Question

Robert Shiller asked a sample of the general public and a sample of economists the following question: "Do you agree that preventing high inflation is an important national priority, as important as preventing drug abuse or preventing deterioration in the quality of our schools?" Fifty-two percent of the general public, but only 18 percent of economists, fully agreed. Why does the general public believe inflation is a bigger problem than economists do?

Short answer

The discrepancy in views about inflation between economists and the general public can be attributed to different perspectives and understanding of inflation, more direct impact of inflation on the general public, and possible communication gaps between economists and the general public in conveying the role of inflation in an economy.

Step-by-step solution

Understanding Economists’ Perspective

Economists understand that moderate inflation is a normal part of a healthy economy. So, a small amount of inflation is not just expected, but necessary for economic growth. Notably, inflation is often a sign that an economy is growing. If inflation rates are kept under control, they will not necessarily lead to negative impacts. Thus, economists might not perceive inflation as an immediate threat, unlike drug abuse or the quality of schools deteriorating, which yield urgent and visible societal impacts.

Understanding General Public's Perspective

The general public may perceive inflation as a direct threat to their personal economy, given its direct impact on the cost of living. The regular citizen commonly experiences inflation as a decrease in their buying power, meaning they can purchase less with the same amount of money. Looked at from this perspective, inflation’s effects on household budgets could be a key reason why it is seen as a significant problem by the general public.

Communication Gap

Lastly, a difference in perception could arise due to a communication gap between economists and the general public. If the information about the role and impact of inflation in an economy doesn't reach the general public effectively or in an understandable manner, misconceptions and fears about inflation could dominate.

Key concepts

Economists' Perspective

From the viewpoint of economists, inflation is not automatically a villain. In fact, it plays a crucial role in a thriving economy. Economists see moderate inflation as a sign of economic growth. When an economy is growing, prices tend to creep upward because demand for goods and services often rises faster than supply. This is an expected and necessary part of a robust economy.
Economists emphasize that when inflation is kept within controlled boundaries, it generally does not disrupt economic stability. Inflation rates that are too high or too low can indeed cause problems, but a moderate amount can encourage spending and investing rather than hoarding money.
In contrast to issues like drug abuse or deteriorating schools, which demand urgent attention due to their immediate societal consequences, inflation is usually a longer-term consideration. It thus demands a nuanced understanding of economic conditions rather than an urgent response.

General Public's Perspective

For many people, inflation poses a daily challenge. The general public often views inflation through the lens of their personal finances. As prices increase, individuals tend to feel a squeeze on their purchasing power:

• Groceries, rent, and utilities become more expensive, straining household budgets.
• Savings accumulate less interest, which might erode their value over time.

From this everyday perspective, the threat of inflation can feel both immediate and personal. It affects how much consumers can buy and save, leading to a tangible anxiety about the future cost of living.
Many people directly equate inflation with a reduced standard of living, which may explain why so much of the public considers preventing inflation as critical as addressing other pressing national issues. They might perceive inflation as a persistent erosion of financial security.

Communication Gap

One factor that could exacerbate differing views on inflation is the communication gap between economists and the general public. Economists often use technical language and data analysis that may not be easily understood by everyone.
If experts cannot translate complex economic concepts into digestible insights, the public might misunderstand or even distrust the economic indicators being discussed. This lack of effective communication can lead to misconceptions where the public views inflation as more menacing than economists believe it is.
Improving communication involves simplifying economic terms and providing relevant, relatable examples of inflation's role in the economy. Bridging this gap is crucial so that the general public has access to understandable information, which helps to align perceptions more closely with economic realities.