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How is the Economy Really Doing?
Tom Dolezal/Jon McClelland/Greg Haffner
11/19/07
In this paper, I will examine the difference between the perception of how the economy is doing and how it is doing in reality. To do this, I will survey 30 different people (90 for the group in total) and their answers will be taken into account. These can then be compared to the real data that answers how the economy is in reality, and the responses will be graded examined as they relate to several other questions on the survey.
“How is the economy doing?” If this question is asked to ten different people, it is likely that ten different answers will be received. How people view the economy is often a lot different that how it actually is. In this paper, I will examine the idea that how many people view the economy, is actually wrong from what it actually is. For example, the economy might be booming, but if that person is losing money in the stock market (although the entire stock market is going up, just that their particular stocks are going down), they may view the economy as contracting. In order to compare the ideology vs. reality, I surveyed 30 different people (90 for the group as a whole) and formulated their answers into excel and SAS. I gave about half of my surveys to some people in my dorm, and did the other half from random people walking by Rob’s Café. My other group members’ surveys some people in some of their non-economics related classes, did some people in their dorm, and also did some random people as I did. So the surveys may be a bit biased towards people who live on campus here at The University of Akron, but we tried to keep them as random as possible. I also researched the economy to figure out how it was doing right now (since, although I had some idea prior to, I was not completely certain of all of these questions prior to researching them). Though statistical analysis, I can examine several areas were perception is very different from reality. Although this is not exact science (this is important to note, we will not be conducting any statistical tests, just eyeballing the data), it can give a good idea about what people think as opposed to what is actually happening.
Doing some research, I found that the economy is slowly growing, as it usually does. This can be seen by the current increase in real GDP of 2.8%. It is growing slowly, because RGDP had been going up by an average of 3.2% in the ‘90s and 4.2% in the post war era. There are only a few points in history (the most recent being first quarter to fourth quarter 2001) where the economy has actually fallen (given by a decline in real GDP), contrary to somewhat popular belief.[1] Also according to the earlier article, tax cuts are actually bad for the economy, because they are financed through government borrowing, which will eventually have to be paid for by higher taxes.[2] More women working is good for the economy, because they are needed in the labor pool.[3] Increased use of technology would be good for the economy, as an increase in technology would shift aggregate demand to the right, so it would increase RGDP. Free trade would make it so that more countries would be able to more efficiently be able to get things, although some local people with in-country jobs would disagree with it, so it would be good for the economy overall. For the value of the dollar falling, this would be good for the American economy, as it would help companies that export things to other countries, because the goods would be cheaper (and therefore, more would be bought) in other countries.[4] It is somewhat uncertain exactly what effect the falling house prices will have on the economy, but it won’t be good. Either it could cause a recession or the economy wouldn’t really be affected, so I will go with either the answer of bad or the answer of doesn’t make much difference for grading the responses.[5] As far as gas prices go, they are controlled by supply and demand, just like everything else. It is a popular misconception that gas prices are controlled by evil corporations and politicians trying to make good money, but in reality, they are just profit-maximizing firms, and since gas is inelastic in the short run, they will make more money now by raising prices. Gas prices are expected to be a little lower in 2008, as the price of oil is expected to be lower, and since the price of the input (oil) drops, the price of gasoline will drop as supply shifts to the right.[6] Ohio’s manufacturing jobs have been lost in the recent years. The main reason for this is outsourcing.[7] The current U.S. unemployment rate is 4.8%.[8] I will use 4.3%-5.3% in evaluating the responses. The minimum wage going up would decrease employment, since there is a higher floor on the wage rate, so in industries where it is efficient to employ at a lower wage, they will employ fewer workers. Since the U.S. inflation rate varies a lot from month to month, I won’t just look up the last month’s inflation rate (which has spiked more than 1.5% in the last two months), but I will instead average the last twelve months. The average inflation over the last twelve months was 2.53%.[9] So I will use 2.2%-2.85% in evaluating the responses. The inflation rate is significantly lower than it was in the previous twelve months (3.43%).[10] The distance between the highest income people and the poorest people is growing.[11]
The surveys were taken and the results were tallied in excel and SAS. The process that we are going to use is that we will grade the first 18 questions and give each person a score based on the number that they got correct. A person gets 1 point if they get the question right, and 0 if they don’t. That score can be used to analyze several different things. The average scores of people who have had an econ class (in either high school, college or both) and those who have not will be looked at. Whether a person is a democrat, republican, or neither economically will also be referenced. Finally, we will compare the class survey to the master survey to see if we, as economics majors or minors, really know more about the economy than the random survey participants.
