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Why Are People Unhappy About a Strong Economy?

  
Via:  John Russell  •  3 days ago  •  34 comments


Why Are People Unhappy About a Strong Economy?
claims that Americans are much worse off than the official numbers say fail across the board. If consumers were really hurting on average, they wouldn’t be spending so freely. They wouldn’t be telling pollsters that their personal finances were in good shape. They wouldn’t be upbeat about their own state’s economy.

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The past two years have been very good for the U.S. economy. Unemployment has crept up a bit, but not by a lot, and the employed share of Americans in their   prime working years   is higher than, to make a random comparison, it was at any point during the Trump years. At the same time, inflation has come way down, defying the pessimistic predictions of many economists.

Here, for example, is a comparison of the Federal Reserve’s preferred measure of underlying inflation with a September 2022 prediction from Harvard’s   Jason Furman   — a widely respected economist whom I single out only because he was both very mainstream and admirably explicit (no good deed goes unpunished), predicting that if unemployment remained low, inflation would still be around 4 percent at the end of 2025:




Credit...Jason Furman, Bureau of Economic Analysis




Yet Americans on average remain very negative on the economy. I’ve written about this puzzle many times, and today’s letter isn’t an effort to persuade people that they’re wrong. It is, instead, more of a forensic exercise. There have been many attempts to explain bad feelings about the economy but, as far as I can tell, fewer efforts to compare what, besides poor consumer sentiment, these different stories predict — and how good they are at doing so. So I thought I’d lay out those comparisons in a simple matrix.

As I see it, people trying to explain consumer pessimism basically tell one of three stories:

  • The economic data is misleading: Americans are doing much worse than the usual numbers imply.

  • Although inflation is way down lately, people are still angry about the 2021-22 surge in prices.

  • When asked about the economy, people respond based on narratives they get from social media, cable TV and so on rather than from their own experience.

What, then, are the facts that a story about economic perceptions should explain beyond poor consumer sentiment? I’d single out four observations.





First, while consumer sentiment is weak, consumer spending has remained strong, essentially in line with its prepandemic trend:





Second, Americans are vastly more positive about their personal financial situation than they are about the economy as a whole. Here, for example, are results from a   Quinnipiac poll   of Wisconsin:




Credit...Quinnipiac College




Third, Americans are much more positive about their state or local economy than they are about the national economy. You see this in the Federal Reserve’s   survey of household well-being   and also in a Wall Street Journal poll of swing states:




Credit...Wall Street Journal




Last, perceptions of the economy have become extremely partisan. Here’s what the venerable Michigan survey says:




Credit...University of Michigan




It’s notable that Republican economic sentiment plunged after President Biden was elected, even before inflation took off.





So we have four facts about consumer behavior or sentiment that need explaining besides the fact that Americans have a negative overall view of the economy. How well do different stories about weak sentiment do at dealing with these other facts?

Well, here’s a little matrix in which the rows correspond to different economic stories and the columns correspond to facts about consumers. If a story is consistent with a fact, I put a “Y” in the relevant box; if it isn’t, I put an “N”:




Credit...Author's imagination




What we see right away is that claims that Americans are much worse off than the official numbers say fail across the board. If consumers were really hurting on average, they wouldn’t be spending so freely. They wouldn’t be telling pollsters that their personal finances were in good shape. They wouldn’t be upbeat about their own state’s economy. And if things were really bad, you’d expect them to be bad for Democrats as well as for Republicans.

Anger at past inflation scores better as an explanation. Recent research by   Stefanie Stantcheva   confirms an old insight into why people hate inflation: Even when people’s incomes keep up with rising prices, they believe that they’ve earned their pay increases and blame the economy for snatching away their hard-won gains.

Where we are now is that most workers have in fact seen   wage increases outpacing inflation , which can explain why they have the money to keep spending and why they are positive about their own finances, yet they blame the economy for limiting their real gains.





But this story doesn’t adequately explain why people are upbeat about their home states and why views of the economy are so partisan.

This leaves us with the power of narrative: Americans who are doing OK and who know that their neighbors are doing OK have somehow come to believe that bad things are happening someplace else, to people they don’t know. And these narratives are most influential among Republicans when a Democrat is president.

