Some economists celebrate Biden's economy, even if the public doesn't
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In late 2009, J.W. Mason attended protests staged by homeowners facing eviction in Springfield, Mass., as an economic slump hit the country with a force not seen in decades.
Mason highlights that experience to illustrate the crisis that the American economy is not facing now. The City University of New York economist argues that the economy under President Biden is far better than commonly believed, in part because the United States has avoided the deep scarring that occurred during and after the Great Recession.
Some economic data appears to get only stronger each week. The U.S. economy has created more than 400,000 jobs each month for the past 11 months. On Thursday, the government reported that 166,000 people sought jobless benefits the week before, the lowest since 1968.
This recovery's higher inflation may be adding a very noticeable strain to family budgets, Mason said, but the United States avoided again inflicting much greater trauma on a smaller portion of the public through high unemployment and record foreclosures.
"That era was such a clear failure, and I think people have forgotten about the depths of it," Mason said. "The trajectory of current inflation is important, but it's a problem the debate is being reduced to just that."
By most indicators, the American public is unhappy with Biden's economy. In poll after poll, the majority of Americans say rising prices are a major and rising source of concern. Costs over the last year appear to be rising faster than wages overall, according to government reports, and voters by large margins have turned against the president's handling of the economy. Inflation has quickly emerged in Gallup polling as the issue Americans see as the country's most important challenge. The University of Michigan's consumer sentiment survey has reported a 30% drop in the past year during a span when more than 4 million jobs have been created.
But a group of economists says that the apparent national dissatisfaction with the economy is probably driven by factors outside macroeconomic developments. The economists espousing this view - including Mason; Dean Baker of the Center for Economic and Policy Research; Julia Coronado, president and founder of MacroPolicy Perspectives; and Aaron Sojourner of the University of Minnesota - tend to be on the left side of the political spectrum. They maintain that the alarm over inflation receives outsize attention and threatens to overshadow the gains of the Biden era.
Even among liberal economists, that argument is sometimes greeted with unease. Claudia Sahm, a former Federal Reserve official, has long been among the most vociferous defenders of the administration's economic stimulus policies. But Sahm said voters' dissatisfaction with the economy is perfectly consistent with data showing wages are not keeping up with higher prices.
"I completely understand the dour mood among consumers," Sahm said. "There's a lot of people who point to the labor market, who point to the rapid recovery, but I am not going to question how people feel right now. . . . I would not try to talk away the problem, and I would never question how people are feeling."
This debate has economic and political consequences, with the White House facing competing interpretations of what is happening in the country and Democrats trying to decide on their 2022 midterm election message.
Leading Democratic pollsters have repeatedly told the administration that the public is unhappy and worried about the economy, urging the White House to emphasize that it understands voters' anger over higher prices. The administration has attempted to show it is doing everything possible to fight inflation, from tackling the nation's supply chain woes to advocating for Biden's domestic agenda to lower costs.
But senior administration officials have tried to balance being responsive to inflationary concerns while also emphasizing the ways in which the economy is excelling. Biden and White House Chief of Staff Ron Klain frequently highlight the country's economic successes, including rising levels of economic output and the rapid plummeting of the federal unemployment rate. On Wednesday, White House National Economic Council Director Brian Deese told reporters the administration is not trying to downplay the gravity of the price challenges American consumers are facing.
Deese said there is a "false debate between us saying, 'The economy is great and nobody recognizes it,' and other people saying, 'Well, the economy is not perfect because there's real significant challenges.'"
"Our view is not: 'The economy is great. Why is nobody noticing?'" Deese said. ". . . It's that we need to recognize and build on the uniquely strong aspects of this economic recovery in addressing the clear, ongoing challenges, particularly around inflation and costs for families."
But some allies of the White House may feel more unencumbered to argue that the administration should be getting higher economic marks from the public.
Even as the Fed pledges to hike interest rates to cool an overheating economy, Baker, of the Center for Economic and Policy Research, said the threat posed by inflation has been wildly overstated. Baker said the White House has gotten "a bum rap" by a media that refuses to cover the good parts of the economy, adding that economists inside the White House share that view.
"There's very little case we're looking at spiraling inflation. The idea this is some disaster - it does not make any sense," Baker said. "There really has been a media hysteria that scares people. This is what they report on the economy to the exclusion of everything else, and most measures are pretty damn good."
Baker added: "It's not as though people are sitting around thinking about the economy all day. So the question is: What sticks in their head? It makes sense to me that that will be what they see on the news or read in the paper."
