There’s no question that for many (if not most) Americans, today’s economy is challenging for numerous reasons we need not list. For a lot of people, though, their sense of economic vulnerability is greater than their actual experience of it.
Yes, unemployment is high, but the overwhelming majority of Americans who can work and want jobs have them. (The other side of a 9% jobless rate is 91% employment rate.) True, the stock market has been volatile, unrewarding or both for the better part of a decade, but many (if not most) of us are net buyers of shares, not sellers, so flat or falling prices are good. (Think socks, not stocks.) Even the secular decline in home prices, while serious and broad in its consequences, is for many (if not most) of us fairly benign in its practical effects on our personal finances. (And for some, like property tax payers and, especially, first-time homebuyers, the drop in values is a positive. Sales of new homes were up in September, for example, as builders lowered their prices.)
So why, you might reasonably ask, do many (if not most) of us feel so much worse off than we are?
There’s no simple answer, of course, but in one important way the explanation is right before your eyes — literally and figuratively. We’re referring to one of the most basic and important cognitive heuristics, or mental shortcuts, that we use to form judgments about the world and make decisions. It’s called “availability,” and it refers to our habit of mentally reaching for the most accessible (or easily available) information as we attempt to understand our surroundings and process the thousands of choices we make daily.
This useful and efficient non-conscious strategy makes sense in most situations: When deciding what to wear in the morning, the weather outside is easily accessed and highly relevant. But sometimes our bias toward the most available data can mislead, not least because the ease with which we access a piece of information is connected less to its relevance than to its dramatic resonance, its recency or both. In journalism they refer to this as the “man-bites-dog phenomenon”: Media outlets rarely cover dogs biting humans, but they put it on the front page if a person bites a pooch. So much so that you might think humans chomp chihuahuas more often than they do.
This mind game is especially potent when it involves bad news. A timely example of this is gas prices. It’s hard to see the price of something so common and crucial rising 20% over a year and not think that all prices are rising precipitously. But the fact is that gas is not nearly as expensive for the average American as availability bias might lead us to believe. Even accounting for the general stagnation of U.S. wages over the past few decades, we’re not paying that much more for gas, relative to our incomes, than what we were paying 30 years ago. When gas prices hit what was then a modern-era high of (an inflation-adjusted) $3.31 a gallon in 1981, median household income was (an inflation-adjusted) $43,876. Today, gas prices average around $3.50 a gallon, while median income is around $49,000.
Obviously, every household’s economic well-being involves the interactions of dozens if not hundreds of data points and moving pieces. But one of the most prominent of those data points is the price of gas, which stares at us every time we’re near a filling station and also receives extraordinary media attention. So do unemployment figures, food costs, home price movements and stock market swings, only some of which may be relevant to you at any given moment but all of which might easily depress the heck out of you. That’s partly because these prices are so important, but also because they can be so volatile. (That’s why Uncle Sam reports inflation rates with and without food and fuel accounted for.)
And because no gas station we know of posts inflation-adjusted median incomes on their signs, we’re constantly buffeted with this symbol of economic hardship. Don’t let it bring you down: While things may be getting worse in ways, they’re probably not quite as bad as they seem.