Can a false narrative really be that pervasive? Well, we know that it can in other domains. It’s a commonplace, hardly even controversial, that people’s views about   crime , especially crime in places they don’t know, are often disconnected from reality. I live in New York City, one of the   safest places in America , where   homicides   have fallen more or less back to their low prepandemic levels, and am quite often asked by people who don’t live here whether I’m afraid to walk the city’s streets.

Where do negative narratives about the economy come from? Many Americans get their news from Fox and other partisan sources; even mainstream media often seem to take an “if it bleeds, it leads” approach to economic reporting, highlighting bad news while giving short shrift to good news. In some cases this can be quantified: Ryan Cumming, Giacomo Fraccaroli and Neale Mahoney   show   on Briefing Book that there are far more TV mentions of gas prices when they’re high than when they are low.

Social media platforms are also breeding grounds for false narratives. The owners of the platforms don’t have to deliberately spread misinformation, although that happens too (hello, Elon Musk). Even when social media companies don’t have any agenda, algorithms that make suggestions in service of higher “engagement” can produce extreme confirmation bias. Click on a few articles even hinting at conspiracy theories and you’re rapidly led deep into the fever swamp; presumably something similar happens when you click on negative economic stories.





A personal aside: The only social media platform where I don’t restrict my feed to people I’ve chosen to follow is YouTube, which I use mostly to watch musical performances. But I’ve learned to tame the algorithm by never, ever clicking on videos featuring either (a) political content or (b) cute animals.

The bottom line: Widely cited explanations of negative economic perceptions are inconsistent with observations that go beyond consumer sentiment. The only hypothesis that seems to work across the board involves the narratives people hear and see rather than their own experience.



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JohnRussell
Professor Principal
1  seeder  JohnRussell    3 days ago
Where do negative narratives about the economy come from? Many Americans get their news from Fox and other partisan sources; even mainstream media often seem to take an “if it bleeds, it leads” approach to economic reporting, highlighting bad news while giving short shrift to good news. In some cases this can be quantified: Ryan Cumming, Giacomo Fraccaroli and Neale Mahoney      show       on Briefing Book that there are far more TV mentions of gas prices when they’re high than when they are low. Social media platforms are also breeding grounds for false narratives. The owners of the platforms don’t have to deliberately spread misinformation, although that happens too (hello, Elon Musk).
 
 
 
Tessylo
Professor Principal
1.1  Tessylo  replied to  JohnRussell @1    3 days ago

Check out the 'article' US Workers in Debt to Buy Groceries'

jrSmiley_80_smiley_image.gif

 
 
 
Split Personality
Professor Guide
1.2  Split Personality  replied to  JohnRussell @1    3 days ago

Krugman aside, I found the only correlation between my present financial success

and the past is the amount of time wasted on social media. 

Smart phones, the internet and AI have made most of us infinitely less intelligent and responsible enough to tell fact from tribalistic nonsense.

I cannot believe some of the nonsense that passes for intelligent commercials on TV, streaming and the internet.

"There's a sucker born every minute", a truism that Barnum lived by.

 
 
 
Drinker of the Wry
Senior Expert
1.2.1  Drinker of the Wry  replied to  Split Personality @1.2    3 days ago
I cannot believe some of the nonsense that passes for intelligent commercials on TV, streaming and the internet.

Victims of an administratively bloated education system?

 
 
 
Kavika
Professor Principal
2  Kavika     3 days ago

Since we live in a shit hole country or better yet according to Trump a “Third World Country” you expect us to think we are doing well.

 
 
 
Ronin2
Professor Quiet
3  Ronin2    3 days ago

Maybe you should go visit Nerm's seed about how workers are having to take out loans to afford the basic necessities like groceries.

If things are so great why are so many Americans carrying unsustainable personal debt?

.

While the new year marks a time for new beginnings and a fresh start, millions of Americans entered 2024 with more debt and less to put in their checking and  savings accounts . At the start of the year, U.S. household debt reached a record high of $17.3 trillion, according to data from the Federal Reserve Bank of New York (NYFRB).

Americans — particularly   Millennials   and   those with lower incomes   — are becoming increasingly overextended financially: Credit card and auto loan delinquencies have not only surpassed pre-pandemic levels, they’re the highest they’ve been in more than a decade.

