Can’t get no satisfaction

I am often asked for my thoughts on inflation. Of course, I don’t like it any more than you do. To borrow a phrase from a famous rock song, Americans “Can’t Get No Satisfaction.” At least not concerning how people think things are going in general. According to the research company Gallup Inc., Americans have been generally grumpy for two decades. Their regular monthly survey, which shows public satisfaction with “the way things are going,” was over 70% in 2000, dropped below 50% in 2004, and is now down another 20 points to only 23%. Wow! Talk about being in a foul mood.

The role of high inflation in public mood

Much of this mood has to do with our current high inflation. Inflation isn’t perceived in a vacuum. It is one of many conditions that combine into a general sense of happiness, or lack thereof. We must consider the entire environment each of us lives in or experiences.

The way this satisfaction series has evolved is interesting. Public satisfaction was also quite low when the data began in 1980, another period of high inflation. However, feelings improved throughout that decade, then fell again in the early 1990s. That was a recessionary period, one reason George H.W. Bush lost to Bill Clinton in 1992. Then, it fell a third time in the early 2000s, leading to the 2008 recession.

But after that time, it didn’t recover much. A majority of Gallup respondents have been dissatisfied in every survey since 2004. Why? What has kept us continuously net-pessimistic for 20 years now? I don’t know. Perhaps psychologists have a good answer, but whatever it was seems to have preceded the more recent political divisions and may have helped cause those divisions. This is important to understanding inflation perceptions. Many who are now upset about inflation (with good reason) were already upset long before the current inflation became a problem.

The new experience of high inflation

We should also note that high inflation is a new experience for most people. They simply haven’t lived as adults through anything like 2021‒2023 or, if they have, only saw it decades ago. Looking at a chart of the annual inflation rate on a month-by-month basis for the last 25 years, you will notice how inflation stayed around 3% for long stretches in the early 2000s. Then, other than 2011, it was below 3%, and at times near 0% from late 2008 until the COVID recovery began in 2021. Now, the former 3% ceiling looks more like the floor. If we look at inflation since WW2, there is some correlation between the mood of the country (the Gallup poll) and inflation. It’s not perfect, of course, but inflation is clearly important.

Compared to anything seen in the adult lives of today’s consumers under 65, three straight years of 3% or higher inflation is simply unprecedented. It is remarkably worse than anything they remember. In fact, they often remember “falling” prices for many products since this was also when low-priced Chinese goods flooded into US stores, and high productivity meant lower prices.

If, for most of your life, you hear “inflation” described chiefly as something that never happens anymore, and then it suddenly starts happening, of course, you are upset. You thought high inflation occurred in third-world countries or places in South America or Africa. Not here in the USA. Yet now you face a new and troublesome problem that’s not your fault and is largely uncontrollable. You thought it would never hurt you. Yet here it is.

The reality behind inflation data

Felix Salmon, a widely respected financial journalist, recently made a wise observation about why inflation is so confusing. He thinks the word itself has been redefined. “The meaning of the word ‘inflation’ has changed. It used to mean rising prices; now it means high prices.” To understand what people mean when complaining about inflation, you must understand how the vocabulary has evolved over the past few years.

The calculations for inflation can be pretty arbitrary, such as where prices were precisely one year ago versus now. A more intuitive concept of inflation is, “Am I paying higher prices for things than I used to.” You don’t have to be an economist to understand that gassing up the car, buying groceries, or dining out costs significantly more.

The challenge of aligning income and costs

Let’s do a little math here. If the inflation rate rises from 2% to 20%, stays there a year or so, and then drops back to 2%, economists will tell you inflation is over. But you are still paying 20% more for everything you need and will keep doing so forever, barring an episode of actual deflation (which I promise you don’t want, but that’s another subject). The difference between 20% and 2% inflation is that 2% is still rising but not as fast. But prices did not come down! That is why when the government tells you that inflation is coming down, you know that prices did not fall, and you’re not dancing in the streets to celebrate.

People might feel better if you could magically arrange for everyone’s income to rise precisely in line with their living costs. But that never happens, at least in the aggregate. People see the media and politicians telling them inflation is better when it’s not. They’re still paying more while often making the same or even less. That’s watching your standard of living go backward. And worst of all, there is almost no reason to expect the price increases to stop, much less reverse. This robs people not just of money but of hope. It’s no wonder they are angry and looking for a change.

The uncertain path forward

The question now becomes, what sort of changes, if any, would help? Is there a political solution? Why doesn’t the government just “do something?” Unfortunately, that is a complex subject for another day. For now, and probably a few more years, inflation and the high prices it has brought are unlikely to improve much. I hate to say it, but we might just have to get used to it and adapt as best we can. I wish I had a better answer. Family discussions over Thanksgiving will be pretty interesting this year. Thanks for reading.