample of consumers to a variety of questions. These questions cover how the consumer thinks the economy compares to the prior year, and how they perceive it evolving over the next year. The higher the index is, the better consumer sentiment is said to be. You’d think that the movement in such an index would reflect, you know, the economy.
But, it turns out that all the bias that people bring into their views of political events translate to this index as well. As I pointed out prior to the 2020 election, the political party of the president really doesn’t have the impact on the economy that most people think. On average, the economy performs slightly better under Democratic presidents (with the notable exception of inflation) than under Republican ones. These differences themselves are relatively small, and in any case may just reflect a small sample of presidents. The truth is that presidents probably have less control over the economy than many people think.
But, if you looked at the Consumer Sentiment Index, you would think that presidents not only drive the economy, but they drive it in a way that tortures members of the other party. You see, the University of Michigan asks a subset of its sample about their political affiliation. And, when the president isn’t in your party, you are much less likely to feel good about the economy.
The figure below contains the average Consumer Sentiment Index for respondents based on their political affiliation. So you can see the insanity clearly, I have shaded the political party holding the presidency — blue for Democrats and red for Republicans.
Figure. Average Consumer Sentiment Index by Political Affiliation of Respondent, 2009-2022
I’m Not Mad, Just Disappointed
Good…god. To put a finer point on the figure above, between October 2016 and February 2017, Republican Consumer Sentiment increased 57 percent. For Democrats, it decreased 24 percent. And to be clear, literally nothing changed over this period except for the president. For example, the unemployment rate continued falling at exactly the same pace — from 5.2 percent in July 2016 to 4.9 percent in October to 4.6 percent in February 2017. GDP grew at a rate of about 1 percent in Q4 2016 and Q1 2017.
In case that doesn’t convince you that we have a problem, consider this fact. Republicans thought the economy was doing worse in October 2016 when unemployment was 4.9 percent than in April 2020 when unemployment was 15 percent and we were experiencing a global pandemic. Democrats, don’t laugh. You thought it was doing better in October 2021 as inflation took hold than in February 2020 when things were pretty darn good.
I can’t stress this strongly enough — this bias is insane. As a society, if our perceptions are going to be shaped not by the data but by our politics, we are going to continue down a dangerous road. In 2016, the economy looked pretty good. And, it looked pretty good in 2017. Today, the picture is pretty mixed. If you can’t see all that, I can’t help you.