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Americans Hate the Economy. Americans Love the Economy.
Americans are confused, and no one is sure why.
The US economy in 2023 has been surprisingly, and even amazingly, strong. US real GDP is 6.1% higher than pre-pandemic, outpacing basically all its rivals; the UK’s GDP, for example, is only 1.8% above pre-pandemic levels. Unemployment rates in the US are around 3.9% and have been below 4% since January 2022. Inflation has been dropping, and is now only about 2%—below that of most other industrialized nations. Wages, which had been lagging inflation, are now up and American are experiencing real wage growth.
Less inflation means Americans can buy more; lower unemployment means that more people have jobs. This should be good news. And yet, American estimates of the economy are dire. In a poll last month, only 70% of Americans said the economy was bad; in weekly surveys half of registered voters this year said the economy was getting worse even as inflation came down and unemployment stayed low.
How do you reconcile these numbers? Why do Americans say that things are getting worse when the data says they’re getting better?
Many on the left, especially those who don’t like Biden, argue that economic indicators no longer provide an accurate picture of economic well-being. Some argue that the numbers do not capture the gig economy; others argue that people feel worse off because pandemic era programs like rent moratoriums and the extended child tax credit have come to an end.
There may be something to some of these explanations. But they don’t get at the core of the mystery.
The most confusing thing about American attitudes isn’t that economic indicators say that the economy is good while people say it’s bad. The most confusing thing is that people say the economy is bad—and then they act in other respects as if it’s good.
Americans are behaving as if the economy is booming.
Again, Americans say in surveys that the economy is terrible. But there are ways other than surveys to measure economic sentiment. And when you look at those metrics, Americans seem positively buoyant.
One good way to tell how people are feeling about the economy is to look at consumer spending. When people are making money and feel confident about the future, they tend to spend more. Given the economic numbers, you’d expect consumer spending to be high now. But given American dire economic sentiment, you’d expect consumer spending to be low. So which is it?
Well, consumer spending was up by a strong .4% in September, even though the Feds increased interest rates, making borrowing more expensive. Much of the spending, even accounting for inflation, was on discretionary items. That indicates that many people aren’t struggling to pay the bills, but are instead feeling confident enough to purchase things they want on top of things they need.
Another way to tell how people feel about the economy is to look at how they feel about unions. For every point that unemployment increases, support for unions falls by two points. So if the unemployment figures are accurate, union sentiment should be on the rise. If instead the dire economic opinion surveys are right and unemployment no longer reflects the labor market, union support should be down.
As you’ve probably guessed, it’s the economic measures that seem to be right, not the opinon surveys. U.S. approval of labor unions hit 71% in August, it’s highest number since 1965. And that sentiment is backed up by a remarkable surge in labor activity, as workers in industries from film to automobiles to trucking to mail delivery have threatened or pursued labor action, resulting in better wages and better contracts.
When unemployment is low, employers have few alternatives and workers feel empowered to ask for more. Americans may say in surveys that the economy is bad. But workers are fighting labor battles like people who believe the economy is good, and who know they have the upper hand.
No one is voting like it’s a recession.
One last way to gauge economic sentiment is to look at how people are voting. When people are unhappy with the economy, they tend to vote against the president’s party. In 2008, the Great Recession under George H.W. Bush swept Barack Obama into power ; in 2010, the recession was still dragging the economy down, and the incumbents (in this case Democrats) were punished again. In 2012, there was a mild economic upturn, and Obama managed to retain the White House.
As Larry M. Bartels observed, “Ordinary citizens assessed politicians and policies primarily on the basis of visible evidence of success or failure.” When the economy was bad, they voted against whoever was in power; when the economy was okay, they voted for the incumbent.
If people believe that the economy is terrible, they should be voting against Democrats in droves. But they aren’t. Instead, President Joe Biden and the Democrats had one of the best midterm showings of an incumbent president in decades, and an even better 2023. They’ve also been overperforming consistently in special elections.
Pundits have mostly attributed Democratic success to backlash against the antiabortion Supreme Court Dobbs decision. There’s no doubt that Dobbs is important. But if people actually thought we were in a horrible recession, it’s hard to imagine Democrats winning election after election. Americans say that they are very unhappy with the economy. But they aren’t voting like they believe that.
What’s going on?
It’s not clear how to square positive economic indicators with negative economic sentiment. It’s perhaps even more difficult to figure out why American’s say that the economy is terrible even as they spend, strike, and vote as if they think that the economy is fine.
I honestly don’t have an explanation. Will Stancil on twitter argues that the problem is that media are telling people that the economy is bad. But if the media were really convincing people that the economy is bad, wouldn’t people spend as if the economy is bad? Others argue that the housing crisis has undermined economic recovery. But if people really feel precarious because of housing, why are they voting as if they are happy with the status quo?
I will say this, though. Surveys are useful. But they’re also casual. People have more skin in the game when they vote or spend, and certainly more when they take labor action, than they do when they answer a poll question. So if economic indicators are mostly good, and people are acting in most respects as if economic indicators are good, it’s likely that for most people, the economy is performing relatively well, even if economic opinion surveys are dire.
This isn’t to say that everyone in the US is doing well. The US remains a very unequal society with a crap safety net. Many people can’t pay their bills even at the best of times, and that’s a scandal.
But when the economy is good, more people are better off—and that gives everyone more energy and more space to advocate and push for more, both from employers and from the government. This moment is an opportunity to build economic power and to build a political consensus for better policies. We shouldn’t let confusing opinion surveys prevent us from embracing progressive stimulus economic policies which have had real benefits, nor from taking advantage of increased worker power.