Commentators friend of the President could not understand it. The economy expanded. Unemployment fell. But the public was unh -py with the economy, and the president’s popularity continued to decline.
This is how it looked to many Republicans in 2006, and they concluded that the problem was that the “Bush boom” was “the greatest story that was never told.”
Now the amazement has changed parties. Paul Krugman wrote in the New York Times that “the economy is booming this year,” but that the gloomy coverage has affected people’s moods. Neil Irwin, in the same p -er, called it a “major contradiction” in today’s economy: “Americans are in many ways better financially than they have been for many years. They also believe the economy is in dire sh -e. ”Economists may think that inflation makes both winners and losers, he continued, but most people don’t see it that way.
If this is really a puzzle, then it is a recurring one. It also h -pened during Barack Obama’s presidency. In 2014, a large majority of Americans thought the economy was in recession – a view that reporters called “totally wrong”.
In fact, for most of the past two decades, Americans have been pessimistic about the economy. Gallup’s “Economic Confidence Index” went negative after the coll -se of the dot-com boom in 2000 and did not show any sustained positive values until the pre-pandemic of President Donald Trump’s administration.
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It might therefore be more illuminating to examine what our last two periods of widespread h -piness about the economy – from 1998 to 2000 and from mid-2018 to early 2020 – had in common. Both were times when most people’s living standards were rising, and had been for some time.
These conditions did not exist in 2006 or 2014, although the economy grew and unemployment fell. Households in the mid-range income distribution, adjusted for inflation, earned less in 2014 than in 2000. In the years in between there were more declines than increases. Americans had not seen so long a period of dis -pointment since this series began in 1953. The public discontent was not irrational.
It’s not irrational now either. Revenues fell in 2020 due to the pandemic. Even if the standard of living rises again, the positive trends should continue before people begin to register satisfaction. But the standard of living is not rising yet anyway.
Wages and benefits have increased elegantly, but only nominally. As the economists Jason Furman and Wilson Powell III pointed out in an analysis for the Petersen Institute, the total compensation adjusted for inflation is 0.6% below the level of December 2019. Irwin wrote that economists consider rising wages and rising prices as “two sides of the same coin ” regard. For most people, however, the net effect in today’s economy is that the coins they receive don’t get that far.
It is clear that changes in the real value of wages have a greater impact on public sentiment than changes in the unemployment rate. The number of people who pay more at the pump and in the supermarket is much larger than the number of people who have got a new job.
One complication with this story is that people’s financial conditions have improved thanks to the large transfer payments that the federal government implemented during the pandemic. However, people may not see these transfers as a substitute for a sustained stream of income that they believe they deserve.
The simplest explanation for why the public believes it’s a bad economy is that for most people it is a bad economy. We do not need to set up a theory about the effects of modern partisanship on the economic picture, just as we did not need such a theory in 2006 or 2014. We only need to consult the great democratic maxim: the foot knows best where the shoe pinches.
This column does not necessarily represent the views of the editors or Bloomberg LP or their owners.
Ramesh Ponnuru is a columnist for Bloomberg Opinion. He is Senior Editor at National Review and Visiting Fellow at the American Enterprise Institute.
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