‘I’m OK, but Things Are Terrible’

If President Biden loses his bid for re-election, a key factor will be the widespread perception that the economy is doing badly on his watch. Poll after poll shows Americans rating economic conditions as very bad and giving Biden very low approval for his economic management.

The strange thing is that these bad ratings are persisting even as the economy, by any normal measure, has been doing extremely well. Indeed, we’ve just experienced what Goldman Sachs is calling the “soft landing summer.” Inflation is down by almost two-thirds since its peak in June 2022, and this has happened without the recession and huge job losses many economists insisted would be necessary. Real wages, especially for nonsupervisory workers, are significantly higher than they were before the pandemic.

Oh, and to correct a widespread misconception: No, these figures don’t exclude food and energy prices. The government does calculate measures of “core” inflation excluding those prices, but those are only for analytical and policy purposes.

So why are people so negative about an economy that by all standard measures is doing very well?

When I first began writing about the disconnect between public economic perceptions and what appeared to be economic reality, I got a lot of pushback, of two distinct kinds.

First, there was the argument that there were real economic problems that justified public negativity. People really hate inflation, even if their incomes are keeping up, and a year ago real wages were still somewhat depressed. But at this point inflation is way down and real wages are up.

Second, there was the argument that, in effect, the customer is always right: If people feel that they’re doing badly, you should figure out why, not lecture them that they should be feeling better.

But here’s the funny thing: There’s substantial evidence that people don’t feel that they personally are doing badly. Both surveys and consumer behavior suggest, on the contrary, that while most Americans feel that they’re doing OK, they believe that the economy is doing badly, where “the economy” presumably means other people.

Let me run through some of this evidence.

The Federal Reserve conducts an annual survey of the economic well-being of households. At the end of 2022, 73 percent of households said that they were “at least doing OK financially,” down from the previous year (presumably because of the end of many pandemic aid programs) but not significantly below the number in 2019. In 2019, however, half the population said that the national economy was good or excellent; in 2022 that number was down to just 18 percent.

Are people still doing OK? Well, consumer spending has been strong, suggesting that American families aren’t too worried about their financial situation.

What about inflation? According to a recent poll by The Wall Street Journal, 74 percent of Americans say that inflation has moved in the wrong direction over the past year — a result stunningly at odds with the data, which shows inflation plunging. But are people really experiencing rising inflation?

As it happens, several organizations regularly survey consumers to ask how much inflation they expect, and these expectations have come way down, which is completely at odds with claims that inflation is getting worse.

Even better, I’d argue, are surveys that ask businesses not about the national economy but about their own prices or costs.

The National Federation of Independent Business asks small-business owners whether they have increased or reduced prices over the past three months. More businesses are raising than are lowering prices, but the difference is much smaller than it was last year. The Federal Reserve Bank of Atlanta asks businesses how much they expect their costs to rise over the next year; their median answer is 2.5 percent, down from 3.8 percent last year.

So when people are asked about their own experiences, not “the economy,” 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 experiences. It’s silly to deny that this disconnect exists.

What explains negativity about a good economy? Partisanship is surely a factor: Republicans’ assessment of the current economy roughly matches what it was in June 1980, when unemployment was twice as high and inflation four times as high as they are now. Beyond that, the events of the past few years — not just inflation and higher interest rates but also the disruption Covid caused to everyone’s lives, and perhaps the sense that America is coming apart politically — may have engendered a sourness, an unwillingness to acknowledge good news even when it happens.

Now Biden administration officials are trying hard to sell their economic accomplishments, as they should — if they don’t, who will? But will public opinion turn around? Nobody knows. We’re living in a world in which what people believe may have little to do with facts, including the facts of their own lives.

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