Efficiency Neglect

What is it about?

Our research shows that Americans think consumer goods – ranging from basic food items to energy and household appliances - have become more expensive in real terms and will continue to do so, even though most have gotten cheaper. We introduce a concept called efficiency neglect as a reason for the mismatch between the real state of the economy and people’s perceptions. People believe goods will become scarcer because they focus on how population growth, including from immigration, increases demand. They overlook the simultaneous and often reactive advancements in innovation and expansion of the labour force. Essentially, people tend to think of others solely as more mouths to feed, and not as more arms to work and more minds to create.

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Why is it important?

Popular economic misconceptions have serious consequences. Particularly, economic pessimism can favor bad policy choices and even become a self-fulfilling prophecy. We show that depletionism - the belief that as populations grow, resources will not keep up with demand - is a contributor to economic pessimism. We also introduce a new method of assessing beliefs about changes in real prices, offering a means to compare economic perceptions and reality in ways that cannot be achieved by traditional survey techniques used by organizations like YouGov or Gallup. For instance, we show that whereas the average American today has to work for about 25% less time to afford a gallon of gasoline than they had in 1980, the median responder believes that Americans today have to work for 50% longer to afford it.