Episode 617: How Do You Feel? : Planet Money Today on the show: how a bunch of rational economists try to deal with our feelings. And the story of a man who came up with five simple questions that he hoped would predict the future.

Episode 617: How Do You Feel?

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Recently, I went to see a professional about my financial future.

BETSY COHEN: Come on in. Have a seat. Put your stuff down.

VANEK SMITH: Thank you.

I met a young woman at her office. We sat down at a little desk. There were some crystals.

Could I get you to introduce yourself?

COHEN: Sure. My name is Psychic Betsy, aka Betsy Cohen. I'm a psychic medium, intuitive development coach and teacher.

VANEK SMITH: Now, this is not as crazy as it might sound. A lot of Wall Street legends went to see psychics and astrologers. Andrew Carnegie apparently had one on staff. J.P. Morgan is quoted as once having said, millionaires don't use astrology, but billionaires do.


We should note that this quote comes from a psychic website, so maybe he just thought up that quote.

VANEK SMITH: (Laughter) Psychic Betsy says she gets people coming to her all the time asking about money. And when I got there, I was maybe expecting a crystal ball or something, but she just had a legal pad. And she had already written out everything about my financial future on the legal pad.

COHEN: All of this stuff is stuff that I got from you before you came in.

VANEK SMITH: Like, on me?

COHEN: Yes, yeah.

VANEK SMITH: How did you know, just from my email?

COHEN: I'm a psychic.


I was kind of hoping that I was going to win the lottery or come into a large amount of money mysteriously. Instead, she says, I will enjoy my job. I will be loved in my job.

COHEN: But don't expect to get a pay raise because of it (laughter).

SMITH: So no more money?

VANEK SMITH: No more money.

SMITH: But, you know, you can see how, even if it's depressing news, that people would love to talk to a psychic, even billionaires because we know so much about the world these days. I mean, we report it all the time on PLANET MONEY. You know, what's the unemployment rate? How is the GDP doing? What are the imports and exports? And, you know, we know numbers like how many bushels of wheat are harvested in a given week. But we still have a hard time predicting what's going to happen tomorrow, what's going to happen next week.

VANEK SMITH: And that is because there is something missing from all of these numbers, and that something is people, people with all of their crazy emotions and weird feelings, people and what they are going to buy, how they're going to behave.


VANEK SMITH: Hello, and welcome to PLANET MONEY. I'm Stacey Vanek Smith.

SMITH: And I'm Robert Smith. Today on the show, we're going to do something that I resist doing. We are going to talk about our feelings. Or at least we're going to talk about how a bunch of rational economists try to deal with the concept of feelings.

VANEK SMITH: And we will meet a man who developed five simple questions to act as a kind of economic crystal ball to try to predict the future.


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VANEK SMITH: When you think about it, we are kind of forced to predict the future all the time, every day. Should I take this job? Should I spend my money this way? Should I save my money?

SMITH: If I give this guy $4, will the latte actually come out on the other side?

VANEK SMITH: (Laughter).

SMITH: And businesses have to make these big-money bets all the time 'cause when you think about it, every time a product is made, it takes months and months to develop and ship. You're essentially making a bet - how will people like this two months from now? How will people like this next year?

VANEK SMITH: This is what Burt Flickinger does for a living. He's a retail consultant for big companies like Macy's and T.J. Maxx. But he used to be a buyer. And he's been there, putting big, huge life-changing amounts of money on the line based on a hazy view of the future.

SMITH: He likes to talk about the big Winnie the Pooh deal.

VANEK SMITH: The Winnie the Pooh deal - this was when Burt was a young man. He was in his early 20s, and he had just been promoted to buyer for a big national chain of department stores. And the holidays were coming up. He was looking around, trying to figure out what to stock for the holidays. He was looking at some of the big hit movies that had just happened.

BURT FLICKINGER: "Winnie The Pooh" came out in '77, was a very big hit. >>SMITH: For Burt, this was, like, his big, major decision. Everything was resting on this one really deep question - how many Winnie the Pooh stuffed animals should I buy?

FLICKINGER: They were cute, very furry. But are people really going to buy the Winnie the Pooh characters as opposed to the normal Hot Wheels that they could buy for less than a dollar?