Coronado, of MacroPolicy Perspectives, said that dips in consumer sentiment have coincided with resurgences or the coronavirus, such as the with delta variant last summer. Moreover, polling on perceptions about the state of the economy are sharply divided on partisan lines. If voter frustration with the economy was genuinely caused by changes in their material circumstances, Coronado asks, why do Republicans suddenly sour on it the moment a Democrat is elected, and vice versa? This divide has deepened in recent years.
"You've got the strongest labor market since the 1990s," Coronado said. "The pace of job gains has been record-breaking. It's the fastest recovery from a recession we've seen." She pointed out that while one major indicator of consumer sentiment has plunged to a low not seen since the depths of the Great Recession, another shows consumers feel about as optimistic as they did in 2015 or 2016. The former is known to be more influenced by inflation developments while the other is tied to labor market conditions.
One of the core disputes is over to what extent most Americans are seeing declines in their "real wages" - the change in their pay, when factoring for higher costs.
Average hourly earnings rose 5.6 percent over the past year for private-sector workers, according to the Bureau of Labor Statistics. But prices are up by more than that - hitting a 40-year high of roughly 8 percent last year - meaning, in aggregate, costs have risen faster than pay.
Many economists - including top Democratic ones - say this trend provides a simple explanation for voter anger. The job market recovery benefits roughly 6 million Americans who have been hired, whereas inflation hurts the roughly 150 million Americans who already had a job last year but are now getting poorer, said Jason Furman, who was a senior economist in the Obama administration.
Some defenders of the Biden administration have argued that inflation-adjusted wages are up relative to before the pandemic and that families have more money than before in their bank accounts because of stimulus payments and other forms of pandemic relief. But many economists say that over the past year, families' wages have lost their value at a rapid clip. It is not clear why voters would weigh Biden's economic performance by comparing their economic circumstances against a period of time a year before the president's election.
Prices are rising not just overall but sharply for key household items - spiking by 26 percent for energy and 8 percent for food. Rents are up more than 30 percent in some cities. In February, inflation-adjusted wages fell by roughly 0.7 percent. That trend is not expected to hold but if it did would amount to a more than 8 percent pay cut on average over the course of a year.
"The economy is adding jobs at the fastest pace in 40 years, but real wages are falling at the fastest pace in 40 years," Furman said. "Any positive analysis of real wages is some combination of cherry-picked and out-of-date data. . . . There is no question this year inflation is just dramatically outpacing wage growth, and in recent months that's been true at the bottom, too."
Douglas Holtz-Eakin, a former economic adviser to George W. Bush and John McCain, said the White House cannot take credit for the labor market while distancing itself from inflation, because the two are caused by the same fundamental driver - too much demand in the economy.
"What people are missing is the inflation problem and the great labor markets are flip sides of the same coin. You can't keep the labor market and get rid of the inflation - it can't happen," Holtz-Eakin said. "The White House wants to take credit for the labor market without taking credit for inflation, and you can't do that. The reality is you're stuck with both, and people don't like it."
Mason said it is "unambiguously" true that inflation-adjusted wages are rising for some part of the low end of the income distribution, possibly for as much as the bottom 40 percent. He added that the value of people's debt burdens is also being diminished by inflation, and that the Fed forecasts inflation will significantly moderate by the end of 2023. Baker and Mason also pointed out that inflation coming out of the pandemic is affecting virtually all major economies, although other economists point out it is happening more rapidly in the United States.
Mason added that part of the phenomenon may be explained by the fact that the biggest price increases have been among the most visible forms of consumption - such as energy and food - whereas price hikes have been smaller in some sectors that are opaque to consumers, such as health care. Workers may also see a promotion or better job as a product of their own individual efforts, rather than broader economic factors.
Sojourner, of the University of Minnesota, has also found that for the younger half of U.S. workers wages have grown faster on average over the past year than consumer prices.
"When you quit your job and get a new job with higher wages, you see that as something you did," Mason said. "Obviously, when gas or milk prices go up you see that. . . . The negative stuff is more visible but also gets interpreted as something about the economy rather than your own personal situation."
William Galston, a policy aide in the Clinton White House, said Democrats downplay the polling data at their own political peril. Galston pointed to an enormous new gap in enthusiasm for the upcoming election between Democrats and Republicans, with support for Biden's handling of the economy dropping to just 33 percent, a five-point decline, in the latest NBC News polling.
"Inflation has really surged to the center of American politics and now is by any measure the single most important issue on the minds of the American people," Galston said. "It drives voters crazy when they think you don't care about what they care about the most. It makes you look not only out of touch but also indifferent."
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