During the fourth quarter, US household debt hit a   fresh high   of $17.5 trillion, up 1.2% from the three months before, according to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit released Tuesday.

Debt balances increased across the board, with credit card balances rising $50 billion to hit a new nominal high of $1.13 trillion (when adjusting for inflation, balances have yet to surpass the levels seen in 2008).

Higher balances can be attributed to population growth, an increase in   online spending ,   the surging cost of new and used cars , as well as   economy-powering consumer   activity. And while rising debt levels during the fourth quarter shouldn’t come as a surprise — holiday spending typically brings heftier credit card balances — New York Fed researchers say they’re keeping a close eye on that extent to which Americans are falling behind.

Financial stress   is growing at a time when debt has become very expensive. Americans already weighed down by nearly three years of   high inflation   now have to contend with painfully high   interest rates .

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” Wilbert van der Klaauw, economic research adviser at the New York Fed, said in a statement. “This signals increased financial stress, especially among younger and lower-income households.”

During the fourth quarter, an annualized 8.52% of credit card balances and 7.69% of auto loan balances became delinquent, marking the highest annualized rates since the second quarter of 2011 and the fourth quarter of 2010, New York Fed data shows.

So tell us all how again how great the economy is; because we aren't buying it- literally.

 
 
 
Right Down the Center
Senior Guide
3.1  Right Down the Center  replied to  Ronin2 @3    3 days ago
So tell us all how again how great the economy is; because we aren't buying it- literally.

It is a new wrapper on the same old shit, people are just too stupid to know how good things are.

 
 
 
JohnRussell
Professor Principal
3.2  seeder  JohnRussell  replied to  Ronin2 @3    3 days ago
 If consumers were really hurting on average, they wouldn’t be spending so freely. 
 
 
 
Split Personality
Professor Guide
3.2.1  Split Personality  replied to  JohnRussell @3.2    3 days ago

Exactly.

 
 
 
Right Down the Center
Senior Guide
3.2.2  Right Down the Center  replied to  JohnRussell @3.2    3 days ago
If consumers were really hurting on average, they wouldn’t be spending so freely. 

That assumes people are smart.  Spending money they don't have and have no idea how they are going to pay it back has become a problem of epidemic proportions.

 
 
 
afrayedknot
Junior Quiet
3.2.3  afrayedknot  replied to  Right Down the Center @3.2.2    3 days ago

“That assumes people are smart. “

Agreed. And that caveat has absolutely nothing to do with any administration. 

 
 
 
Drinker of the Wry
Senior Expert
3.2.4  Drinker of the Wry  replied to  Right Down the Center @3.2.2    3 days ago
Spending money they don't have and have no idea how they are going to pay it back has become a problem of epidemic proportions.

If it works for the country, why won’t it work for the countrymen?

 
 
 
Split Personality
Professor Guide
3.2.5  Split Personality  replied to  Right Down the Center @3.2.2    3 days ago

If it is generational as implied about Millennial's,  who fault is that?

Their parents who spoiled them from birth?

Spending money they don't have and have no idea how they are going to pay it back has become a problem of epidemic proportions.

And they will pay the price, somewhere, somehow.  They always do.

Somehow I cannot see how any President is responsible for how people raised their kids for the last 25 to 35 years

 
 
 
Ronin2
Professor Quiet
3.2.6  Ronin2  replied to  JohnRussell @3.2    3 days ago

So you are saying that basic necessities like food, clothing, housing, and car is spending freely?

You had better hope that they don't stop "spending freely" or the Biden economy will collapse; and we will have a full blown recession.

 
 
 
Hal A. Lujah
Professor Guide
3.3  Hal A. Lujah  replied to  Ronin2 @3    3 days ago

It’s called greed.  In a capitalist society, the moment there is a legit excuse to raise prices on goods - like actual supply chain problems due to covid management - inflation takes off and everyone jumps on the bandwagon whether they’ve got supply chain problems or not.  Then it spreads to services, because greed convinces everyone that the way to make up for spending more on that is to charge more for this.  It is insidious and takes much time and effort to reverse.  Ironically, the solution is capitalism itself.  Eventually buyers just stop buying, forcing sellers back to the reality that they are gouging and need to lower their prices.  You see it everywhere.  Even airbnb owners use inflation as an excuse to raise their rents, then smarter airbnb owners see a means to increase their business by undercutting their greedy competitor prices.  One thing is for sure - the POTUS has nothing to do with it.  