VANEK SMITH: The Winnie the Pooh dolls were relatively expensive - up to 20 bucks a piece, and that was a lot of money in 1978. Inflation was going crazy at the time. Layoffs were happening. Gas prices were rising. And Burt had to figure out if people were going to spend a pretty serious amount of money on Winnie the Pooh. And how much money was on the line?

FLICKINGER: About $10 million.

VANEK SMITH: Oh, my gosh. You had $10 million riding on Winnie the Pooh?


VANEK SMITH: So you were trying to figure out, in the middle of a very tumultuous economy, whether or not people were going to buy Winnie the Pooh dolls six months later?


VANEK SMITH: That's a crazy job.

FLICKINGER: It is a crazy job.

SMITH: You can see why people might consult a psychic.

VANEK SMITH: Yeah, Burt poured over every bit of information he could. He looked at employment and income levels in the communities where all the stores were located. He studied gas prices and debt levels, and it did not look promising for Winnie the Pooh.

SMITH: But there was this other number that Burt could look at. It was a number that had just started to get some attention. And it was actually pretty controversial for an economic indicator because it measured something that economists didn't routinely talk about, at least officially, which was feelings. How are people feeling about the future?

VANEK SMITH: It was called the consumer sentiment index. And the idea was that if you know how people are feeling about the future, you might be able to get a little edge. Despite all the dark things happening to the economy in the 1970s, Burt thought the sentiment number seemed OK. There was something in the air - optimism or hope.

SMITH: So Burt did it. He pulled the trigger. You wish I said Tigger, right?

VANEK SMITH: A little (laughter).

SMITH: He pulled the trigger, made the $10 million bet. He bought thousands of Winnie the Pooh dolls. And he waited to see if this first big business decision would get him fired.

VANEK SMITH: And this number that Burt was betting everything on, this feeling number, was calculated back in the '70s by a guy named Richard Curtin at the University of Michigan. And you can imagine how weird it must have seemed at the time to hear an economist talk like this.

RICHARD CURTIN: Life is messy. And, you know, we're not trying to deny that or embrace that, we just recognize that that's how it is.

SMITH: These days, we're used to talking about something like consumer confidence - how are the masses feeling? But Richard Curtin says that coming up with a way to measure this was a lot harder than it might seem. And, I mean, it took a man with a unique perspective on economics. In fact, his mentor, a guy named George Katona, he basically invented the whole idea of trying to measure feelings.

VANEK SMITH: Richard told us the story of George Katona. And George got the idea for this right after the First World War. He was working at bank in Germany, and inflation was rampant.

CURTIN: The bank used to pay him at noon and give them two hours off to spend it.

VANEK SMITH: Really, because the money would lose value so quickly?


VANEK SMITH: This experience shaped the way George saw the economy. The inflation was caused by printing too much money, yes, but the situation was made a lot worse by people's fear. From George's point of view, feelings were a factor that no one was considering, and he thought there must be a way to quantify these feelings and measure them. And if you could understand feelings, George said, you would have the key to predicting what the economy was going to do.

CURTIN: There's no good theory about why we have recessions. And George thought that how people make decisions made the economy more vulnerable to economic cycles.

SMITH: But this was just a theory. George left Germany, came to the U.S. He became a professor of economics at the University of Michigan. And he kept thinking about this idea he had had - this nationwide survey of feelings. But nobody wanted to listen to him. Nobody thought it could happen. Nobody thought it was a good idea.

VANEK SMITH: And then in 1946, George got his big break - kind of. The Federal Reserve came to him and said, we want you to do a huge nationwide survey of people's assets - how much money they have in savings, how much their homes were worth, how much debt they had.

SMITH: And George says to them, hey, maybe we should also ask about how people are feeling about the future? And the Fed is like, no. That's not going to happen. That is not what the Federal Reserve of the United States does. But...

VANEK SMITH: George was a really resourceful guy, and he found a way to sneak his questions into the Federal Reserve's survey.

CURTIN: He convinced the Fed you couldn't just go to, you know, go out into Iowa and knock on someone's door and stand on the porch and say, I'm from the Federal Reserve. I want to know how much you have in your savings account.

VANEK SMITH: (Laughter).

CURTIN: And George said, you know, you have to build rapport.

