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By Paul Krugman
Imagine that your picture of the U.S. economy came entirely from headlines and cable news chyrons. Would you know that real gross domestic product has risen 6.7 percent under President Biden, that America gained 4.5 million jobs in 2022 and that inflation over the past six months, which was indeed very high last winter, was less than 2 percent at an annual rate?
This isn’t a hypothetical question. Most people don’t read long-form, data-driven essays on the economic outlook. Their sense of the economy is more likely to be shaped by snippets they read or hear.
And there is a yawning gulf between public perceptions and economic reality. Recent economic data has been positive all around. Yet a plurality of adults believes that we’re in a recession. In an AP-NORC survey, three-quarters of Americans described the economy as “poor,” with only 25 percent saying it was “good.”
You might be tempted to say, never mind the data, people know what’s happening to the economy from personal experience. But there’s a big disconnect on that front, too.
Even with 75 percent of the public saying the economy is poor, a majority of Americans rate their own financial situation positively. On average, people seem to be saying that they’re doing reasonably well but that very bad things are happening to somebody else.
This “I’m OK, you aren’t” syndrome was especially clear in a Federal Reserve survey carried out in late 2021; we won’t have the 2022 results until later this year, but I expect them to look similar. According to the 2021 survey, 78 percent of households said they were doing “at least OK” financially, a record high; only 24 percent said the national economy was “good or excellent,” a record low. Assessments of local economies, for which people have some personal knowledge, were in between.
Now, this isn’t the first time I’ve written about the disconnect between economic perceptions and reality. In the past, however, I got a lot of pushback from people insisting that the public was in deep shock over the resurgence of inflation after years of more or less stable prices.
At this point, however, that’s becoming a harder position to sustain. Since last summer prices of some goods, notably of eggs, have soared, but other prices, notably of gasoline, have plunged. As I said, the overall inflation rate in the second half of 2022 was around 2 percent, which has been normal for the past few decades, while the unemployment rate in December, at 3.5 percent, was at a 50-year low. Oh, and inflation-adjusted wages, which fell in the face of supply-chain problems and the Ukraine shock, have been rising again.
So what explains the public’s sour view of what is objectively a pretty good economy?
Partisanship is clearly part of the story. One striking aspect of that AP-NORC survey was that Democrats and Republicans weren’t that different in their assessments of their personal financial situation; majorities of both groups rated their condition as good. But 90 percent of Republicans said the national economy was poor. A longer view, from the Michigan Survey of Consumers, finds Republicans rating the current economy worse than they did in June 1980, when unemployment was above 7 percent and inflation was 14 percent.
What about media coverage? Some of my colleagues get upset about any suggestion that economic reporting has had a negativity bias that affects public perceptions. Yet there’s actually hard evidence to that effect. The Michigan Survey asks respondents about what news they’ve heard about specific business conditions; all though 2022 — as the economy added 4.5 million jobs — more people reported hearing negative than positive news about employment.
All of which raises an obviously important political question: Will Americans even notice an improving economy?
To be fair, we don’t know whether the economic news will stay this good. Although many forecasters have backed off predictions of imminent recession, experts I talk to consider a growth hiccup over the next quarter or two to be likely. There’s also a raging debate among economists over whether we’ll need a sharp rise in unemployment to keep inflation low.
But let’s assume that we get past any near-term wobbles and enter 2024 with both unemployment and inflation low. How many Americans will hear the good news?
At this point we have to assume that as long as a Democrat sits in the White House, Fox News and Republicans in general will describe the economy as a disaster area whatever the reality. What’s less clear is how mainstream media will cover the economy, and what voters in general will perceive.
Reports say that Biden’s political team plans to “lean into the economy” for the 2024 election. Indeed, while nothing is certain in economics (or life), Biden will most likely be able to run on a record of solid growth in incomes and jobs, with the inflation surge of 2021-22 receding in the rearview mirror.
But we can safely predict that many people, not all of them Republican partisans, will insist, no matter what, that his record was a disaster. And I, at least, have no idea what voters will end up believing.
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