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Why Do Americans Feel Economic Anxiety?

Marketplace with Kai Rysdal is one of my favorite radio programs. They reported last week on their Economic Anxiety Index, a survey they conduct with the Edison Institute. The index measures how people feel about their job and financial security. The stories have noted that while the overall economy is improving, people are feeling more anxious about their own economic security.

Fear is an interesting emotion. It can motivate people to take productive steps to protect themselves and others from harm.  It makes performers practice harder before a show, or students to study in advance of an exam.

Fear is especially helpful when coupled with the confidence that comes from knowledge and the ability to respond properly. The adrenaline released by the fear response can increase your speed or strength or awareness. It can save your life.

Fear can also cause you to do things that are bad for you. It can kill you.  You might withdraw from the stock market after a downturn and not return until it’s too late. You might try to swim against a riptide. Or, you might vote to withdraw from the European Union.

I don’t have scientific evidence, but my guess is that the Economic Anxiety Index is actually measuring political anxiety rather than economic anxiety. The endless fighting raging across much of the Middle East, as well as the associated refugee crises and terror attacks in Europe and the U.S., are combining with populist fearmongering by Democrats and Republicans alike. At the same time, Americans are absorbing the impact of being asked to choose between the two least inspiring politicians in recent memory to lead us through these difficult times.

A comparison of surveys of consumer sentiment about the present versus the future show that people are anxious about the near-term future despite their own feelings that current conditions are improving.

CHART_consumer sentiment 3

The chart shows that consumer expectations for the next six months (the blue line) are down from a year ago, and in the most recent month have declined. At the same time, consumer confidence in current conditions (the red line) has been rising pretty steadily for five years. This suggests that the fear about the future is coming from somewhere other than economic conditions.

Policymakers shouldn’t ignore people’s fears, but it is crucial that they get the diagnosis right or the prescription could be disastrous. Pandering to what only appear to be economic concerns could lead to policies that make matters worse.

More importantly, people need to better understand how they control their personal economic lives.  Economic anxiety about job and financial security should cause you to deepen your job skills or improve your family balance sheet, rather than hope some politician will fix things for you. The former is a constructive response to fear; the latter will, at best, lead to disappointment.

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