SMITH: George's idea was that the Fed surveyors could do what any human being would naturally do. When they encounter somebody at the door and say, hey, can you take this survey, you could ask them a few questions about how they're doing, how they're feeling.

VANEK SMITH: Yeah, like an icebreaker to kind of warm people up.

SMITH: But, of course, George was an economist. This was an official survey. So he had to think about how, specifically, he would ask this question. You don't want to just say, how are you feeling - 'cause people will be like, oh, my backs hurts. My kids are driving me nuts. My boss is terrible.

VANEK SMITH: Right. He had to figure out what kind of question would get at how people feel, but in a way that was relevant to the economy. He wanted to get at this link between feelings and economic behavior.

CURTIN: This first question that he devised, are you better or worse off financially?

SMITH: And that sounds like a very simple question, but it's actually quite a good one. Are you better or worse off financially than you were a year ago? It's the way people measure their lives. They think about this all the time. So that question seemed to work. So he asked one about the future. Do you think your financial situation will be better or worse a year from now?

VANEK SMITH: The next two questions dealt with the broader economy. Do you think the economy will be better off a year from now? What about five years from now? And one last question, is this a good time to make a big purchase?

SMITH: I know they seem super simple, but that was the point of them. He took the answers, added them together and came up with a number, a number that he thought measured how people felt, a number you could look at month by month.

VANEK SMITH: In 1946, George Katona published the results of his consumer sentiment index, and nobody paid attention. In fact, nobody paid attention in the '50s or in the '60s. But when the economy hit the skids in the '70s, people started to want something, kind of anything that could explain what was going on.

SMITH: And, you know, this is the '70s, right? It's the time of feelings. It's the Me decade...

VANEK SMITH: (Laughter) Yes.

SMITH: Everyone's getting in touch with their selves. I mean, even the president of the United States, Jimmy Carter, had talked about the sort of national malaise. It was a new age of emotion.

VANEK SMITH: And economists and businesses started to look at this number that George and Richard had been putting out there for years. And the news media jumped on board, and suddenly, everybody wanted to talk about feelings.


UNIDENTIFIED REPORTER #1: Breaking news on consumer sentiment.


UNIDENTIFIED REPORTER #2: Survey shows U.S. consumer sentiment is at its lowest level in...


UNIDENTIFIED REPORTER #3: Consumer confidence... And we have an unexpected decline here.


UNIDENTIFIED REPORTER #4: New numbers show that consumer sentiment is surging now at the highest level we've seen since July.

SMITH: There you go, happy ending - except for one nagging question. Does this actually work? Does it actually predict something about the economy that you can't get from all these other numbers?

VANEK SMITH: This is something that economists have been arguing about ever since these numbers came out. And they're still arguing about it. And if you look at what people are saying, it's really mixed. The Federal Reserve Board of New York crunched the numbers and said yes. The sentiment number does help predict how much money people are going to spend, and it adds a little tiny edge to existing economic models.

SMITH: But then, another study from the University of Richmond said, yeah, no. No, consumer sentiment only really predicted one recession once. Then there was another study that says, yeah, it does work better when times are uncertain. And another study said, oh, no, but it works best with big purchases; that's what it really predicts.

VANEK SMITH: And, Robert, you and I had a really fun afternoon poring over the index and matching it up with the real economy. And even just looking at that data, it was really hard to tell.

SMITH: The consumer sentiment goes up and down and up and down. And then you have these big recessions.

VANEK SMITH: Consumer sentiment, for instance, did take a dive right before the recession in 1980. And it took a dive in 2007, just before the Great Recession.

SMITH: But it also took a dive in 2012, which, you may remember, there was no recession in 2012. And we looked into it. And it turns out that little dip was because of the government shutdown. People were feeling pessimistic by what they saw on the news. And the actual economy grew. It was fine.

VANEK SMITH: Once you start to ponder this number, you get down to some deep questions about our feelings and about the future. I mean, think about how you would answer that question now. Do you think that you will be better off financially next year? Think hard, and think about what is making you answer that. Are you feeling some deep urge inside of you, some boost of optimism that says, I want to buy a boat; I've got to buy a boat?

SMITH: This is that mysterious economic force that John Maynard Keynes talked about called animal spirits. This is the force that he said sometimes moves markets and inspires people to do things like buy boats.

