Who You Gonna Believe: Your Wallet or Your Lying Eyes?
In a romantic relationship, one cannot generally influence his partner’s emotions with rational argument. Feelings are unmediated, unruly, and mostly instinctual things. The same may be said for our feelings about the economy. They are not always rational, but that is not to say they are false or meaningless.
Joe Biden and his surrogates keep trying to convince and shame the American people into believing that the economy is doing great and that “Bidenomics” is the reason. Nice try. The people are unhappy and not buying it. While this is an emotional reaction, it also has a basis in real facts about the state of the economy, which are refracted through individuals’ personal circumstances.
The first and most glaring issue is that everything is more expensive than it was a few years ago. On top of this, wages have not kept up, real wealth and income have declined, and middle class people find themselves harried by competing and rising costs in healthcare, electricity, food, housing, tuition, and cars. People who thought of themselves as middle class sometimes find themselves descending into proletariat status. In the more extreme cases, people become homeless late in life, having lost all their resources to deal with job loss or other emergencies.
Biden and his surrogates are correct that unemployment remains low, and that the economy is still moving along. The 2007-2009 period of the Great Recession was far worse and far more frightening in this regard, at least for those of us working in the private sector. Lots of hard-working and productive people found themselves out of work because of massive disruptions to capital markets and the banking sector.
We have a different problem today, which is inflation. But inflation is also different because it affects nearly everyone. During the Great Recession large numbers of people never experienced significant pain, as unemployment only affected a minority of workers. While 10% unemployment is a huge number of people looking for work, it also means 90% of the other people who wanted jobs were finding and keeping them.
In other words, the stress and worry of the Great Recession were distributed unevenly. People who had steady jobs, government jobs, worked in non-volatile sectors like healthcare, as well as retirees with pensions and students, in many cases barely noticed. For those who were unemployed or experienced business failures, it was exceedingly painful and often led to lifelong changes in the perceptions of one’s economic station and prospects.
This contrasts greatly with the current inflationary environment. People that are supposed to be happy—the employed middle class—are reminded of inflation every time they pay a bill, go to the grocery store, or daydream about upgrading their home. At all of these frequently encountered pain points, the persistent price increases of the Biden years slap them in the face.
Even now, in spite of Biden and his surrogates bragging about lowering inflation, prices are not lower, but are mostly still rising, though at a slower rate. For those whose wage gains have lagged the rise in prices, it means that everything is more expensive. Since pay increases are neither automatic, nor fully compensatory for price gains, persistent inflation functions as a pay cut.
This is not just random, nor can it all be blamed on the profligate spending of the Covid crisis. Biden’s policies deserve a lot of the blame. As I noted in a piece earlier this year, “Biden . . . took an economy already in recovery, which had a lot of extra cash sloshing around from the PPP and other Covid-related stimulus programs, and supercharged it with additional stimulus, which he ridiculously called the Inflation Reduction Act. Now we have 1970s style inflation.”
It is still up in the air whether this bad inflation can only be whipped by a recession. The 1982 recession ensued because of Fed Chair Paul Volcker’s brave and controversial decision to raise interest rates considerably in order to tamp down a decade-long inflation problem. The ensuing recession was short, though sharp. But the ensuing recovery was strong thereafter.
The current Fed leadership and their decision to push interest rates up seems informed by this episode, although, so far, they have managed to stay in some sort of Goldilocks zone that does not cause an immediate and bad recession. Such a dip so soon after the massive downturn during Covid, would be a lot to bear. And it’s not clear the bitter medicine of raising rates will even be possible to the same degree as 1982 because the national debt has gone up massively in the last 40 years. Raising interest rates makes the servicing of that debt more and more expensive over time.
So with all of these conflicting signals and complexity, ordinary people are not really happy. They know a lot of things are worse, and, for the goods things that they have like jobs and homes, they worry if they will last.
By contrast, under Trump, we had lower prices, rising wages, low interest rates, cheap gas, and no exogenous stressors, like new foreign wars. Times were good. Ordinary people are not economists, but you don’t need to be an economist if you can buy more and save more and generally are in a better position than you were before.
Even regular people know that you don’t turn down a raise and you don’t celebrate a paycut. But Biden thinks he can strongarm us into doing exactly that. His dismal poll numbers suggest he is having as much luck as someone trying to convince someone to keep loving them with spreadsheets and bullet point summaries even though the feelings have long since died.
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