The Either-Or Economy

These initial Edgy Optimist columns have focused on politics, but the aperture will be broader over time. For this installment, I want to take a break from politics – however engaging the shake-up of the US presidential race has been and likely will continue to be. One aspect of the election that had been receiving considerable attention is the divide between how most people feel about the economy and the data we use to assess the economy. I’ve written quite a bit over the years about the growing divide between economic numbers and public sentiment, but 2024 has truly been a banner year for the data-sentiment chasm. The question is, are the economic statistics wrong or are public attitudes misguided? Either the data is off, or people are. Or maybe it’s not quite so simple…

As of late May, public views of the economy, according to data from Pew research, were bleak: 23% of people surveyed thought America’s economic conditions were good, compared to 77% who said they were “only fair” or downright “poor.” Gallup data for June was even worse, with 22% saying the economy was good, 32% saying “only fair,” and 46% saying “poor.” And 70% said that they thought the situation was getting worse, naming inflation as the primary issue. There is, as there has been for many years, a significant partisan divided, with significantly fewer Republicans thinking the economy is “good” than Democrats. Those numbers were, not surprisingly, the reverse between 2016 and 2020 when Trump was president. There is also a significant age divide, with Americans under 30 rating the economy much worse than Americans over the age of 55.

And yet, this deeply grim assessment has been in an inverse relationship to the actual data. Inflation did indeed soar in 2022, hitting a peak of 9.1% annualized in June of that year, which was the highest since the 1980s. That peak lasted a nano- second in historical terms, but the sudden surge after decades of inflation below 4% was shocking. Once you get used to the absence of something, you tend to lose resilience, and so even though the inflation spike of 2022 into 2023 was not particularly severe compared to multiple times in the past, it felt severe.

Inflation has now come down to either the mid-3% or the mid-2% range, depending which metric is used. There are two measures of inflation, the Labor Department’s Consumer Price Index (CPI) and the Bureau of Labor Statistics Personal Consumption Expenditures Index (PCE), and then there a plethora of secondary measures, such as core-CPI which strips out prices of gas and food. The vast majority of people, of course, don’t measure inflation by wonky federal statistics. They measure inflation by what they see themselves spending.

At the same time, as the partisan divide demonstrates, how people feel about inflation and the economy is not just a simple fact. It isn’t just a function of how much they spend versus what they spent a month or a year ago. It is framed by political and emotional factors as well, or else there would be no partisan divide. There also would not be a divide between how people rate their own financial situation and how they rate the general.

To wit, people rate their own finances as “good” or “excellent” than they rate the collective situation. That disjuncture exists for multiple issues: people often say they think their children’s public school is good even as they say that public education in general is terrible; they often rate their own congressional representative highly even as they say Congress is terrible. Similarly, public views of crime at odds with actual rates of crime. Here too there was a notable pandemic spike in 2021-2022, with most major cities seeing a spike in violent crime. That wave has since subsided, but attitudes have not shifted with the data.

In fact, almost all available economic data for the United States in 2024 is startlingly good. GDP is growing at about the rate it has been for years, at around 2.5%. Inflation is higher than it was for much of the 2010s but coming down steadily; financial markets are robust, and given that more than 60% of Americans are exposed to stocks through their retirement plans, that benefits more than just the wealthy (who are, yes, benefitting far more). The unemployment rate has stayed steadily at around 4%, which is about as low as it ever has been. And wages have been growing for the first time in more than a generation.

And yet, that doesn’t reflect how people feel. Now, you could say that the numbers are deceptive, inaccurate, incomplete. And you’d be right. Ten years ago, I wrote a book about the massive limitations and elisions of our economic data, and it remains as relevant today as I thought it was then (perhaps I’m the problem…). But while there has been a partisan gap over how Americans view the economy for at least 20 years, there has never been a general gap this wide between the actual data and widespread attitudes.

So, who is “right?” The data? Or the people? The data is no more wrong or right than it ever has been, and it isn’t suddenly more flawed. If it is failing to capture a variety of problems, then it has been failing to capture those problems forever. In short, the quality of the data and the resulting statistics didn’t suddenly get worse, so the chasm can’t be explained by issues with the data or the stats.

What has changed, clearly, is that dissatisfaction with the many inequities in the American economic system has increased faster than the ability of that system to satisfy people. Healthcare costs in particular have increased dramatically, though even here, the vast bulk of healthcare spending is concentrated on people over 65%, and 5% of people comprise 55% of spending (meaning that a relatively small population of people with health issues make up the bulk of healthcare spending). But overall, with mandatory health insurance, average families are paying more out of pocket each year than they had been a decade ago even if they do not use more healthcare.

Student debt has also increased, but here as well, a smaller population of students with very high levels of debt (over $200,000) comprise a high proportion of overall debt, and most of those with debt loads that high incur the debt from graduate studies, not from 4-year undergraduate degrees or 2-year associate’s degrees.

Both of these issues – student debt and healthcare – receive considerable public attention. So too does the increased pocket-book expenses of food and fuel when those were surging in 2022 and 2023. So too do housing costs, with rent soaring in many urban areas.

What does not receive attention, however, is the degree to which many of these issues have always been issues, and that there has never been a halcyon period of high income and low costs. There has never, in short, been a period where tens of millions of people didn’t struggle to meet basic needs with insufficient income. There has never been a period where there has been a robust and easily accessible safety net in the United States. What has changed most dramatically is expectations.

Wait a minute, some would say. What about those decades of the 1950s-1970s where one family earner could buy a home and support a family of four on one income? That was true for some middle class families, but the homes they lived in were half the size or less in terms of square feet; they did not go out to dinner or order in or expect to on a regular basis; they did not have the same level of consumer consumption, or expect to; they did not have or expect access to the same level of healthcare; they did not travel; and far fewer attended college. More needs were met with less income, but in general people had different expectations and fewer stated needs.

Today, there is genuine economic insecurity and a system that doesn’t not provide adequate levels of it. There is a much greater set of expectations of what an affluent successful society should provide. Higher expectations is not just an American phenomenon. People throughout the world are demanding both accountability and actual economic benefits from governments everywhere, and they are pissed that those aren’t being met.

The data and the stats haven’t changed. Expectations have. You can look at that as a negative, in that people are more likely than ever to dismiss the data and stats that the early generation accepted, leaving us with no common basis to assess the economy. Or you can look at that as a powerful expression of collective demand for a stable secure life in a society and a world where there is no scarcity of food, clothing or shelter, where we are awash in medical breakthroughs and technological wonders. A world, in essence, that should see no one hungry or worried that an illness will bankrupt them, a world where millions in the United States and billions world-wide expect what our current systems can deliver and haven’t.

The economic data is stellar. That isn’t enough, and it shouldn’t be. Our economy is statistically magical. But people need more than good numbers.