These days you can't open a newspaper, click on an online news site, or turn on the television without being bombarded by reports on the state of the economy. I'm not sure if it's as bad as the news reports make it out to be

That really depends on what benchmark you're using. When news media say that the Dow Jones Industrial Average is up n points, or show a steady increase in the average price of a share on the New York Stock Exchange, the pundits nod sagely and say "yup, economy looks good."

From a human point of view, however, the only really important benchmark is the buying power of the average American. What is it today, and how is it trending?

Of course, that's subject to spinning, too, since the word "average" has actually three different meanings: "mean," "median," and "mode."

When most people think "average," they think of the equation they learned in algebra, where you add together all your samples, then divide by the number of samples. When using this to calculate for buying power, though, it can be skewed by having a very small number of people with very large incomes. If you have a bar with ten people in it, each of whom makes between $25,000 and $35000, the mean will be around $30,000. If Bill Gates walks in, the mean will increase to many millions, but for the people in the bar, nothing will have changed.

The median is the point at which there are an equal number of data points above and below that mark. Using the above example, the median will be somewhere around $30,000, but this can still be skewed because it doesn't tell you how far above or below that point the individuals are. Thus, if you have a thousand people with incomes of $100/year and a thousand people with incomes of $10,000,000/year, it could be said that the median income is halfway between those two, somewhere in the $5,000,000 range; cold comfort to the people making $100/year.

For purposes of looking at the health of the economy, we need to view the mode, which is to say the buying power of the *greatest number* of American citizens. This is not skewed by people with very large incomes or by wild disparities between incomes because it looks at how most of us are doing.

Unfortunately, of course, the media don't tend to tell us what kind of "average" they're using, and probably choose the "average" that best suits what kind of point they want to make. You need to get a look at the raw data to be sure.

/lecture

So, to get back to your point, is the economy as bad as the media make it out to be? It's hard to tell, but one thing is for certain: like the stock market, the economy is driven by people's beliefs. If everyone believes it's shaky, or tanking, then they'll behave accordingly to protect themselves by becoming more cautious. A sudden slowdown in spending can cause the economy itself to cool off, even though there's no objective reason for it, just as a company's value can go down precipitously even when the assets it owns haven't changed from day to day. It's called a "failure of confidence," and if the economy as a whole suffers a failure of confidence, then that will manifest as a shakier economy.

Is it as bad as the pundits say it is? To a great degree, that depends on whether people believe it's as bad as they say it is...