If President Biden’s bid for re-election fails, a basic reason for this will be the widespread perception that the economy has done poorly during his term. In poll after poll, Americans rate the economic situation as very bad and give Biden very low approval for his economic management.
The strange thing is that these bad ratings persist even though the economy, by any normal measure, has gone extremely well. In fact, we just had what Goldman Sachs calls a “soft landing summer.” Inflation has fallen by almost two-thirds since its peak in June 2022, and this has happened without the recession and huge job losses that many economists insisted would be necessary. Real wages, especially for non-supervisory workers, are considerably higher than before the pandemic.
Oh, and to correct a widespread misconception: no, these figures do not exclude food and energy prices. It is true that the Government calculates “underlying” inflation excluding these prices, but only for analytical and political purposes.
So why are people so pessimistic about an economy that, by all traditional indicators, is doing very well?
When I started writing about the disconnect between the public’s economic perceptions and what appeared to be economic reality, I experienced a lot of rejection, of two different kinds.
First, there was the argument that there were real economic problems that justified citizens’ pessimism. People really hate inflation, even if their incomes hold up, and a year ago real wages were still somewhat depressed. But right now inflation has fallen considerably and real wages have risen.
Secondly, there was the argument that, in effect, the customer is always right: if people have the impression that things are going badly for them, you should find out why, not lecture them that they should feel better.
But the funny thing is that there is solid evidence that people No He thinks things are going badly for him personally. On the contrary, both surveys and consumer behavior suggest that, although most Americans think they are doing well, they believe that the economy goes wrong, where “the economy” presumably means other people.
Let me go over some of this evidence.
Every year the Federal Reserve conducts a study on the economic well-being of households. At the end of 2022, 73% of families said they were “at least financially well off,” down from the previous year (presumably due to the end of many aid programs in response to the pandemic), but not significantly lower. than in 2019. However, in 2019, half of the population thought that the national economy was in a good or excellent situation; in 2022 that number was reduced to a mere 18%.
Are people still doing well? Well, consumer spending has been strong, indicating that American families are not too worried about their financial situation.
And what about inflation? According to a recent survey of The Wall Street Journal, 74% of Americans say inflation has been going in the wrong direction over the past year, a result that clashes strikingly with the data showing falling inflation. But are people really suffering from rising prices?
It turns out that several organizations regularly survey consumers to ask them how much they expect prices to rise, and those expectations have dropped a lot, completely contradicting claims that inflation is getting worse.
And I would say that surveys that do not ask companies about the national economy, but about their own prices or costs, are even better.
The National Federation of Independent Business asks small business owners if they have raised or lowered prices over the past three months. There are more companies that raise prices than companies that lower them, but the difference is much smaller than last year. The Federal Reserve Bank of Atlanta asks businesses how much they expect their costs to increase next year, and the average response is 2.5%, up from 3.8% last year.
So when people are asked not about the economy but about their personal experience, what they say about inflation is consistent with official data showing rapid improvement.
The bottom line is that there is a real disconnect between what Americans say about the economy and reality—not just official data, but even their own experience. It is ridiculous to deny that this disconnect exists.
How do you explain the negativity regarding a good economy? Partisanship is certainly a factor: Republicans’ assessment of today’s economy roughly matches that of June 1980, when unemployment was twice as high and inflation was four times higher than it is now. Beyond that, it’s possible that the events of the last few years — not just inflation and higher interest rates, but also the disruption Covid has caused to everyone’s lives and perhaps the sense that America is coming apart down politically — have bred bitterness, a reluctance to acknowledge good news even when it happens.
Biden administration officials are now scrambling to sell their economic achievements, as they should; If they don’t do it, who is going to do it? But will citizens change their minds? Nobody knows. We live in a world where what people believe likely has little to do with the facts, including the facts of their own lives.
Follow all the information of Economy and Business in Facebook and Twitteror in our weekly newsletter
Five Days agenda
The most important economic quotes of the day, with the keys and context to understand their scope.
RECEIVE IT IN YOUR MAIL
Subscribe to continue reading
Read without limits
#fine #badly