Americans Are Full of Cash and Jobs. They Also Think About The Economy


In many ways, Americans are in a better financial position than they have been in many years. They also believe that the economy is in terrible shape.

This is the major contradiction underlying President Biden’s poor approval ratings, recent Republican victories in state elections, and contact negotiations over Biden’s legislative agenda. It presents a fundamental challenge to economic policy, which has succeeded in raising the wealth, incomes and job prospects of millions of people, but has not, in their own perception, made Americans better off.

Workers have dominated the labor market, earned the highest raises in decades, and quit their jobs at record rates. The unemployment rate is 4.6 percent and is falling rapidly. Cumulatively, Americans are sitting on piles of cash; In the last 19 months, they have saved $2.3 trillion more than expected on the road before the pandemic. Median household’s checking account balance 50 percent higher More in July of this year than in 2019, according to the JPMorgan Chase Institute.

Still, the workers’ assessment of the economy is very sad.

In a Gallup poll In October68 percent of those surveyed said they thought the economic conditions were getting worse. The percentage of those who thought things were getting better was lower than in April 2009, when the global financial crisis continued. And it’s not just a partisan response to the Biden presidency. In University of Michigan’s consumer sentiment survey, Republicans assess current economic conditions Worse than Democrats but both groups score as low as in the early 2010s, when unemployment was much higher and Americans’ finances were in ruins.

The reasons seem to depend on the psychology of inflation and the way people evaluate their economic well-being, as well as the unequal effects of rising prices and famines on different families. It can be shaped by the psychological scars of the pandemic, one manifestation of which is a period of exhaustion.

Regardless of the exact causes, after decades when the availability (or absence) of jobs has triggered economic sentiment, inflation seems to have become a stronger force.

“The real issue is rising inflation and confidence in economic policies,” said Richard Curtin, who oversaw the University of Michigan survey for decades. “Consumers see rising prices and they see no policy to fix it.”

There’s no doubt that prices are skyrocketing – the Consumer Price Index is up 5.4 percent from last year and deficiencies and other inconveniences Not visible in inflation data but reflecting the same underlying phenomenon

But this is after years of relatively low inflation; The index has averaged only 2.8 percent per year over the past three years. And as the rise in federal spending has swelled Americans’ bank accounts—probably not coincidentally—they have also come with higher prices. This includes incentive payments of $2,000 per person earlier in the year and child tax credits of up to $300 per child per month since summer.

Americans seem relatively optimistic when asked more narrowly about the outlook for their income or the job market.

“They’re telling us that they’re looking ahead to expect better business conditions, they expect more jobs, and they expect revenues to increase,” said Lynn Franco, senior director of economic indicators at the Conference Board, a business research group. The consumer confidence index fell slightly at the end of the summer, but recovered in October.

According to economists, higher wages and higher prices for consumer goods are two sides of the same coin, and a burst of inflation creates both winners and losers. In the last few months at least, the public hasn’t seen it that way – and inflation and associated famines seem particularly large in overall perceptions of the economy.

Any group of individuals may do better or worse during times of high inflation, depending on whether they are debtors or creditors and their wages rise faster or slower than the goods they buy.

A restaurant worker who received an 11 percent salary increase last year, the average for the entertainment and hospitality industry, likely has higher spending power despite high inflation, government data show.

But when prices rise, many people are losers – and even clear winners may feel the sting of higher prices more intensely than the benefit of higher wages or more manageable debt.

About 13 percent of employees have a paycheck that hasn’t changed in the past year. Atlanta Fed data. Many retirees receive pensions that are not adjusted for inflation.

And those with wage earnings least likely to keep up with inflation are middle- and high-income earners. For the 12 months ending September, those in the highest quartile of earners experienced a 2.7 percent increase in hourly earnings and a 4.8 percent increase for the lowest earners. For the low-income, this follows the years leading up to the pandemic, when wage increases exceeded inflation rates.

The details of what a person buys can have a huge impact on how severe they feel the pain of inflation. High inflation in cars and trucks hasn’t been a problem for someone who doesn’t need to buy a car this year.

Now think of someone whose car breaks down and needs someone else to get to work. The 40 percent increase in used car and truck prices since the start of the pandemic means a costly burden. The same is true for many other physical goods that are scarce, such as household appliances.

Rising costs for core goods tend to affect people’s perceptions of inflation. For example, gasoline prices can be seen on large signs on every street corner and are up 74 percent from the pandemic declines in May 2020.

But they are below their level for most periods from 2011 to 2014, and average earnings have risen sharply since then. In one way or another, it took about six minutes of work for the average private sector salary to earn enough to buy a gallon of regular unleaded gasoline in October. It took almost nine minutes of work in October 2013.

To gain a better sense of why rising inflation may contribute to such negative assessments of the economy, it is necessary to go beyond the details of wage and price trends in 2021 and in the 1990s, Robert J. Shiller, Yale economist.

He spearheaded polls to try to determine why inflation, even at moderate levels, frustrates ordinary citizens far more than economic theory implies. He found that people did not believe they would get enough pay raises to keep up with rising prices. He also found that people believed. it will hinder overall economic growth; would harm national morale; and could fuel political chaos or damage national prestige.

“When answering questions about what really matters and what our national leaders should really be paying attention to, people may tend to rely on some deep intuition from life experience,” Professor Shiller said. Wrote The idea of ​​inflation, he continued, evokes “arbitrary injustice, arbitrary redistributions and social suffering” and “memories of social situations in which morale and sense of cooperation have been lost.”

This may be what makes rising inflation such a difficult policy issue: It could be something deeper than dollars in people’s pockets and the price of a gallon of gasoline.



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