Opinion: More Thoughts on America’s Bad Mood Boom, Opinions & Blogs News


In numbers, 2021 has been a banner year for the US economy. In 2020, many forecasters expected a slow recovery as unemployment remained high for years. Instead, unemployment is already back to near pre-pandemic levels, and a record percentage of Americans say now is a good time to find quality work.

It is true that inflation has eroded the purchasing power of wages, but new estimates indicate that despite this, real income has increased for most adults.

Oh, and while the spread of the omicron could cause a bad month or two for jobs, the rapid drop in cases in New York and elsewhere suggests that the good economic news will pick up soon.

Yet consumer confidence has plunged: Americans’ assessments of the economy are worse now, on average, than they were in the early months of the pandemic recession. Why?

Regular readers will know that I’ve been speculating on this question for some time, including wondering why people say the economy is doing badly when they’re pretty optimistic about their personal finances. At this point, however, I think I’m getting closer to an answer.

The poor assessments of the economy, I would say now, mainly reflect two things. The first is a long-standing problem: People react more negatively to inflation than economics textbooks would have predicted. Second, extreme partisanship, fueled by right-wing media.

About inflation: Consider two imaginary economies. In one, the income of a typical family increases by 2% per year, but consumer prices increase at the same rate. In the other, inflation runs at 6%, but family incomes increase by 7% per year. Which economy is better?

Economists would, I’m sure, overwhelmingly vote for economy #2, in which real incomes rise. But the public might disagree: people are bothered by inflation, even when their own income is more than enough. Maybe it’s because inflation makes things look out of control.

Regardless of the psychology involved, inflation aversion is simply a reality. It was a democratic economist, Arthur Okun, who first suggested assessing the economic situation using the “misery index”, the sum of unemployment and inflation. As an economic concept, this index doesn’t make much sense: the costs of unemployment are huge and real, while the costs of inflation are subtle and surprisingly elusive. But the misery index works quite well as an indicator of economic sentiment.

And since inflation in the United States has increased significantly over the past year, it is not surprising that economic sentiment has weakened despite the drop in unemployment.

But my analysis of the data indicates that economic sentiment is considerably worse than one would expect, even given inflation; Nate Cohn of The Times, using a more elaborate model, finds the same thing. What are they talking about?

The daunting persistence of COVID is one possible answer. But let’s not ignore the elephant — and I mean the elephant — in the room: far-right partisanship.

Today partisanship shapes almost everything in America. For example, you can not reasonably talk vaccination rates Covid trolling without recognizing that Republicans are four times more likely than Democrats to not be vaccinated. And the gap supporter perceptions of the economy has exploded in recent years.

Let us not be on both sides. Yes, Democrats may have been reluctant to recognize the good economic news as Donald Trump. But the negativity right now is absurd, Republicans evaluating the current economy as worse than that of June 1980, when unemployment was nearly twice as high and the inflation rate of 14%. My calculations at the bottom of the envelope suggests that this madness could explain much of the lack of consumer confidence.

But where does the madness come from? Even the mainstream media accentuated the negative; an analysis by a liberal think tank found that CNN and MSNBC devoted 50% more screen time to inflation in November than to all other economic developments combined.

But Fox News has devoted nearly three times as much screen time to inflation as CNN over the past two years, while illustrating its reporting with pictures of empty shelves taken in other countries, among other things. and other years. No wonder the GOP base says the economy is in dire shape.

What does this say about the future, especially the political future? If and when inflation eases, as forecasters, the bond market and even consumers expect, general consumer sentiment should begin to reflect the real strength of the economy. But as we have seen, a substantial part of the electorate has economic perceptions quite far from reality; even if things get better, they probably won’t hear the good news or be regaled with more negative stories.

So Democrats will need more than an improving economy to survive the midterm elections. They will need to get receptive voters to perceive this improvement, and then get enough of those voters to the polls to match the sizable minority determined to believe Joe Biden’s America is a Mad Max-type wasteland.


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