USA: Why are Americans so negative about the economy? – 05/16/2023 – Paul Krugman

Almost a year has passed since the Office of Economic Analysis announced that the US economy had contracted for two consecutive quarters. Some people mistakenly believe that two quarters of falling GDP is the official definition of a recession. Economic negativity ran rampant, especially, but not just, on the political right.

The interesting question now is why, according to some polls at least, the public remains so negative about the economy – as negative as in the past amid severe economic downturns – even though these recession cries were clearly a false alarm, and indeed the economy is looking remarkably strong. Or perhaps the question should be why people say they are so negative about the economy.

It’s a touchy subject, though I’ve touched on it before. You don’t mean that Americans are stupid; you certainly don’t want to sound like that adviser to John McCain who insisted that America was a “nation of whiners” that was just going through a “mental recession.”

On the other hand, there are now huge gaps between what people say about the economy and both what the data say and what they say about their own experience. We have new information about what is behind these gaps.

First, about the much-vaunted “Biden recession”. The actual definition of a recession involves a number of economic indicators, and other than these GDP numbers, nothing that has happened to the economy remotely resembles a recession.

Since December 2021, the US economy has added nearly six million jobs, while the unemployment rate has dropped from 3.9% to 3.4%, a level not seen since the 1960s.

No, unemployment is not down because Americans have dropped out of the workforce: The percentage of adults working or looking for work has declined, but that is almost entirely a result of an aging population, and labor force participation is back in line with projections. pre-pandemics.

These are good jobs, according to the workers themselves. According to the Conference Board, which has surveyed job satisfaction since 1987, “American workers have never been more satisfied.”

Certainly, the return of severe inflation after decades of tranquility has shaken everyone, and not just because it has reduced real incomes. (Real wages fell during Ronald Reagan’s second term, but people still felt pretty good about the economy.) One benefit of low inflation is that it gives people one less thing to worry about; according to the American Psychiatric Association, inflation was a major source of stress during 2022.

However, although it remains high, inflation has dropped sharply. The rate for the last six months was 3.3%, compared to 9.6% last June. Gasoline prices, a major political talking point last year, are now more or less normal compared to average earnings.

People have noticed. In October, 20% of Americans named inflation as the most important problem facing the country; now the number has dropped to 9%.

So, what is happening? The general rule seems to be that Americans are feeling good about their personal situation but believe that bad things are happening to other people. A Fed study found that at the end of 2021, a record percentage of Americans were positive about their own finances, while a record low was positive about the economy. We still don’t have results for 2022, but my guess is that they will be similar.

Partisanship certainly explains much of this divergence.

A newly published study shows that who occupies the White House has huge effects on views of the economy; this is true for supporters of both parties, although the effect appears to be about twice as strong among Republicans. The study also found, however, that these changes in reported views don’t seem to have any effect on actual spending — which reflects “cheerleading” as opposed to “real expectations.”

Furthermore, there is good reason to believe that media reporting on the economy has been strongly negatively skewed. One thing that has gone very, very well in the US lately is job creation, yet the public consistently reports hearing more negative news than positive about employment.

Let’s not let economists get away with it. As Mark Zandi of Moody’s Analytics points out, many economists predicted a recession month after month last year. Sooner or later, a recession will undoubtedly happen, but, as he says, “in my more than 30 years as a professional economist I have never seen such pessimism about recession”, even if the economy has remained resilient. And that pessimism has certainly seeped into the public.

So where does all this leave us? The US has yet to bring inflation back to pre-pandemic levels, and we could still see an economic hard landing. But so far, at least, we’ve had an incredibly successful recovery from the Covid shock.

While many Americans say things are bad in polls — which says something about how people respond to polls and where they get their information — that doesn’t contradict that positive assessment.

Translated by Luiz Roberto M. Gonçalves

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