VANEK SMITH: Or when I ask you, do you think you will be better off next year, are you simply thinking about all the numbers you've seen on the news - unemployment numbers, GDP, the stock market hitting new highs? Are you thinking about your own bank account? Basically are you just taking the temperature of the economy as it is now and reporting that back to researchers and saying, yes, based on all of the information available, I will buy Winnie the Pooh.

SMITH: Which brings us back to Burt Flickinger, that young toy buyer we talked with at the beginning of the show. He bet it all on the consumer sentiment number showing demand for Pooh Bear.

VANEK SMITH: How did the Winnie the Pooh dolls work out?

FLICKINGER: They sold out too fast. I didn't buy enough (laughter).

SMITH: Burt's lesson? He should've trusted that consumer sentiment number even more.

VANEK SMITH: Burt is well aware of all the controversy around this number - people saying it does predict recessions, people saying it doesn't predict recessions. He says when he advises his big clients, he uses this number a lot.

FLICKINGER: I give consumer confidence and consumer sentiment much more weight than the government's forecast for GDP, or gross domestic product.




FLICKINGER: It seems crazy, but the consumers tend to know better than the economists at the universities in terms of knowing what to buy and how much to buy.

SMITH: Maybe this consumer sentiment index is a little bit like talking to a psychic, someone who just listens to you, reflects your feelings back to you, who maybe gives you little hope. Maybe this number basically tells you to do the thing you kind of felt you should be doing anyway somewhere deep in your gut.

VANEK SMITH: The consumer sentiment index is really popular, and it has some pretty fierce competition. In the late '70s, a competitor cropped up from The Conference Board - the consumer confidence index.

SMITH: So you have sentiment and then you have confidence - two different indexes.

VANEK SMITH: Actually, you have way more than that. Bloomberg also came out with a consumer comfort index.

SMITH: Sentiment, confidence, comfort...

VANEK SMITH: And then Google has entered the fray with its search results data. Instead of five questions that they're asking 500 people, it's, like, 5 billion search results and figuring out how people are feeling looking at those.

SMITH: And companies pay thousands of dollars to get this data. And, in fact, there was a little scandal when it came out that some companies were paying extra money to get these numbers a little bit earlier than their competitors.

VANEK SMITH: Yeah, they wanted a competitive edge on feelings.

SMITH: And, you know, once these kind of things take off, once one company or a thousand companies start to visit a psychic, then you'd be crazy not to, right? You have to have the same information that everyone else has.

VANEK SMITH: So where do we stand today? The highest possible consumer sentiment number is 120.

SMITH: That would be everyone in the nation - when you're asked, how are you going to be doing next year financially, everyone in the nation going, woo (ph), yes.

VANEK SMITH: Well, that has not happened yet (laughter). The highest we've gotten is a 111. That was back in 2000, and you know how that worked out for us.

SMITH: Today, the consumer sentiment number is...

VANEK SMITH: Ninety-three.

SMITH: ...Ninety-three. Make of it what you will.


NICO AND VINZ: (Singing) Am I wrong for thinking out the box from where I stay?

VANEK SMITH: And just so you know, Robert, I did get some good news from Psychic Betsy. Apparently, podcasts are going to be very big this year.


VANEK SMITH: In fact, Psychic Betsy believes in podcasts so much, she just started a podcast herself. It's at newyorkcitypsychic.com.

SMITH: Let us know what you thought of today's show or what you think of next week's show.

VANEK SMITH: Oh, I like that.

SMITH: You can email us - planetmoney@npr.org, or find us on Twitter. We are @planetmoney.

VANEK SMITH: And if you're looking for another great podcast, check out Snap Judgment with Glynn Washington. It's an hour-long show of stories that connect, captivate and invite you to listen. Find it on iTunes under podcasts.

SMITH: I'm Robert Smith. Our producer today is Jess Jiang.

VANEK SMITH: I'm Stacey Vanek Smith. Thanks for listening.


NICO AND VINZ: (Singing) Walk to walk and don't look back. Always do what you decide. Don't let them control your life. That's just how I feel. Oh, fight for yours and don't let go. Don't let them compare you, no. Don't worry, you're not alone. That's just how we feel. Am I wrong for thinking that we could be something for real? Yeah, yeah, yeah, yeah,

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