Is the Economy Actually Bad or Are We All Just Stupid?

There is seemingly a severe disconnect between the broader health of the economy and people’s perceptions of it. There are a lot of roots to this problem, and the folks asserting the economy is bad are both wrong and right.

A new Harris poll commissioned for The Guardian reveals some pretty shocking misunderstandings about the state of the economy.

Nearly half of Americans, 49%, believe the stock market is down on the year (it’s up over 25%), and the same proportion say the unemployment rate is at a 50-year high (it’s at a 54-year low), while 55% believe the economy is shrinking (GDP grew 3.4% in 2023 and 1.6% in Q1 2024) and 56% believe we are in a recession (a recession is defined as two consecutive quarters of negative GDP growth).

This is partially a reflection of partisan attitudes around the economy, as you can predict generic Republican and Democratic economic viewpoints with one-hundred percent confidence based on who is in office, and 67% of Republicans fuel this false belief we are in a recession, followed by 53% of Independents and 49% of Democrats.

Even taking into account inevitable partisan blinders, these figures are as big of an empirical indictment of the media as you will ever see.

A big reason why Americans generally trust the Republican Party with the economy more than the Democrats is due to how the media frames economic news, despite the unimpeachable evidence that Democratic presidents are far better for the economy. We have a media class filled with braindead sycophants who would rather repeat bothsides self-flattering bullshit than do their job. Every major reporter who was boosting this Harris poll is just showcasing their industry’s failures for the whole world to see.

We’re Not Stupid

There is real pain fueling these misinformed takes on the economy, and it reveals some deeper truths about it. It’s clear what is driving Americans economic anxieties, as poll after poll reveals the same issue, and it is no different with this Harris poll. Nearly three-quarters of respondents, 72%, believe that inflation is increasing.

This is not a totally unfounded belief. The largest year-over-year drop in the latest inflation print by far is used cars and trucks, down a nice 6.9% with the second largest decrease being in Utility (piped) gas service at -1.9%. Taking inflation data as a whole does not tell the entire story, and it is actually misleading to do so since so much of it is warped by industries hit hard by COVID like used cars. The overall CPI figure used as a basis by the media is not the Federal Reserve’s preferred measure, as they zoom in and look at core CPI, which is higher than the overall CPI figure.

Believing that inflation is increasing is not a black and white answer like whether the S&P500 is up on the year. The latest inflation reading was the most encouraging one yet…but the one before it sent shivers through the entire market, as the one before that too indicated that inflation is sticky. If you asked this question two months ago, 72% would be correct in their belief that inflation is rising. This issue is complex, and Americans are not wrong to feel like higher prices are squeezing them, and thus making the economy worse.

The Harris poll details that 70% of Americans’ biggest concern is cost of living, which is another way to say that they are worried about inflation. In the inflation reading that this Harris poll is relying on as a “gotcha” for its supposedly wrong respondents, housing inflation actually rose for the third month in a row.

The rent is simply too damn high, and many folks working for the JPMorgans of the world are beginning to come around to the lefty economic notion that high interest rates actually create more inflation in some interest rate-sensitive sectors like housing.

Housing is usually your largest expense, and it becoming more expensive is a perfectly reasonable data point to use as a basis to assume your entire life is getting more expensive. If monthly rent goes up $200 year over year, but you save $50 elsewhere on lower inflation, you’re still down $150.

Housing sales are falling while housing prices are rising, and this dynamic is surely one of the main undercurrents of this broader economic malaise as people feel squeezed out of a deal that was promised to previous generations.

April new home sales -4.7% month/month vs. -2.2% est. & +5.4% prior (rev down from +8.8%) … monthly supply rose to 9.1 vs. 8.5 prior; median new home price +3.9% year/year to $433,500; average selling price at $505,700 pic.twitter.com/1Xfd9JVKrc

— Liz Ann Sonders (@LizAnnSonders) May 23, 2024

Not to mention that it is entirely rational for people to believe that inflation is rising when the average American household has to spend an extra $13,000 per year more to buy the same goods and services that they bought three years ago. Average food prices are up 20% since 2021. Whether prices slightly went up or down between last year and this year is secondary to the fact that prices overall are way up from the pandemic.

It also doesn’t help matters that this kind of inflation is in large part due to corporate greed, as this lefty talking point has been accepted as fact by places like The Wall Street Journal and the 159-year-old bank Société Générale. McDonald’s and Target just announced that they will be cutting prices, providing doubters with market-based proof that greedflation is real and Target’s weak earnings indicate that people are balking at paying more for the same goods.

It’s the Corporate Greed, Stupid

This is all taking place against the backdrop of a half-century of increasing economic productivity and stagnating pay. The seemingly contradictory dynamic at the base of all these polls that the economy is good, but people feel like they’re doing poorly, is actually underpinned by the reality of the last half-century of economics.

While wages are improving, especially for the bottom tier of wage earners, disposable income is a murkier picture. A big part of the issue is that Joe Biden allowed all these pandemic-era Trump programs to expire, and in the aggregate, people lost money and are feeling more precarious than they were when they were receiving government help.

Low wages are growing, but the decline in disposable income over 2021-23 due to the phase-out of Covid policies completely swamps that — not crazy to believe this is behind a lot of people’s discontent with the economy pic.twitter.com/TKjPL2YQMT

— Gabriel Zucman (@gabriel_zucman) December 4, 2023

Plus, as great as it has been seeing this development of higher wages for lower earners, experts do not believe that it will last, because this growth is relative to the pandemic era where “the bottom really dropped out of the labor market” according to Elise Gould, senior economist at EPI.

When you hear these metrics that use percentage growth from previous years, it’s extremely important to properly contextualize where the data is starting from. If the average wage was $8 in 2020 but recovered to $12 in 2021, that may look like impressive growth, but that figure would still be lower than many state minimum wages. The Stancil-ites who just throw these year-over-year figures at you and assume the argument is over don’t totally understand what those figures are telling them.

The economy as a whole is in good shape. Wages are up, unemployment is low, GDP is growing, and inflation is way down from its 9% peak in June of 2022. We are in much better shape than we were a couple years ago. However, using a global pandemic as a baseline expectation is nuts. COVID warped so much that the data coming out of it looks weird and contradictory, and it unleashed inflationary pressures across the entire globe that are the root of this negative image of the economy.

The folks arguing that negative economic sentiments are entirely vibes-based are conducting their own vibes-based assessment of the economy. People are saying “my finances make me feel squeezed,” and it is beyond insane to respond with “actually you’re fine and it’s all in your head.”

It’s one thing when people misunderstand macro stuff like GDP that doesn’t really factor into their day to day lives, but people know what is in their bank account. Basics cost a lot more than they did a few years ago, and housing is getting more expensive in these inflation reports the Stancil-ites are pointing to as proof that everything is fine.

Everything is not fine. The rent is too damn high, and the cost of basic necessities is rising at the fastest rate in two decades, while government assistance that made a huge impact in people’s lives was allowed to expire by a Democratic president. Just because the economy has improved from a world-historic cataclysm a few years ago does not mean that everything is back to normal. People are right to feel squeezed by their personal finances, and the data backs them up on it.