After 13 months of Joe Biden’s administration, the Democrats are facing a troubling paradox. Many indicators show that the economy has been doing very well and has far exceeded expectations in terms of growth and job creation. An unprecedented number of Americans say now is a good time to find a quality job. But inflation has skyrocketed, consumer sentiment has sunk, and polls say the perception of the economy is currently a major drag on the blue party.
What should the president say about this situation? Obviously he has to acknowledge the problem of inflation. However, among insiders, and probably within Democratic inner circles, there is a debate about the extent to which he should publicize his achievements. Some analysts seem to believe that highlighting the good news would be a mistake, and that the president’s best strategy would be to demonstrate his connection to the people by acknowledging that things have gone wrong. In other words, he should ratify the negative stories about the economy.
Well, I remember the 1970s, and if asked for my opinion, pundits urging Biden to show “humility” would seem to imply that he should deliver a version of Jimmy Carter’s infamous “upset” speech.
Moreover, if Biden highlights the positives, reality will be on his side. I have long maintained that the economy is doing much better than consumer surveys or polls indicate. And two important recent studies reinforce my arguments.
The first, carried out by researchers at the Federal Reserve Bank of Dallas, refers to real wages, that is, wages adjusted for inflation. I have seen many articles simply state as fact that wages have not kept pace with rising prices. But it is true?
One might think that the question is easy to answer: just compare the average wage with the price level. But the pandemic has upended these comparisons by distorting the composition of the workforce. In 2020, the median wage rose so much not because individual workers received big raises, but because the vast majority of those laid off were in low-paying professions like hospitality. Those same occupations led the jobs recovery last year, so the true wage increase was higher than the average would seem to indicate.
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The Federal Reserve Bank of Dallas study, which attempted to correct for these effects, found that real wages had actually risen in 2021, even though they fell slightly in the second half of the year. With this I do not mean that the workers are doing great, because it is not. Nor should we take this study as the last word; the truth may be that real wages are a little lower instead of a little higher. But these calculations do not square with claims that workers have suffered a significant decline in their purchasing power.
And as for politics, it seems worth referring to a historical comparison: real wages for blue-collar workers fell almost steadily during Ronald Reagan’s presidency despite the fact that, in 1985-1986, oil prices They collapsed. Still, the Republicans achieved not one, but two landslide victories in the presidential elections of the 1980s largely thanks to a sense of economic success.
In any case, people don’t like inflation even if their incomes stay up, perhaps because rising prices give the impression that things are out of control. This helps explain the decline in consumer confidence last year, although both Nate Cohn of TheTimes, like me we have discovered that this fall is greater than expected even taking into account the aversion to inflation.
But there is more. Researchers at the Federal Reserve Bank of New York point out that their bank’s consumer survey, like others, shows that Americans expect inflation to be high this year, but don’t think it will last. What’s more, inflation expectations have become less sensitive to current price rises than in the past, which is the opposite of what would be expected if people really felt that the economy was out of control. .
Americans, therefore, are not experiencing a significant decline in real wages, and view inflation as temporary rather than runaway. So why hasn’t good economic news on other fronts cheered them up?
Perhaps because, for one reason or another, they have not been aware of them.
Many indicators point to a significant divergence between what people say about their own situation—which they rate as quite good—and what they think of the country as a whole. Some of it is a reflection of unshakeable partisanship: Nothing is going to convince Republicans that things aren’t horrible. But, as he points out Greg Sargent of The Washington Post, the latest polls reveal that when voters are provided with information about good news on jobs, growth and unemployment, their assessment of the economy improves.
So Biden should talk about his economic successes. You shouldn’t overlook the negative, though traditionally denying reality has served Republicans very well. But he should highlight the good things. After all, if he doesn’t do it, who will?
Paul Krugman He is a Nobel laureate in economics. © The New York Times, 2022. Translation of News Clips
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