Achi news desk-
One of the most uncomfortable arguments to make in America is that the people are wrong. It’s especially uncomfortable when the subject is something you experience in a more comfortable, privileged way than most people. And so when liberal economic elites insist that the economy, which polls consistently find terrible, is actually very good, it makes liberal economic elites end up badly.
Paul Krugman is one of those awful liberal elitists who believe the economy is actually good. So (at a much lower level of confidence and frequency) I am. We have developed a number of explanations for why people believe in an economy that The Wall Street Journal recently called “the envy of the world” so terrible.
The most generous of these accounts is that people regard higher wages as something they earn and higher inflation as something that happened to them. But all the explanations involve surrendering some level of basic irrationality on the part of the public. And the attempts to make sense of public assessments of the economy seem very convincing.
Biden’s low economic ratings are “not hard to fathom,” argues left-wing Robert Kuttner American Prospect, “None of the recent improvements have changed the basic situation of most Americans, where reliable careers are scarce, college requires a debt burden, health coverage is more expensive and less reliable, and housing is unaffordable .” The answer, Kuttner argues, is for Biden to implement “radical” economic reforms similar to those promised by Bernie Sanders in 2016.
Kuttner’s hypothesis does not explain why Americans were delighted with economic conditions as recently as 2019, when the same basic features of the economy remained in place. Indeed, it does not explain why Americans have never considering that the economy is healthy, given that Bernie-style social democracy has, famously, never been tried in the United States.
Michael Powell, writing in the Atlantic, lambasts liberals in general, and Paul Krugman in particular, along similar lines to Kuttner:
The modern Democratic Party, and libertarianism itself, is largely a stronghold of college-educated, upper-middle-class professionals, people for whom Biden-era inflation is unpleasant but rarely catastrophic. Poor, working class and lower middle class people experience a different reality. They carry stark memories of the Great Depression and its foreclosure crisis, when millions of American households lost their homes. A large number of these Americans worked in person during the prolific early days of the pandemic, and saw its toll up close. And since 2019, they have endured 20 per cent inflation and now rising interest rates – meaning they have lost more than a fifth of their purchasing power. Tell these Americans that the economy is humming, that median wage growth has pushed ahead of the core inflation rate, and that everything is great, and you’re likely to see a roll of the eyes.
Powell makes several claims here, all of which are deeply flawed.
He argues that the working class views the economy as terrible because of “great memories” of the Great Depression and then the pandemic. Yet, like Kuttner, he fails to explain why these same voters considered Trump’s economy to be so spectacular. Memories of the Great Recession and its aftermath were fresher under Trump than they are now. And the worst and deadliest phase of the pandemic actually occurred under Trump, which makes the current nostalgia for the Trump economy even more incompatible with Powell’s hypothesis.
It is true, as he writes, that prices have risen by 20 percent since 2019. But that does not mean that people have “lost more than a fifth of their purchasing power.” Purchasing power is a function of the relationship between what things cost and how much you have to spend. Wages have been rising faster than inflation since last year, and the average American is better off than before the pandemic.
What’s more, contrary to Powell’s argument that the working class has suffered under Biden’s inflationary economy, wages have grown much faster at the bottom than at the top.
Powell reasons that public opinion is inherently hostile. If the people feel the economy is bad, then it is bad, regardless of what economists like Krugman tell them. “Working and middle-class Americans,” he argues, “are wiser to trust their feelings and check accounts than to rely on liberal economists.”
The trouble here is that polls find enough public optimism about the economy in contexts other than asking people how the American economy is doing. An Axios poll earlier this year found that 63 percent of Americans rate their personal financial situation as “good,” a figure in line with historical levels. That is also reflected in people’s spending habits — they behave as if the economy is booming, even if they don’t think it is.
A Wall Street Journal poll last month of seven swing states found a huge disconnect between public opinion about economic conditions in their own state and in the country as a whole. Fifty-four percent of respondents believe that economic conditions in their state are excellent or good. But only 36 percent of respondents said the same about economic conditions in the country.
Now this was a survey of seven swing states, not the entire country. You could probably imagine that the swing states are in much better economic shape than the rest of America, although if that were true, you would expect Biden to be polling a little better.
What this suggests to me is that public assessment of the economy reflects something other than an objective assessment of economic conditions. People think they are doing well and their state is doing well but the country is doing terribly. Must we assume that some deep wisdom underlies these seemingly irreconcilable beliefs? Sometimes people, even with the benefit of close personal experience, believe things that are not true.
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