G. Elliott Morris challenges a fundamental assumption of modern economics: that falling inflation rates should automatically restore public confidence. In a piece that cuts through the noise of stock market highs and low unemployment figures, Morris argues that the American public isn't reacting to the speed of price changes, but to the absolute level of prices they face every day. This is not just another take on the economy; it is a data-driven dismantling of why standard models fail to explain why Americans feel poor despite the numbers saying they are rich.
The Illusion of the Baseline
Morris opens by confronting the disconnect between macroeconomic indicators and the reality of the grocery store. He notes that while inflation has cooled, the damage is already done. "A gallon of milk costs about a dollar more today than it did in 2019. Eggs are running about 45% higher than they were five years ago," he writes, illustrating that the gap between current prices and pre-pandemic trends has become permanent. This "excess prices" metric, he argues, is the missing variable in understanding consumer sentiment.
The core of Morris's argument is that voters are not irrational for feeling pessimistic when the official inflation rate drops from 9% to 3%. "Inflation falling from around 9% to around 3% doesn't undo the fact that the supermarket bill is now, and probably permanently, meaningfully higher than it was," Morris explains. This reframing is crucial because it shifts the blame from voter psychology to a structural economic reality that traditional models ignore. Critics might argue that consumers should focus on the rate of change rather than the level, but Morris's data suggests that for household budgets, the level is the only thing that matters.
"The reason consumer sentiment is in the basement, despite low unemployment and rising real wages and a near-record stock market, isn't news coverage or social media vibes or voter irrationality. It's the level of prices, not the rate of change."
Testing the Theory Against History
To prove this isn't just a post-pandemic anomaly, Morris subjects his model to a rigorous historical stress test: the 1970s. He addresses the "overfitting" objection—the fear that his model only works because it was built on recent, low-inflation data. By adjusting for the prevailing inflation regime, he demonstrates that the model predicts sentiment in the high-inflation era of the 1970s just as well as it does today.
Morris details how he constructed a composite index of everyday goods—food, shelter, and vehicles—to measure the "excess" cost above what a long-term trend would predict. He then scales this based on the recent inflation environment, noting that a price shock feels different after a decade of stability than it does after years of volatility. He cites political science research by Derek Epp and Christopher Wlezien to support this, noting that "people don't update their beliefs about the economy based on new economic information evenly in different inflation regimes." This contextual nuance is what allows his model to generalize across decades.
The results are striking. While a standard model using only unemployment and headline inflation fails to predict the depth of sentiment collapse in the 2020s, Morris's model, which includes the regime-adjusted excess price variable, performs consistently across both eras. "That, I think, is decent evidence that the relationship generalizes across inflation regimes — not just an artifact of post-COVID overfitting," he concludes. This historical validation is the piece's strongest asset, moving the argument from a hypothesis to a robust economic theory.
The Media Myth
Perhaps the most provocative part of the analysis is Morris's defense of consumer perceptions against the charge that they are merely echoes of media narratives. Skeptics have suggested that when people say "prices are higher," they are just parroting cable news. Morris dismantles this by stripping out the portion of price perception that can be explained by news sentiment.
He finds that news coverage explains only a fraction of the anxiety. "The raw correlation between news sentiment and price perceptions is r = -0.37, which is statistically significant but substantively pretty weak," Morris writes. "News sentiment explains about 14% of the variation in price perceptions; the other 86% is doing something else." When he removes the media influence from the data, the remaining price anxiety still predicts consumer sentiment with high accuracy.
This finding is a direct rebuke to the idea that the public is being misled by the press. Instead, it suggests that the pain is real and measurable. "This suggests that consumer sentiment is largely a function of price anxiety, which is not the way economists typically treat the index!" Morris observes. By validating the lived experience of consumers over the abstract metrics of the Federal Reserve, Morris provides a much-needed corrective to elite economic discourse.
"Once you know what the unemployment rate and SPY returns are, then the only other question you need to know is how stressed out people are about prices, and you can predict the index of consumer sentiment."
Bottom Line
G. Elliott Morris has successfully identified the blind spot in contemporary economic analysis: the failure to account for the psychological and financial weight of a permanently elevated price level. The argument is strongest in its historical validation, proving that the mechanism of "excess prices" is a universal driver of sentiment, not a modern glitch. The model's biggest vulnerability lies in its reliance on consumer survey data, which can be noisy, but the consistency of the results across two distinct inflationary eras makes a compelling case. For policymakers and observers, the takeaway is clear: you cannot fix consumer confidence by simply lowering the inflation rate; you must address the absolute cost of living that voters face every day.