Commentators friendly to the president couldn\u2019t understand it. The economy was expanding. Unemployment was falling. But the public was unhappy about the economy and the president\u2019s popularity kept slipping.<\/p>\n
That\u2019s the way things looked in 2006 to a lot of Republicans, and they concluded that the problem was that the \u201cBush boom\u201d was \u201cthe greatest story never told.\u201d<\/p>\n
<\/p>\n
US inflation is soaring. <\/span>Credit:<\/span>AP<\/cite><\/p>\n Now the bafflement has switched parties. Paul Krugman wrote in the New York Times<\/em> that \u201cthe economy has been booming this year\u201d but that gloomy news coverage has affected people\u2019s mood about it. Neil Irwin, in the same newspaper, called it a \u201cgreat contradiction\u201d of today\u2019s economy: \u201cAmericans are, by many measures, in a better financial position than they have been in many years. They also believe the economy is in terrible shape.\u201d Economists may think inflation produces both winners and losers, he continued, but most people aren\u2019t seeing it that way.<\/p>\n If this is really a puzzle, it\u2019s a frequently recurring one. It happened during Barack Obama\u2019s presidency, too. In 2014, a large majority of Americans thought the economy was in recession \u2014 a view that reporters pointed out was \u201cflat-out wrong.\u201d<\/p>\n Americans have, in fact, been pessimistic about the economy for most of the last two decades. Gallup\u2019s \u201cEconomic Confidence Index\u201d went negative after the dot-com boom went bust in 2000, and did not register sustained positive readings until the pre-pandemic part of President Donald Trump\u2019s administration.<\/p>\n It might, then, be more instructive to examine what our last two periods of widespread happiness about the economy \u2014 throughout 1998 to 2000, and from mid-2018 to early 2020 \u2014 had in common. Both were times when the standard of living for most people was rising, and had been rising for a while.<\/p>\n Those conditions weren\u2019t present in 2006 or 2014, even though the economy was growing and unemployment falling. Households in the middle of the income-distribution scale made less in 2014 than they did in 2000, after adjusting for inflation. More of the years in between saw declines than gains. Americans had not seen such a prolonged period of disappointment since this data series began in 1953. The public\u2019s unhappiness was not irrational.<\/p>\n It\u2019s not irrational now, either. Income fell in 2020 as the pandemic hit. Even if living standards were rising again, positive trends would have to continue before people began to register satisfaction. But living standards aren\u2019t yet rising, anyway.<\/p>\n Wages and benefits have been moving up smartly, but only in nominal terms. As the economics researchers Jason Furman and Wilson Powell III pointed out in an analysis for the Petersen Institute, total compensation is 0.6 per cent below its December 2019 level after adjusting for inflation. Irwin wrote that economists see rising wages and rising prices as \u201ctwo sides of the same coin.\u201d For most people, though, the net effect in today\u2019s economy is that the coins they are getting don\u2019t go as far.<\/p>\n It stands to reason that changes in the real value of wages would have a bigger effect on public sentiment than changes in the unemployment rate. The number of people paying more at the pump and the grocery store is much larger than the number of people who have gotten new jobs.<\/p>\n It might, then, be more instructive to examine what our last two periods of widespread happiness about the economy \u2014 throughout 1998 to 2000, and from mid-2018 to early 2020 \u2014 had in common. Both were times when the standard of living for most people was rising, and had been rising for a while.<\/p>\n One complication in this story is that people\u2019s financial conditions have improved, thanks to the extensive transfer payments that the federal government implemented during the pandemic. It may be, though, that people don\u2019t see those transfers as substitutes for a continuing stream of income that they feel they are earning.<\/p>\n The simplest explanation for why the public thinks it\u2019s a bad economy is that, for most people, it\u2019s a bad economy. We don\u2019t need to come up with a theory about the effects of modern partisanship on views of the business cycle, any more than we needed such a theory in 2006 or 2014. We need only consult the great democratic maxim: The foot knows best where the shoe pinches.<\/p>\n