Liberals, and Keynesian conservatives, are facing a tough intellectual challenge: Why do the American people — who, we can all agree, are otherwise perfectly delightful — persist in their stubborn belief that the U.S. economy stinks, when all experts agree that the fifth annual Summer of Recovery is upon us?
That question got a little more vexing this week, as the U-3 unemployment rate increased to 6.2 percent and a Gallup poll indicated Americans are the most pessimistic they’ve been about the economy since December (when the unforeseeable phenomenon of cold weather in winter — probably attributable to global warming — caused a surprise slowdown in the previously flourishing Obama economy).
The unemployment spike, as soi-disant experts love to point out, is actually a sign that things are improving, since it means more people are looking for work. (This time the experts may be right, as labor force participation has also increased.) But why can’t the people whose job it is to survive in the American economy, rather than pontificate about it, understand such subtle points? The answer rests partly in the failure of experts to miseducate the public, and partly in the failure of the public to understand the baroque terminology and chop logic of political economy. But mostly it rests in one hard fact: The experts are wrong, and the unwashed masses are right.
“There is this strange contrast with unemployment, but there is a lot of growth in our economy,” says Kirsten Powers on Fox’s Outnumbered. “If you talk to an investor, they will tell you the U.S. economy’s turning around; we’re gonna be more aggressive. I talk to different investment advisors and they say it’s time to get back in the U.S. market. So I do think you see people saying they see the trajectory going in the right direction, and I think what the administration would argue is that this type of collapse that we saw — you can’t really compare it to other recessions, because you saw the whole system kind of collapse in a way that’s different than other recessions.”
This is wrong, but as is often the case with wrongness, the problem isn’t what people don’t know; it’s what they know that ain’t so. It’s not true that the 2008 recession was qualitatively different from prior down cycles. The long-overdue (and partial) correction of the real-estate market in 2006, and the not-nearly-large-enough 2008 deleveraging that resulted from it, continued a pattern of recessions that has been building over many years, and the anemic post-recession recovery that we are still enduring (and I’m pretty sure that is what the Fox folks are thinking of when they talk about the tough economy) followed a pattern that has continued pretty steadily since the late 1940s. Bill McBride’s famous chart of peak-to-peak jobs recoveries since 1948 shows that employment cycles have been getting steadily feebler (with small exceptions) since Harry Truman’s time — as public and private indebtedness have become steeper, and the devaluation of the dollar, by Keynesian clowns who refuse to admit that the Phillips Curve is a fiction, has gotten more aggressive in response:
Now, Outnumbered, though it is this reporter’s new favorite television show, is not and does not pretend to be a panel of economic experts. But the panelists are onto something: Why is popular understanding of the economy so at odds with expert opinion? Some of this is easily explicable, using only official numbers: In nominal dollars, median household income has increased only 5 percent since 2006. Yet using the Bureau of Labor Statistics’ inflation calculator, cumulative CPI inflation has been 18 percent over the same period. Not a lot of mystery there: Your dollar is buying a lot less than it was eight years ago (a period that, not to put too fine a point on it, has seen nothing but sideways movement in a stagnant economy); and your income increase has been less than a third of what it would need to be to make up the loss. And the experts, many of whom can afford to have other people do their shopping for them, are telling you the key to prosperity is even more inflation? No thanks, Mr. Expert!
It’s also possible that the media have reverse competence when it comes to explaining economics in terms that mean anything to anybody. Witness this lede on a news article about the Gallup poll described above:
Perhaps it was a response to a shabby performance by Wall Street last week or mounting unease over the Israeli-Palestinian conflict or Russia’s bold military intervention in Ukraine.
Or possibly it was sheer disgust with the “Do-Nothing” Congress and the relentless partisan sniping between President Obama and House Republicans who plan to take the president to court for executive overreach.
What planet is Fiscal Times reporter Eric Pianin living on? The Israeli-Palestinian conflict? The Ukraine? The House lawsuit against President Obama? What does any of this have to do with the U.S. economy? The economy is about the buying and selling of goods and services in your daily life. Only Keynesian geniuses living in the Northeast Corridor could fail to grasp this simple point.
This delusion — that economy at the macro level is somehow qualitatively different from the economy you experience at a neighborhood yard sale — is, I think, at the heart of the gap between popular and elite opinion, a gap that will continue to widen. And nobody demonstrates the gap more clearly than the man at the very top of the American elite. Here is the president of the United States explaining our gladness to all of us on Friday afternoon:
The president provides a wonderful demonstration of the principle that you can replace any number in any speech with “eleventy-four million” and the rhetorical effect will be the same. Obama brags that he (alone, presumably) created 200,000 jobs in July, and that certainly sounds impressive. But according to the Hamilton Center’s Jobs Gap calculator, the U.S. economy needs to be creating at least 280,000 jobs per month, every month, just to get back to the pre-recession employment level by the time Obama leaves office (presuming he is willing to vacate the White House at the end of his second term). For what it’s worth, the economy has averaged about 180,000 jobs per month since the beginning of the Obama presidency.
The collective buying and selling decisions of 330 million people constitute an irreducibly complex whole, far more complex than can be understood by any central planner or central banker. Since nobody can control economic outcomes on a large scale, but many people have an interest in making you think they can, there is a clear need for this kind of numerical obfuscation. The point of political speech isn’t to say things that concur with your lived experience; it’s to make you mistrust what you’ve learned from your experience.
Then at the end, Obama suggests the “steps that we could be taking to maintain momentum and perhaps even accelerate” are infrastructure spending, a higher minimum wage, more regulation of pay and leave, and more subsidies for student loans. The president would have us believe the economic boom is being held back by insufficient regulation and inadequate spending of taxpayer dollars.
It’s not a problem that few people believe this; it’s a sign of common sense. And it’s not a mystery that people whose understanding of the American economy is experiential rather than theoretical remain pessimistic despite what their betters say. The reason people believe the economy stinks isn’t that their understanding of monetary stimulus is inadequate or that the good news from Wall Street hasn’t filtered through to Main Street. They believe the economy stinks because the economy stinks. It has been stinking for nearly ten years, and that’s a pretty big chunk of your life to spend waiting for the good news to become believable.