The U.S. economy has been growing at its fastest clip in more than three decades. Now, American workers enjoy more leverage over employers than they’ve had in a generation: Job openings are near record highs, the unemployment rate is below 4 percent, wages are rising rapidly at the bottom of the income ladder, and the layoff rate is at an all-time low.
Meanwhile, thanks to stimulus checks, the enhanced child tax credit, and rising home values, most American families have less debt and more wealth than they did at the peak of the pre-pandemic economic boom. They are also generally aware of that fact: Roughly 60 percent of Americans describe their personal financial situation as “good” in recent polls.
And yet, nearly 60 percent of voters also disapprove of Joe Biden’s handling of the economy. Only 18 percent describe “U.S. economic conditions” as “excellent” or “good.” And trusted gauges of consumer sentiment are at their lowest point in more than a decade.
Squaring these facts might seem like an easy task. In fact, many readers may feel that it can be accomplished by invoking a single word: inflation.
In December, U.S. consumer prices rose at a 7 percent annual rate, their fastest pace since the early 1980s. As a result, real wage growth has been negative for most American workers, according to the Atlanta Fed’s wage tracker. Thus, there’s no great mystery here: People simply do not like it when their living standards decline!
But Paul Krugman argues that this explanation is insufficient. In his New York Times column, the economist notes that, while real wages are falling, they aren’t falling by that much. And in the past, voters have cheered the combination of modestly declining real wages and rapidly expanding job opportunities. During the homestretch of the 1984 presidential campaign, real wages in the U.S. fell by 1.4 percent. Nevertheless, that economy was considered at the time an exceptionally strong one. Ronald Reagan cruised to reelection after campaigning on his pristine economic management.
So: Why did a high-growth, low real-wage economy mean “morning in America” back then, but mourning in America today?
I think there are (at least) five plausible reasons.
1) Americans hate inflation more than they like low unemployment
One simple theory for why the public’s assessment of “the economy” departs so much from both objective facts about the labor market and their own subjective assessments of their personal finances goes like this: When voters secure a raise or new job, they tend to interpret that as a product of their own efforts and abilities; when they go to the store and see that prices are up, they blame “the economy” and the politicians who manage it. If this is so, then the combination of high nominal-wage growth with even higher inflation might be uniquely aggravating to voters, who would see their hard-won pay increases effectively stolen by inflationary public policies.
To be clear, this thesis is rooted more in intuition about voter psychology than robust empirical evidence. But it does seem to be the case that (1) voters understand “the job market” and “the economy” as two separate things, and (2) at least these days, the latter seems to weigh more heavily on their overall assessment of how things are going. Last October, 74 percent of voters told Gallup that it was “a good time to find a quality job.” Nevertheless, 75 percent also said that “economic conditions” in the country were either fair or poor (as opposed to “good” or “excellent”), and 68 percent said they expected conditions to get worse. Given that labor-market conditions were only getting better at the time, it seems safe to attribute this broad pessimism to the one adverse trend in the economy, rising prices.
This said, it’s possible that the reason inflation looms larger than job gains has little to do with Americans giving themselves credit for raises and blaming the government for high prices. Another explanation would be that everyone is hurt by falling real wages, but only a small minority benefits directly from falling unemployment. Most Americans did not lose their jobs during the COVID crisis. So, the extraordinary pace of job growth didn’t really impact them personally, except to the extent that it made it harder for them to extract cheap labor from underemployed Uber drivers, contractors, or fast-food workers.
2) Americans haven’t suffered inflation in a generation.
Of course, that first theory doesn’t actually answer the question we began with: If the American electorate is inclined to punish inflation more than it rewards job growth for deep, structural reasons, why didn’t it hate the economy of 1984?
I think there are a couple potential answers to this question. First, it is almost certainly true that, at the margin, Americans are more concerned about prices and less concerned about job growth today than they were in Reagan’s heyday. The reason for this is simple: Retired people care a lot about the cost of living, but not so much about the availability of jobs, and there are a lot more retired Americans today than there were four decades ago. In 1980, 11.3 percent of Americans were 65 or older; in 2020, that figure was 16.3 percent.
But the second, and more important answer, is that inflation probably did not seem very high to Americans in the year that Reagan won reelection. In 1984, U.S. consumer prices rose at a 4.3 percent annual rate — which was the second lowest rate of inflation that America had seen in a decade. The nation had witnessed double-digit price growth in 1979, 1980, and 1981. In 1982, inflation had come in at 6.1 percent, before dipping to 3.2 percent the following year.
Today, the baseline expectation for price growth could scarcely be different. Going into 2021, the United States had not seen an inflation rate above 4 percent since 1991. Annual price growth had come in below 2 percent for most of the preceding decade. In other words, a generation of Americans had more or less never experienced significant inflation in their adult lives. Their baseline expectation was for prices in general — and prices for consumer goods in particular — to remain flat or fall over time. In fact, to the extent that any class compromise legitimized neoliberal capitalism, it rested on the promise of “everyday low prices.”
