Why Are People Unhappy About a Strong Economy?
S E E D E D C O N T E N T
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:
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:
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The economic data is misleading: Americans are doing much worse than the usual numbers imply.
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Although inflation is way down lately, people are still angry about the 2021-22 surge in prices.
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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:
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:
Last, perceptions of the economy have become extremely partisan. Here’s what the venerable Michigan survey says:
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”:
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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Check out the 'article' US Workers in Debt to Buy Groceries'
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.
Victims of an administratively bloated education system?
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.
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?
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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.
Exactly.
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.
“That assumes people are smart. “
Agreed. And that caveat has absolutely nothing to do with any administration.
If it works for the country, why won’t it work for the countrymen?
If it is generational as implied about Millennial's, who fault is that?
Their parents who spoiled them from birth?
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
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.
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.
Why is inflation immune from federal spending policies - how much and where?
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.
There is nothing new about this, it is our economic system. Still some are all out to blame Biden for political purposes.
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.
And two years ago, some were all out to credit Bidenomics for political purposes.
Surprise, surprise, surprise!
ts true-- people suffer economically.
Now if we could only be=come a Communist country-- because under Communism-- everyone is better off!
Not what I’m saying at all, but whatever.
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".
really? /S
Who are "us" and "we"?
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?
You mean like Krugman is cherry picking in this one to support Bidenomics? Nice hypocrisy.
Definitely not Democrats/leftists who live in a perpetual state of denial and wait for big daddy government to bail them out.
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?
Your rose colored glasses are defective.
What you want to believe is simply a prejudiced opinion.
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.
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.
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.
“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.
The Administration disagrees, .The ‘care economy’ remains unfinished work of his first term.
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.
In reality the United States is leading the world economically post-Covid!
The IMF differs:
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.