 
 
 
Drinker of the Wry
Senior Expert
3.3.1  Drinker of the Wry  replied to  Hal A. Lujah @3.3    3 days ago
One thing is for sure - the POTUS has nothing to do with it.  


Why is inflation immune from federal spending policies - how much and where?

 
 
 
Hal A. Lujah
Professor Guide
3.3.2  Hal A. Lujah  replied to  Drinker of the Wry @3.3.1    3 days ago

I’m not an economist, I just know what I know.  There are certain grocery stores I won’t even set foot in, because their greed is so obviously on display.  There’s a couple here whose prices are just rounded up to the nearest dollar.  If they “need” to raise the price of an item by 25 cents for a legit reason, it just goes up a buck.  They are located within walking distance from a ton of low income apartments, so they are gouging food stamp users who don’t drive.  They are super expensive compared to the reasonable place I go to, and whose price tags are not just rounded to the nearest dollar.  At least I know how much the price of my item there “needed” to be raised to “maintain the profit”.  I pay attention and I’m thrifty.

 
 
 
JohnRussell
Professor Principal
3.3.3  seeder  JohnRussell  replied to  Hal A. Lujah @3.3.2    3 days ago

There is nothing new about this, it is our economic system. Still some are all out to blame Biden for political purposes. 

 
 
 
Drinker of the Wry
Senior Expert
3.3.4  Drinker of the Wry  replied to  Hal A. Lujah @3.3.2    3 days ago

Expansionary fiscal policy can increase the amount of discretionary income for consumers resulting in increased demand for more goods.

Expansionary monetary policy by central banks can lower interest rates can lower the cost for banks to lend, which allows banks to lend more money. The increase in money available throughout the economy leads to more spending and demand for goods and services.

I also think that money's value is also subject to the law of supply and demand. As the supply grows, the value goes down. If the value of money goes down, its purchasing power drops and things become relatively more expensive.

 
 
 
Drinker of the Wry
Senior Expert
3.3.5  Drinker of the Wry  replied to  JohnRussell @3.3.3    3 days ago

And two years ago, some were all out to credit Bidenomics for political purposes.

Surprise, surprise, surprise!

 
 
 
Krishna
Professor Expert
3.3.6  Krishna  replied to  Hal A. Lujah @3.3    3 days ago
It’s called greed.  In a capitalist society, the moment there is a legit excuse to raise prices on goods - like actual supply chain problems due to covid management - inflation takes off and everyone jumps on the bandwagon

ts true-- people suffer economically.

Now if we could only be=come a Communist country-- because under Communism-- everyone is better off!

 
 
 
Hal A. Lujah
Professor Guide
3.3.7  Hal A. Lujah  replied to  Krishna @3.3.6    3 days ago

Not what I’m saying at all, but whatever.

 
 
 
Split Personality
Professor Guide
3.4  Split Personality  replied to  Ronin2 @3    3 days ago
Americans — particularly    Millennials    and    those with lower incomes    — are becoming increasingly overextended financially: Credit card and auto loan delinquencies have not only surpassed pre-pandemic levels, they’re the highest they’ve been in more than a decade.

During the fourth quarter, US household debt hit a      fresh high       of $17.5 trillion, up 1.2 % from the three months before, according to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit released Tuesday.

Debt balances increased across the board, with credit card balances rising $50 billion to hit a new nominal high of $1.13 trillion 

Sounds like the same group of losers with massive Student Debt that you don't want forgiven or modified in any way.

Cry me a river while you cherry pick articles you think support your "argument".

(when adjusting for inflation, balances have yet to surpass the levels seen in 2008).

really? /S

So tell us all how again how great the economy is; because we aren't buying it- literally.

Who are "us" and "we"? 

 
 
 
Ronin2
Professor Quiet
3.4.1  Ronin2  replied to  Split Personality @3.4    3 days ago
Sounds like the same group of losers with massive Student Debt that you don't want forgiven or modified in any way.

Try again, most of them are people that didn't go to college- and have jobs. Yet can't seem to stay above water. Unless you consider workers entitled?

Cry me a river while you cherry pick articles you think support your "argument".

