Two big questions about the U.S. economy are now emerging. One is why it's going so well. The other is why so many Americans insist it's going awful.
I have no illusions about convincing conservatives that the economy is in good shape; They're not going to change their minds, and pointing out facts that contradict their point of view only irritates them.
But there also seems to be a significant number of progressives who, for different reasons, are reluctant to accept the good news. And at the very least this group might be willing to listen to arguments that President Biden has achieved more than they realize, as well as the premise that half a loaf is better than none and far better than Biden's adversaries would achieve if given the chance.
On the good economic news: Two excellent economic reports were added to the pile this week. On Wednesday, the Bureau of Labor Statistics reported that in the third quarter labor productivity had increased at an annual rate of 5.2%, which is a very, very fast pace. It's too early to talk about a trend, but there is more and more reason to hope that our economy will be able to grow much faster than we thought. Oh, and unit labor costs only rose 1.6% last year, a further indicator that inflation is under control.
Another report indicates that unfilled jobs have declined. Last year, many economists argued that the high level of job openings meant that we needed high unemployment to control inflation. Now that difference has largely disappeared. It's one of many signs that the economy is recovering from Covid. And this healing process explains why we have managed to bring inflation down without causing a recession or a rise in unemployment.
Nonetheless, many Americans still have a very negative view of the economy. This may be partly due to the fact that although inflation has come down a lot, prices are still high compared to the recent past. This effect may wear off over time; As I wrote not long ago, there has to be some statute of limitations that states how far back in time people can go to get their idea of how much things should cost. An interesting recent analysis suggests that it takes about two years for lower inflation to be reflected in consumer confidence, in which case Americans might feel better ahead of next year's election.
On the other hand, inflation has been a global phenomenon, but the huge gap between favorable economic indicators and gloomy public perceptions is unique to the U.S., where people believe many bad things about the economy that simply aren't true.
I can say from experience that talking about these issues with right-wing people is basically impossible. If you point out that most workers' incomes have grown much faster than inflation since pre-pandemic times, you're told you're a member of the elite who has no idea what things really cost. And if you claim that Americans are more likely to express positive views about their family's financial situation and that strong consumer spending belies claims that households are struggling, you'll be retorted that you're a snob telling people how they should feel. It's a whiting that bites its own tail.
One group that might be willing to be swayed, however, is progressives who refuse to acknowledge the good economic news because they believe there's still a lot wrong with America. I don't know how large this group is, but I seem to know a lot of them, and their negativity could be influencing the overall tone of the conversation.
By the way, Biden's America is not a progressive paradise. Too much wealth and power remain concentrated in the hands of a few, while millions of citizens of this wealthy nation continue to live in poverty and lack adequate health care.
However, progress has been made. We are finally taking serious action against climate change and investing in infrastructure. Increased subsidies have helped expand health coverage and there is a little-known fact, which is that Biden's full-employment economy has led to a large drop in wage inequality that largely benefits the lowest-paid workers.
Things would look even better if the Democrats had won only slightly more victory in the 2020 election. Specifically, one or two more Democratic senators would have meant a permanent extension of the expanded child tax breaks, which would have dramatically reduced child poverty, and could still do so if Democrats find a way to win big in 2024.
In recent months, the Republican political narrative has taken a sharp turn to the right, with renewed promises to repeal Obamacare – which jeopardizes the health coverage of more than 40 million Americans – and to cut Social Security.
Here's how I see it: The results of Biden's 2020 victory have been a far cry from progressives' dreams, but a loss for the president next year would be a nightmare for them. Will left-wing Americans be able to hold both facts in their minds and act accordingly?
Paul Krugman is a Nobel laureate in economics. © The New York Times, 2023. Translation of News Clips.
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