You may think the U.S. economy is in bad shape. But that’s not the case.

“The economy is doing very well,” Jonathan Gruber, chair of MIT’s economic department, told Boston Public Radio on Thursday. He pointed to three key indicators that signal the nation’s economic system is thriving: lower unemployment rates, economic growth and steady inflation rates.

So why do Americans think the economy is worse off than it actually is?

How the American government measures prices

Let’s talk about the consumer price index. This single number summarizes all the prices in the economy. The government weighs how much things cost and how much Americans spend on goods.

Imagine a world where people can only buy two things: candy bars and cars. Let’s say people buy an average 200 candy bars per year, and one car every 10 years. If the candy bars cost $1 apiece, that’s $200 a year. A car that costs an average of $20,000 — spread out over a decade — divides out to $2,000 a year.

“That means when the government makes up its price index, it says, ‘Look, cars are 10 times as important as candy bars. Right? On average, people spend 10 times as much every year on cars as they spend on candy bars.’ And that’s where the index comes from,” Gruber explained.

Now, suppose the price of candy bars goes up 20% (you're spending an average $240/year), and the price of cars goes down 2% (an average $1,960/year). To the government, overall spending has not changed: That increase in the price of candy bars was balanced out by the decrease in car prices.

“The bottom line is: we’re in exactly the situation my made-up example dictates, where the cost of very expensive things that make up a lot of our spending — but which is spent infrequently — went down, and the cost of things we spend on frequently hasn’t continued to go up, but it remains high,” Gruber said.

Why you think inflation is higher than it is

A recent New York Times opinion piece, focused on the humble Snickers bar, explains the disconnect between declining inflation rates and consumers’ continued concerns: It’s all about exposure. You’re much more likely to remember the prices of goods you purchase often, but may not notice price decreases in more expensive goods that you purchase less frequently.

“The problem with that is we only buy cars once every 10 years or so. We buy candy bars every day,” Gruber explained. “... So while statistically it’s true that there’s no inflation, from my perception, the price I’m seeing all the time is up a lot, and that’s getting me upset.”

He suggested several strategies to address this perception gap. First, he advocated for more policies that limit price increases. Second, he said President Joe Biden and other leaders can provide clearer communication about the state of the economy.

“The third thing you do is you engage in other policies that try to raise our standard of living in other ways,” Gruber said. “Remember, what should matter to you is not the price of a good. It’s what you earn relative to prices, or what we call your real wage.”

That perception looks like it’s already changing. He pointed to the consumer sentiment index gathered by the University of Michigan, which has increased by 29% in the last two months.

“People are feeling a ton better about the economy,” Gruber said. “It’s a huge increase. It’s actually the largest increase in more than 30 years over a two-month period in positive consumer sentiment.”