You mean like Krugman is cherry picking in this one to support Bidenomics? Nice hypocrisy.

Who are "us" and "we"? 

Definitely not Democrats/leftists who live in a perpetual state of denial and wait for big daddy government to bail them out.

 
 
 
Split Personality
Professor Guide
3.4.2  Split Personality  replied to  Ronin2 @3.4.1    3 days ago
Try again, most of them are people that didn't go to college- and have jobs. Yet can't seem to stay above water. Unless you consider workers entitled?

So you are weeping for the Dem workers who are living on extended credit?

How chivalrous of you !

Can you name a period in American history where there were no poor people?  No one in need of help?

Definitely not Democrats/leftists who live in a perpetual state of denial and wait for big daddy government to bail them out.

Your rose colored glasses are defective.

Republican-leaning states tend to be more reliant on federal funding, according to a recent   study   from WalletHub.

The analysis looked at the return on taxes paid to the federal government, the share of federal jobs, and federal funding as a share of state revenue, and weighed the federal aid dependence of each state's government and their residents separately.

"Overall, blue states are less dependent on the federal government than red states," WalletHub Analyst Jill Gonzales told Yahoo Finance. "States with high taxes and GDP have a lower dependency on the federal government, while states with low taxes and GDP depend more on federal aid."

Alaska was ranked first overall as being the most federally-dependent state while Delaware was the least dependent and also first in the lowest amount of other financial assistance received.

These are the most and least federally-dependent U.S. states (yahoo.com)

What you want to believe is simply a prejudiced opinion.

 
 
 
JohnRussell
Professor Principal
3.4.3  seeder  JohnRussell  replied to  Split Personality @3.4.2    3 days ago

Of course there has never been a period in American history when there were no poor people, heck there has never been a period in world history when there were no poor people. The strong exploit the weak , even in the economic sphere.  The United States today is ostensibly  "enlightened" and can do better.  Capitalism cannot eliminate poverty, it creates poverty due to the race to the bottom wage structure that capitalism requires. Therefore we have to have a welfare state.  I am always befuddled when people cant understand that. 

 
 
 
Split Personality
Professor Guide
3.5  Split Personality  replied to  Ronin2 @3    3 days ago
If things are so great why are so many Americans carrying unsustainable personal debt?

Greed.  If they didn't qualify for the credit they would not get the credit.  You are making an emotional argument about math.

That rarely works.

 
 
 
JohnRussell
Professor Principal
3.5.1  seeder  JohnRussell  replied to  Split Personality @3.5    3 days ago

Travel as entertainment is at an all time high.  That tells you right there that the economy is not as bad as the right wingers say. 

 
 
 
afrayedknot
Junior Quiet
3.5.2  afrayedknot  replied to  JohnRussell @3.5.1    3 days ago

“Travel as entertainment is at an all time high.”

Hell, they’re flocking to Death Valley just to experience 130 degree heat? There is seemingly money to burn. 

 
 
 
Drinker of the Wry
Senior Expert
3.5.3  Drinker of the Wry  replied to  afrayedknot @3.5.2    3 days ago
There is seemingly money to burn. 

The Administration disagrees, .The ‘care economy’ remains unfinished work of his first term.

 
 
 
Split Personality
Professor Guide
3.5.4  Split Personality  replied to  JohnRussell @3.5.1    3 days ago

Yes, I was told that the best time to sail through TSA security was between 4AM and 7AM for any trip out of DFW or Dallas.

 
 
 
JBB
Professor Principal
4  JBB    3 days ago

In reality the United States is leading the world economically post-Covid!

original

 
 
 
Drinker of the Wry
Senior Expert
4.1  Drinker of the Wry  replied to  JBB @4    3 days ago

The IMF differs:

 
 
 
Nerm_L
Professor Expert
5  Nerm_L    3 days ago

Paul Krugman is one of those new age neoliberals that are convinced government deficits and debt don't matter.  Krugman's rose color glasses has blinded him to the debt bubble he's standing on.

The gods of economics won't tolerate mere mortals voicing unhappiness and dissent so we know what to expect.  We've seen it before.  But even Zeus was misled by rosy predictions and self serving assumptions. Maybe Krugman can't see what's coming because he doesn't want to see it.

 
 

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