Given this context, it seems unlikely that the American electorate applauded a “high-growth, modest-inflation” economy in 1984, only to jeer it in 2021. Rather, Americans likely experienced price growth as relatively low in Reagan’s reelection year, and extraordinarily high in Biden’s inaugural one.
3) It’s the pandemic, stupid.
The widespread perception that “the economy” isn’t working well likely reflects more than price hikes alone, as David Leonhardt notes. Public school hasn’t become more expensive over the past year. But the pandemic has plainly eroded its quality by forcing many students into remote learning, and subjecting others to increased risk of infection. As the Delta and Omicron variants strain hospital capacity, elective medical services have become harder to secure. Flights are regularly delayed. And the value of a wide range of in-person services has objectively depreciated, now that they come with a heightened risk of contracting a severe illness. Put simply, living through a pandemic sucks. Americans expected COVID to be over by now, and Biden encouraged that expectation during his first months in office. For several reasons, some in the president’s control, most outside of it, the COVID crisis is not over; in fact, average daily COVID deaths are at their highest level since Biden’s first weeks in office. (Reagan also presided over a plague, of course. But HIV/AIDS killed Americans at a fraction of COVID’s rate, and did not disrupt economic life to anywhere near the same degree.)
4) Workers are doing better, but not that much better.
Although real wages have been falling for most Americans, they’ve been rising for the lowest-earning quartile of the workforce, who’ve needed an increase in living standards the most. And yet, while such workers have secured real gains over the past year, those advances are pretty meager in the grand scheme of things.
The pace of wage growth among low-income workers was actually slower in 2021 than it had been in the two years before the pandemic. Further, a recent survey from sociologists at Harvard and the University of California, San Francisco found that one-quarter of workers at large retailers and restaurants are stuck involuntarily in part-time jobs. That’s down from one-third before the pandemic, but the decline was primarily due to workers wanting fewer hours than in the past, possibly as a result of pandemic-related work-life conflicts, rather than employers offering more hours. Meanwhile, union membership hit a historic low in 2021. So, the costs of the highest inflation in a generation have been mitigated by rising worker bargaining power. But labor’s gains have nevertheless been highly limited and remain easily reversible, potentially dampening enthusiasm for the Biden economy, even among its chief beneficiaries.
5) The media is manufacturing discontent.
Finally, there’s the explanation that Krugman himself favors: The media has cultivated angst about the Biden economy by foregrounding its deficiencies and largely ignoring its virtues.
There’s surely some truth to this. The most-watched cable channel in the United States is a right-wing propaganda outlet. Conservative hosts dominate political talk radio. A majority of the top-ten news posts on Facebook on any given day tend to be from right-wing outlets. The mainstream media, meanwhile, has both a negativity bias and an interest in performing its impartiality by giving Democratic presidents adversarial coverage. This has translated into CNN and MSNBC heavily emphasizing inflation over job growth. In November, CNN and MSNBC gave the terms “inflation” and “prices” 50 percent more coverage than “unemployment,” “employment,” “wages,” “jobs,” “jobless,” “consumer spending,” “GDP,” “income,” “stock market,” “wage growth,” “job growth,” and “economic growth” combined, according to CAP Action, a progressive organization.
Further, as Nate Cohn observes, confidence in the economy plummeted in August, despite the fact that no abrupt change in the economic landscape occurred during that month. What did change abruptly late last summer was media coverage of Joe Biden: As the president followed through on his plan to withdraw U.S. troops from Afghanistan, and the Taliban swiftly reconquered the country, the mainstream media spent the better part of two weeks editorializing against the administration.
It seems plausible that this shook Americans’ confidence in the president’s competence, and that that change in the national mood began to impact assessments of the economy.
Ultimately, the pandemic imposed real economic costs. Fiscal policy sheltered Americans from those costs in 2020. But eventually, the burdens of lost labor hours, discombobulated supply chains, and abrupt changes in consumer demand were going to make themselves known. Paying these costs through rising prices, rather than through mass unemployment or soaring poverty, was probably optimal from a progressive or utilitarian perspective. But it’s been politically dicey.
The media should try to do a better job of informing its viewers about the positive aspects of the contemporary economy. At the end of the day, though, more favorable press coverage and better Democratic messaging seem unlikely to fully solve the party’s fundamental problem — namely, that prices are rising sharply in the U.S. for the first time in a generation and people don’t like it.
It seems likely that, eventually, supply will rise to meet demand, prices will stabilize, and Americans will become more appreciative of tight labor markets. Democrats just have to pray that morning comes to America before 2024.
