Inflation has Its Upside: Media is Failing to Tell the Full Economic Story

People Feel Great About their Own Finances- but are Buying Media Doom and Gloom on the National Economy

Yesterday, I was struck by a graph from the Federal Reserve that Matt Darling of the Niskanen Center posted, which showed record satisfaction by people with their own finances but a belief that all their neighbors and the national economy are suffering terribly.

Matt Darling 🌐🏗️ @besttrousers

@ArthurDelaneyHP This graph is so weird. Everyone thinks that they are doing fine, and their local economy is improving - but the national economy is doing worse!

May 23rd 2022

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Given record-low unemployment and strong growth, these numbers make little sense. Except that we know people mostly don’t read economic reports, but instead read headlines from newspapers and hear ranting from GOP attacks - which the media report like stenographers whether they are lies or not.

More people have jobs and government support has supplemented salaries across the economy.

Of course, inflation is a broad-based challenge that is impacting peoples’ wages; overall, wages are being eroded by inflation, particularly as gasoline prices spike. This is the story the media has harped on - and it is an important part of the inflation story to tell.

But there is a giant part of the inflation story that the media has failed to tell, namely that for heavily-indebted Americans - from those paying off credit card bills to mortgage holders to those drowning in student loan debt - inflation is a godsend. In this Money piece, Why Debt-Ridden Millennials Should Be Cheering for Inflation, the author notes:

If you’ve borrowed money, for your education, a home or anything else, inflation means you may have the chance to pay back the loan with dollars that are worth a lot less than the ones you were originally lent.

Banks lending people all that debt and wealthy people with far more assets than debt hate inflation - and they drive the media narrative on the evils of inflation, but for most people, inflation is a far more complicated story, hurting wages and the value of their own investments, even as it eases their debts.

To give an example of how this works, we will look at median mortgage debt versus median 401K balances. In the last year, we had 8.3% inflation and the S&P fell 5.6%

For a 40-year old, who has a median mortgage of ~$290K and a median 401K of ~$33K, the gains and losses look something like this:

Nominal loss in value of 401K: loss of ~$1850
Inflation-adjusted loss of 401K value: loss of ~$2700
Inflation-adjusted reduction in mortgage debt: gain of ~$25,000

For most people of that age, a reduction in debt due to inflation is far more significant that any erosion of wages or investment losses. For older retirees, often with low- or no-mortgages, the equation is different and inflation is likely to be more of a burden, but the point is that inflation often has a large positive impact on many people in the economy in easing their debt burdens.

Which is one likely reason there is such a disconnect between peoples’ satisfaction with their own finances, despite the irritations of rising prices, versus their perception of a failing national economy, where the media is telling an unrelentingly negative story about the impact of inflation.

Every editorial board should look at the disconnect between how satisfied people are with their own finances versus their media-driven perception of a failing national economy- and reflect on their reporting failures.