It’s been almost a year since the Bureau of Economic Analysis announced that the US economy had contracted for two straight quarters. Some mistakenly believe that two quarters of GDP decline is the official definition of a recession. Economic negativity spread unchecked, especially among, but not only on, the political right.
The interesting question now is why, according to at least some polls, public opinion remains pessimistic about the economy—as much as it has been in the past amid severe economic slumps—despite recession warnings being clearly a false alarm, and that, in reality, the economy is showing remarkable strength. Or maybe the question should be why do people say they are pessimistic?
It is a sensitive subject, however, I have already addressed before. This is not to say that Americans are stupid, and certainly not to be like that adviser to John McCain who insisted that the United States was a “country of whiners” that was experiencing only a “mental recession.”
On the other hand, there are huge differences between what people say about the economy and what both the data and the people themselves say about their experience. And we have new information about what’s behind these differences.
First, let’s talk about the much-vaunted “Biden recession”. A number of economic factors go into the actual definition of a recession, and GDP numbers aside, nothing that has happened to the economy even remotely resembles a recession. Since December 2021, the US economy has added nearly six million jobs, while the unemployment rate has fallen from 3.9% to 3.4%, a level not seen since the 1960s. And no, Unemployment is not low because Americans have decided to leave the labor force: the percentage of adults working or looking for work has fallen, but this is almost exclusively due to the aging of the population, and labor force participation has returned to correspond with pre-pandemic forecasts.
In addition, the jobs are of quality, according to the workers themselves. The Conference Board, which has tracked job satisfaction since 1987, estimates that “American workers have never been more satisfied.”
Certainly the return of sizable inflation after decades of inactivity worried everyone, and not just because it reduced real incomes (real wages fell during Ronald Reagan’s second term, and yet people still had a good feeling about it). regarding the economy). One of the advantages of low inflation is that it frees you from one thing to worry about; according to the American Psychological Association, rising prices were one of the main sources of stress in 2022.
But inflation, while still high, has come down a lot. The rate over the last six months has been 3.3%, compared to 9.6% last June. The price of gasoline, one of the main topics of political debate last year, is now more or less normal compared to average income.
And people have noticed. In October, 20% of Americans named the rising cost of living as the most important problem facing the country; now that percentage has dropped to 9%.
What is happening? The general rule seems to be that Americans feel good about their personal situation, but think that others are having a hard time. A study by the Federal Reserve found that, at the end of 2021, a record percentage of citizens were optimistic about their own economic situation, while a record low was optimistic about the economy. We still don’t have results for 2022, but I think they will be similar.
Much of this divergence can be explained by partisanship. A recently published study shows that who occupies the White House has a huge influence on what people think of the economy. This is true for voters of both parties, although the effect appears to be about twice as strong for Republicans. However, the research also concludes that these differences of opinion do not appear to have any impact on actual spending, ie they reflect ‘support’ and not ‘real expectations’.
Apart from this, there are good reasons to believe that the media reports on the economy have been very negatively skewed. One thing that has gone very well in the United States in recent times has been job creation. However, people consistently say that they have heard more bad news than good news about it.
And let’s not forget the economists. As Mark Zandi of Moody’s Analytics points out, many experts have been predicting the recession month after month for a year. Sure, sooner or later there will be an economic downturn, but as Zandi says, “In my 30-plus years as a professional economist, I’ve never seen such pessimism about a recession” even though the economy has held up. And this pessimism has trickled down to public opinion.
So where does this leave us? The US has yet to return inflation to pre-pandemic levels, and a hard landing is still possible. But, at least so far, we have recovered amazingly well from the covid blow. Although many Americans report in polls that things are dire—which tells us something about how people respond to polls and where they get their information from—this does not contradict that positive assessment.
Paul Krugman He is a Nobel Prize in Economics.
© The New York Times, 2023
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