Who is Right: Professionals or the Populace ?

Monday, June 30, 2008 | 09:00 AM

Portfolio has an interesting discussion on what they term the "He-Said-She-Said" economy:

"Inflation, energy, home prices, and tax rebates. Ordinary Americans and Wall Street professionals are at odds on issues like these and others at the center of the current economic malaise, according to the CNBC/Portfolio Wealth in America survey. And these differences have implications for both the Federal Reserve and this year's congressional and presidential candidates.

For example, while Wall Street forecasters predict inflation will be fairly tame in the next year, at about 2.5 percent, 71 percent of the report’s respondents think prices will rise by at least 4 percent, and 50 percent expect inflation to run at or above 6 percent.

In the past month, the Federal Reserve has been trying to put a lid on inflation expectations, culminating last week with what was seen as a benign outlook for price pressures in the statement following its monetary policy meeting. Still, Americans don't seem to be hearing that message."


I heard Steve Liesman discuss this poll on CNBC. Steve, like so many other economists, is having a hard time with this conflict. Many of the dismal scientists believe in the wisdom of crowds, but they also are somewhat compelled by training to buy into the methodologies of their profession.

When the two schools of thought are directly opposite, you end up with a form of cognitive dissonance. This has accelerated as prices continued to go higher, even with relatively modest core inflation.

I have been surprised by how many reality-based economists -- including those on the left like Professor Brad DeLong and NYT columnist Paul Krugman -- were so reluctant to embrace elevated inflation as a genuine threat. There was a bit of a circle-the-wagons mentality about economics as a discipline. That seems to have faded in the face of elevated food prices and $143 Crude Oil.

Here's a suggestion: If the professional economists' data states that inflation is contained and unemployment modest, and at the same time the population sentiment is screaming as if neither were the case, perhaps its time we consider that it might be the data, and not the population, that is the source of our dispute.

Sentiment is now at levels last seen during deep ugly recessions. Perhaps the fault lies not with us American whiners -- but with the way the data is gathered, massaged and reported.

Something else to mullover: We have "enjoyed" practically full employment (i.e., very low unemployment levels) for several years now -- but wage pressure has been non-existent. That seems to be unusual to say the least. 

As someone who has been skeptical about the artificially low inflation and unemployment rates for quite sometime now, the public's reaction makes a whole lot of sense. If we believe the negative sentiment of the American people, then its likely that Inflation has been much more pervasive than reported by either the top line or the core.  And the same thinking likely applies to the low unemployment rate. If we judge by sentiment, perhaps its not as low as advertised. Ignoring widespread distress in the population is a recipe for major electoral changes.

Regardless of who wins in November, its time for a major rethink of the methodology behind BEA/BLS data . . .



Consumer Sentiment Hits 28 Year Lows (June 17, 2008)

Are We Too Gloomy? (June 19, 2008)    

The He Said, She Said Economy
Zubin Jelveh   
Portfolio, Jun 29 2008   


Monday, June 30, 2008 | 09:00 AM | Permalink | Comments (62) | TrackBack (0)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference Who is Right: Professionals or the Populace ?:


We've become culturally immune to reality. We accept that a huge, indebted populace is the status quo and SOP during the history of the world. It's like reading a story about a starving man - we feel for him, but we don't feel the hunger.

Reality will grind fiction and group-think into the dirt, regardless of the depth of one's belief in the fiction.

Posted by: Marcus Aurelius | Jun 30, 2008 9:16:25 AM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™