We imported the data into SAS and found the results. It was surprising that the mean of the survey data was 7.36. This showed that people don’t really know too much about the economy, and that perception was quite different from reality. In comparing the data from the survey to the data from our computer economics class, we found that the mean was quite a bit higher (10.08) in our class, so it seems that we are learning something as economics majors/minors here at The University of Akron. These scores were still far from perfect though, but a decent amount higher than the survey scores. When comparing the means based on whether the survey participants had taken an economics class in high school, college, both, or not at all, the results were VERY surprising. The results of this can be seen in table 1 (Econ Course). It was shocking to see that people who had taken no economics course at all had actually scored BETTER than those who had just taken an economics course in high school. This led us to believe that the high school economics courses must actually be inducing more false ideas than correct ones. College economics courses seemed to have implemented a better understanding of the economy though, since the score for that was the highest. As far as whether a person is left, right, or neither leaning, those results were included in table 2 (Left, Right, or Neither). Conservatives seemed to score significantly better than Liberals, averaging about a full point better than them, and a decent amount higher than people in the middle. Apparently, right-leaning people are more informed about economic issues, the result of which is surprising, because we would have thought that whether a person leaned left or right wouldn’t have a real effect on their score. Please note that these results are from just a small sample and do not say anything really about people as a whole, and that one person who had a large outlier as a score could easily affect the results significantly. As such, these results can not and should not be taken as scientific evidence; they are just our findings.
In conclusion, we learned that perception of the economy is indeed quite different than the reality of how it actually is. There are many people out there that say various things about the economy without truly understanding the concepts that make up the framework of what it is actually doing. So next time we are in a discussion with our friends or family about the economy and somewhat brings up the statement that the economy sucks and we are in a recession, we should do best to correct them to help them understand in simple terms what is actually happening so that they can make better informed decisions because of it, or so that they just have better information and have learned something new.
Table 1 (Econ Course)
„ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒ…ƒƒƒƒƒƒƒƒƒƒƒƒ†
‚ ‚ Mean ‚
‚ ‡ƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚ ‚ Totalscore ‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒˆƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚econ course ‚ ‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒ‰ ‚
‚none ‚ 7.63‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒˆƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚high school ‚ 7.05‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒˆƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚college ‚ 7.77‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒˆƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚high school & college ‚ 7.44‚
Šƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒ‹ƒƒƒƒƒƒƒƒƒƒƒƒŒ
Table 2 (Left, Right, or Neither)
„ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒ…ƒƒƒƒƒƒƒƒƒƒƒƒ†
‚ ‚ Mean ‚
‚ ‡ƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚ ‚ Totalscore ‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒˆƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚leaning ‚ ‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒ‰ ‚
‚left ‚ 7.06‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒˆƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚neither ‚ 7.37‚
‡ƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒˆƒƒƒƒƒƒƒƒƒƒƒƒ‰
‚right ‚ 8.07‚
Šƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒƒ‹ƒƒƒƒƒƒƒƒƒƒƒƒŒ
Works Cited
Henderson, Charles. “What Effect Would Falling House Prices Have on U.S. Economy?”
Retrieved 14 November 2007 <http://stlouisfed.org/news/releases/2007/04_05_07.htm>.
“Historical US Inflation Rate 1914-Present.” Retrieved 14 November 2007
http://www.inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx>.
“How Robust is the Current Economic Expansion?” Retrieved 14 November 2007
http://www.cbpp.org/8-9-05bud.htm>.
“Ohio Job Exports.” Retrieved 14 November 2007
http://www.aflcio.org/issues/jobseconomy/manufacturing/upload/ohio_jobexports.pdf>.
Ostroff, Jim. “Gasoline Prices Expected to Drop in 2008.” Retrieved 14 November 2007
http://www.wate.com/Global/story.asp?S=6988531>.
Strope, Leigh. “Gap Between Rich and Poor Widening in Troubled Economy.” Retrieved 14
November 2007 <http://www.commondreams.org/headlines04/0817-02.htm>.
Suarez, Ray. “Falling Dollar.” Retrieved 14 November 2007
http://www.pbs.org/newshour/bb/economy/july-dec04/dollar_12-2.html>.
“Why Do Women Work? Because the Economy Needs Them--That's Why!” Retrieved 14
November 2007 <http://www.eric.ed.gov/ERICWebPortal/custom/portlets/recordDetails/detailmini.jsp?_nfpb=true&_&ERICExtSearch_SearchValue_0=EJ208310&ERICExtSearch_SearchType_0=no&accno=EJ208310>.
“The World Fact Book: United States.” Retrieved 14 November 2007
https://www.cia.gov/library/publications/the-world-factbook/print/us.html>.
[1] http://www.cbpp.org/8-9-05bud.htm
[2] http://www.cbpp.org/8-9-05bud.htm
[3]http://www.eric.ed.gov/ERICWebPortal/custom/portlets/recordDetails/detailmini.jsp?_nfpb=true&_&ERICExtSearch_SearchValue_0=EJ208310&ERICExtSearch_SearchType_0=no&accno=EJ208310
[4] http://www.pbs.org/newshour/bb/economy/july-dec04/dollar_12-2.html
[5] http://stlouisfed.org/news/releases/2007/04_05_07.htm
[6] http://www.wate.com/Global/story.asp?S=6988531
[7] http://www.aflcio.org/issues/jobseconomy/manufacturing/upload/ohio_jobexports.pdf
[8] https://www.cia.gov/library/publications/the-world-factbook/print/us.html
[9] http://www.inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx
[10] http://www.inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx
[11] http://www.commondreams.org/headlines04/0817-02.htm