No, Americans Are Not Completely Stupid About Inflation

Stefanie Stantcheva was 11 years old in 1997 when annual inflation in Bulgaria, the country from which she and her family had emigrated, surpassed 2,000 percent. “The episode helped shape her eventual decision to study economics,” according to a profile in the International Monetary Fund’s Finance & Development magazine.

Inflation and how people perceive it still fascinate Stantcheva, now a professor of political economy at Harvard and the founder and director of its Social Economics Lab. This year she released a pair of papers on the topic, the first about why people dislike inflation and the second, with a pair of co-authors, about how they understand it.

The two papers’ bottom line is that people dislike inflation much more than one would expect from a textbook economic framework and that their understanding of it is likewise at odds with what we’re taught in Econ 101.

Some people will take this as evidence that ordinary Americans are simply wrong. “The first lesson you learn as a pollster is that people are stupid,” Tom Jensen of Public Policy Polling, a Democratic polling firm, told Politico in 2012, presumably in a moment of frustration.

That’s not Stantcheva’s attitude. “My conclusion is that this is people’s lived experience,” she told me.

I’ll take it one step further. I think in some cases, the people Stantcheva surveyed for her papers might be closer to the mark about inflation than the textbooks, which themselves don’t reflect the latest thinking in the profession.