The two U.S. economies
To read the economic news is to suspect that there are two American economies. I don’t mean this in the John Edwards “two Americas” sense. The two economies I mean are the American economy as described by Joe Biden and his supporters and the same economy as experienced by a majority of Americans.
The first economy — the one Biden depicts — is humming along nicely. Inflation is down to a rate of just above 3 percent and this has been accomplished without throwing the economy into recession. Meanwhile, the unemployment rate is a remarkably low 3.5 percent, with the unemployment rate for black men reaching an all-time low in April.
Naturally, Biden is taking credit for these developments, as he tours the country touting “Bidenomics.” Contrasting his policies with “trickle down economics,” Biden points to his spending packages designed to repair U.S. infrastructure, promote cleaner energy, lower health-care costs, and boost the domestic manufacturing of powerful computer chips. These programs, he claims, have spurred economic growth and job creation. And to the extent they might have contributed to high inflation, that problem is now nearly under control.
That’s one version of the U.S. economy.
The other version is the economy as viewed by a majority of Americans. That economy is not in good shape at all, and Joe Biden is doing a poor job of handling it.
According to a recent CNN poll, roughly half of Americans believe the economy is in a downturn or getting worse. Only 1 in 5 think the economy is improving.
Furthermore, only slightly more than one-third of Americans approve of Biden’s handling of the economy, the poll found. Nearly two-thirds disapprove.
And even with the unemployment rate for black men at an historically low number, Biden is losing support among this segment of the electorate.
How to explain the disconnect in economic perceptions. The threshold question is whether we need to explain it. Of course, Biden is going to claim the economy is in good shape. Why take his claim seriously?
The answer, I think, is that the numbers the White House cites, which are normal indicators of the economy’s state, aren’t bad. No one should get excited about an economy in which inflation still runs at more than 3 percent, with GDP growth at 2.0 to 2.5 percent. But coupled with a very low unemployment rate, these numbers wouldn’t ordinarily give rise to a sense that things are in bad shape and getting worse.
So why that sense?
One possible answer is “delayed reaction.” In this account, the economy is improving but Americans don’t yet perceive this. If that’s true, and if current trends hold, by this time next year, when Americans are considering whom to vote for, the Biden campaign should be in pretty good shape.
But if one looks more closely at the economic numbers, the “delayed reaction” theory seems too sanguine.
Consider inflation. It’s good news that prices are no longer rising at an annualized rate of 9 percent. But if a bundle of groceries (like the one I purchase regularly) that cost $100 dollars two years ago now costs $140 dollars, few will take solace if only a few of these dollars were added in the recent months.
As for growth, a 2 to 2.5 percent increase in GDP is nothing to write home about. Yes, we may (or may not) avoid a recession. But an economy need not be in recession for Americans to believe, justifiably, that it’s weak and that the president is doing a poor job with it.
There’s no dispute that the unemployment numbers are encouraging. At the same time, the labor force participation rate remains low — 62.6 percent. At the turn of the century it was 67 percent. Pre-Covid, it was 63.3 percent with the unemployment rate just about where it is now.
Here are some other economic numbers, via Erick Erickson:
Inflation went up [from June to July]. The 3% CPI number in June came in at 3.2% in July and multiple categories that directly impact consumers bottom line were up even higher. Transportation costs were up 9% while restaurant prices were up 7.1%. While rent is coming down in some parts of the country, owning a house remains a fantasy for many Americans as the price of homeownership is as high as ever.
Only 23% of houses on the market are considered affordable for middle-income Americans. As the media home price jumped from $294K just three years ago to $410K today, a growing number of Americans are falling behind by dolling out more than $2,000 per month for rent. Mortgage rates have surged to 7% across the board doubling the effect of the housing affordability crisis.
The most concerning piece of economic data came from Bank of America which reported that a surging number of Americans are making hardship withdrawals from their 401(k). In Q2 of 2023, the number jumped by 36% compared to the same quarter of the previous year.
Just yesterday, the collective credit card debt in the United States crossed the $1 trillion mark for the first time ever as a growing number of borrowers are falling behind on payments.
(Emphasis added)
According to this chart, US Real Average Weekly Earnings have remained constant throughout 2023. They declined in 2022.
As for Biden’s performance, his claim that his spending packages for infrastructure, clean energy, chip manufacturing, etc. are responsible for job growth and prosperity is rejected even by liberal economists. Jason Furman, Harvard economist and former adviser to the Obama White House, says “the policies [Biden] has passed are pretty good, but most of them are advancing goals that aren’t economic or are longer term and have relatively little to do with where the economy is right now.”
Economists say the job creation Biden touts is actually the result of the vast amount of spending on goods and services caused by massive Covid stimulus packages. But now, as Erickson notes, this spending has Americans swamped with credit card debt and making hardship withdrawals from their 401(k)s.
