Opinion – Paul Krugman: The truth about the US economic recovery

As we approach the midterm elections in the US, most of the political coverage I see in the media frames the race as a struggle between Republicans taking advantage of a bad economy and Democrats trying to scare voters about the country’s regressive social agenda. Republican party.

Voters do indeed perceive a bad economy. But perceptions do not necessarily correspond to reality.

In particular, while political reports often take for granted that the economy is in bad shape, the data tell a different story. Yes, we have worryingly high inflation. But other indicators paint a much more favorable picture. If inflation can be reduced without a severe recession – which appears to be a real possibility – future historians will consider economic policy in the face of the pandemic a remarkable success story.

When assessing the state of the economy, what period should we use for comparison? I’ve noted before that Republicans like to compare the current economy to an imaginary version of January 2021, where gas was $2 a gallon. But less pleasant realities, like sky-high Covid deaths and deeply depressed jobs, are erased from the picture. A much better comparison is with February 2020, just before the pandemic hit in full force.

So how does the current economy compare to the eve of the pandemic?

First, we had a more or less complete recovery in jobs and production. The unemployment rate, at 3.5%, has returned to where it was before the virus. So is the percentage of working-age adults in employment. Gross Domestic Product is close to what the Congressional Budget Office projected before the pandemic.

This good news should not be taken for granted. In the first few months of the pandemic, there were many predictions that it would cause “scarring”, persistent damage to jobs and growth. The slow recovery from the 2007-2009 recession was still fresh in economists’ minds. So the speed with which we’ve returned to full employment is remarkable, so much so that we can dub it the Great Recovery.

Still, while workers may have jobs again, hasn’t their purchasing power taken a big hit from inflation? The answer may surprise you.

In September, consumer prices were 15% higher than on the eve of the pandemic. However, average wages rose by 14%, nearly equaling inflation. Wages for non-supervisory workers, who make up more than 80% of the workforce, rose by 16%. So there hasn’t been a big impact on real wages in general, although gasoline and food – which are not much affected by politics but very important in people’s lives – have become less affordable.

Mandatory note: there are other measures of prices and wages, and if you choose, you can make the story look a little worse or a little better. More importantly, some Americans are especially exposed to prices that have soared. On average, however, there was no major impact on living standards.

But won’t reducing inflation require an ugly recession? Perhaps, and widespread recession predictions may be affecting public perceptions. But they are predictions, not established fact — and many economists do not agree with these predictions. I will not repeat this ongoing debate here, except to say that there are plausible arguments to the effect that disinflation will be much easier this time around than it was after the 1970s.

Despite what I’ve said, however, the public has very negative economic perceptions. Doesn’t that tell us that the economy is really in bad shape? No, no. People know how well they are doing themselves. Your views on the national economy, however, may differ drastically from your personal experience.

A Federal Reserve survey found that in 2021 there was a huge gap between the increasing number of people with a positive view of their own finances and the decreasing number with a positive view of the economy; perceptions about the local economy, which people can see with their own eyes, were somewhere in between. I suspect that when we have results about 2022, they will be similar.

To be fair, the resurgence of inflation after decades of slumber, combined with fears of a possible recession, has made many Americans nervous. The point, however, is not that the public is wrong to be concerned; is that negative public views of the economy do not refute the proposition that the economy is doing well on many, though not all, dimensions.

Now, I’m not suggesting that Democrats spend their final days on the campaign trail telling voters that the economy is really doing well. Is not.

But Democrats also shouldn’t admit that the economy in general is in bad shape. Some very good things have happened in his administration, most notably a job recovery that has surpassed almost everyone’s expectations. And they have every right to point out that while Republicans may denounce inflation, they have no plan to reduce it.