Thursday, January 11, 2024

Are Things Really that Bad?

Binsbergen, Bryzgalova, Mukhopadhyay, and Sharma develop an index of economic sentiment for the US (and individual states) from accumulated news reports. They use a historical collection of 170 years of digitized newspapers, which includes the text of 200 million newspaper pages from 13,000 local newspapers, collecting instances of a bunch of keywords like "profitable", "success", "opportunity" versus "failure", "insolvent", or "unsuccessful". It turns out it predicts economic activity quite well.







However, the authors also note that sentiment trends downward significantly over the past four, and especially two, decades. My colleagues doubted me when I had claimed that the news presented an increasingly bleak picture. It is nice to know I am not crazy. I suspect this reporting of poor sentiment influences public perceptions.Most laymen I come across think that each decade has a worse economy.

This despite all of the evidence to the contrary. Almost all trends in well-being over this period are positive. This period saw increases in income, innovation, leisure time, life expectancy, food choices, a cleaner environment, literacy, entertainment, tourism - you name it. Moreover, there is every reason to believe these trends will continue. I am confident that my grandchildren's lives will be amazing compared to mine. But that is because my profession puts more stock in the data than the news reports. I hope my grandchildren will do the same.

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