The real U.S. economy, therefore, bears more resemblance to the one Americans report in the polls than to the one Team Biden touts. Maybe this will change during the next 12 months. Democrats need it to.
I suspect, rather, that bad poll numbers are the result of Americans feeling bad about their country and reasoning backward to come up with justifications, the same way Trump partisans make up reasons to support Trump, changing them as necessary to produce the desired result. Something similar happened during the red-hot economy of 2006, when many voters seemed to think we were in a recession. Backwards reasoning has a long history. I remember in 1992 when voters told exit pollsters that the vice presidential candidates were a major factor in their votes. I didn't believe this for a minute: Those voters turned against Bush because the media made them feel depressed about their country through a year-long campaign of hysteria, but they couldn't point to any specific reasons for their views, just feelings, so when pressed to explain themselves in terms of issues they picked Dan Quayle as a reason.
When I first saw the movie "The Hunger Games," I thought it was a parable for how our political and academic classes view the country: The wealthy, cultured capital city, and the hinterlands full of rebels and dirt people. Now, many years later, I read and hear more and more such comparisons to that movie.
Before Barack Obama took office, the wealthiest W-2 zip codes were in Silicon Valley and Manhattan. Now something like the top six are in the DC metro – a place that produces nothing for the rest of the country to consume, but BS.
In 1998, I would not expect people who live in Los Gatos and the Upper East Side to understand how most Americans perceive the condition of the economy. Today, the people making economic policy in DC can't possibly understand how most Americans feel about the economy, precisely because they are the beneficiaries of the largesse of years and year of economic policy that has suppressed wages and savings, increased the cost of housing and private cars.
The last two years reversed a respite from 2017-2019 and put the pedal to the metal.
The economy that Biden talks about is a lie. When he uses numbers, he uses the worst period of the COVID shutdown as his baseline - not the January 2021 numbers, which began to reflect recovery. Everything that follows from this is nonsense.
When he talks about "reducing the deficit," he uses a post-COVID spending bill baseline. He's talking about reducing it after increasing it dramatically. It's like a spendthrift who's spending 10,000 more a month than he makes suddenly bragging about spending only 7,000.
Does anyone here buy groceries? I live in north Idaho, not a high cost-of-living area.
The price of beef has doubled, the price of chicken nearly so, the price of eggs, too. Produce has also gone up double digits: $6 for 12 eggs ($4 can be had as a bargain). Crackers that used to sell for $3 are now $4. The cheap supermarket bread that used to cost $2 a loaf here is now $3. Overall, the same bag of groceries that cost $100 during the Trump era is now $175 or more.
Added to the doubling of the price of gas, that's a stiff wage cut for most people who make 40-90K/year.
To brag about reducing inflation to 4-5% merely slows the month over month growth and there is no end in sight, not as long as Washington keeps spending.
And as long as inflation continues, the Fed will have no recourse but to continue increasing interest rates. This not only boxes people out of the market for homes, new and used cars, appliances, it means employers will be husbanding their capital.
Anyone who's been looking for work in the Dreaded Private Sector (myself included) already feels this. There are jobs, but they're not the same high-paying jobs. There are tons of low-wage jobs but nobody wants them because they don't pay the bills anymore.
You may take them and do the best you can, but understand this: people are demoralized!
Now you can argue that it's high time interest rates were increased. We've been through an unnatural 15-year period of free money - a hangover from the 2008 financial crisis. Americans had no way to save for retirement other than to put 100% of their savings into the equity markets, which fortunately returned earnings. If we experience another crash, I don't even want to think about how many of them will be left high and dry, with no ability to recover.
Underlying all of this is Biden's war on cheap energy. Cheap, reliable energy is the mother's milk of BROAD prosperity, a concept regarded with indifference by Washington DC. (And btw, one of the reasons so many people stick by Trump is precisely because he wasn't indifferent to this).
Yet everything the federal government is doing with energy - from oil/gas leasing on federal land, turning land rich with rare earth minerals into national monuments, Biden's moratorium on mining on federal lands, etc. pushes us to buy EV and renewable technologies manufactured in China and increases the cost of petrol at point of consumption.
This is no accident, this is policy.
The policy: Get people out of their cars and onto public transport, get them out of single family homes and into metro dense-pack housing, which is heavily subsidized by "Affirmative Furthering Fair Housing."
The polls reflect a simple reality. Here in north Idaho in 2017-2019, a young family with $90-120K of income could swing a small, single family home on 1/2 acre of land or more. Now, they're lucky to land an 1100 sq. ft. townhome in one of those HUD-financed dense pack "communities" near the state line. And forget about the new car.