The government and the media often make economic figures more difficult to understand than they need to be, causing a lot of skepticism among the American people.A recent Marketplace poll taken before the presidential election showed that about 25% of the American public completely distrusts the government’s economic figures.
Some of that distrust is simply that people trust their own experience over numbers. For example, if you live in an area that isn’t doing well economically, you probably don’t believe that the economy is up and unemployment is down. Some of the distrust is also because people know that statistics such as unemployment numbers don’t really capture the whole picture. With the unemployment report specifically, we know that it doesn’t count people who have stopped looking for work, so when unemployment numbers go down, we don’t know if that’s because people are finding jobs or people have given up looking for work.
Even non-government reports can be misleading. A recent study shows that the way the media commonly reports business bankruptcy statistics is deeply flawed. The most common way of reporting which states have the highest business bankruptcy rates is simply to count the number of filings per state. However, this method does not account for things like the size of the local economy or population, so the largest states always look worse for businesses than smaller states. A simple adjustment makes business bankruptcy rates easier to understand and more meaningful.
If the reports you read in the media aren’t completely trustworthy, how can you better understand the economic figures you read about? Obviously, there are tons of books, online videos, and even free college level classes (MOOCS) that teach basic economics. These resources and other research can help you better understand the terms the government uses such as Consumer Price Index and Producer Price Index.
But chances are what you want, or need, to know about the economy doesn’t require a college economics class as much as it does an understanding of your local economy. Reading the local news carefully can help you notice trends, such as changing demographics, which might affect the economy. Talking to people outside of your business or industry can help a lot, too.
If you only focus on your industry and it’s going through a particularly good or bad period, you can come away with a skewed view of the economy. Similarly, it’s important to make sure you are getting your local and national news from more than one source. If you only watch one television station or read one paper, then you might be missing local economic stories that would give you a broader picture of the economy.
As a new president takes office, the economy is definitely going to change. Whether you’re a business owner, an investor, or just someone in the job market, making sure you understand both the big economic picture and your own local picture is important. The better educated you are about economic figures and the ways in which they can be misleading, the better able you will be to understand the new economic reports and figures that you see.