Opinion – Paul Krugman: Will Americans notice the economy is improving?

Imagine that your picture of the US economy comes entirely from cable news headlines and subtitles. Would you know that the real Gross Domestic Product increased by 6.7% under President Biden, that the US gained 4.5 million jobs in 2022, and that the last six months inflation, which was actually very high last winter, was at less than 2% annual rate?

These are not hypothetical questions. Most people don’t read long, data-driven articles about the economic outlook. Their view of the economy is more likely to be shaped by bits and pieces they read or hear.

And there is a huge gulf between public perceptions and economic reality. Recent economic data has been positive across the board. But a plurality of adults believe that we are in a recession. In an AP-NORC poll, 75% of Americans described the economy as “weak”, with only 25% saying it was “good”.

You might be tempted to say: never mind the data, people know what’s happening to the economy firsthand. But there’s a big disconnect on that front as well.

Even with 75% of the public saying the economy is weak, most Americans view their own financial situation positively. On average, people seem to be saying that they are doing reasonably well, but that very bad things are happening to other people.

This “I’m fine, you’re not” syndrome was especially clear in a Federal Reserve survey taken in late 2021; we will only have the 2022 results at the end of this year, but I believe they will be similar. According to the 2021 survey, 78% of households said they were “at least well off” financially – a record. Only 24% said the national economy was “good or excellent”, a record low. Assessments of local economies, about which people have some personal knowledge, fell in the middle.

Now, this isn’t the first time I’ve written about the disconnect between economic perceptions and reality. In the past, however, I have received a lot of criticism from people who insist that the public is deeply shocked by the resurgence of inflation after years of more or less stable prices.

At this point, though, that position is getting harder to sustain. Since last summer, the prices of some products, especially eggs, have soared, but other prices, especially gasoline, have plummeted. As I said, the overall inflation rate in the second half of 2022 was approximately 2%, which has been normal for the last few decades, while the December unemployment rate of 3.5% was at a 50-year low. . Oh, and inflation-adjusted wages, which had fallen due to the supply chain issues and the Ukraine shock, have risen again.

So what accounts for the public’s bitter view of an economy that is objectively doing pretty well?

Partisanship is clearly part of the story. A striking aspect of this AP-NORC survey was that Democrats and Republicans did not differ much in assessing their personal financial situation; majorities of both groups classified their condition as good. But 90% of Republicans said the national economy was weak. A longer view, from the Michigan Consumer Survey, shows that Republicans rate the current economy worse than they did in June 1980, when unemployment was above 7% and inflation was 14%.

And the media coverage? Some of my colleagues are annoyed by any suggestion that economic news has a negative bias that affects public perception. However, there is concrete evidence in this regard. The Michigan Survey asks respondents what news they’ve heard about specific business conditions; throughout 2022 — when the economy added 4.5 million jobs — more people reported hearing negative than positive job news.

All of this raises an obviously important political question: Will Americans notice that the economy is improving?

To be fair, we don’t know if the economic news will stay as good. While many analysts have backed away from forecasts of an imminent recession, experts I spoke with see a slight dip in growth over the next two quarters as likely. There is also a heated debate among economists about whether we will need a sharp rise in unemployment to keep inflation low.

But let’s assume we overcome any short-term swings and enter 2024 with low unemployment and inflation. How many Americans will hear the good news?

At this point, we have to assume that as long as a Democrat is in the White House, Fox News and Republicans generally will describe the economy as a disaster area, whatever the reality. What is less clear is how the mainstream media will cover the economy and what general voters will perceive.

Reports say Biden’s policy team plans to “lean on the economy” for the 2024 election. Indeed, while nothing is guaranteed in the economy (or in life), Biden will likely manage to post solid growth in income and employment. , with rising 2021-22 inflation receding in the rearview mirror.

But we can safely predict that many people, not all of them GOP supporters, will insist, come what may, that Biden’s record has been a disaster. And I, for one, have no idea what voters will end up believing.

_{Translated by Luiz Roberto M. Gonçalves}