Why Biden Gets No Credit for a Good Economy
Public perception is not aligned with the top level data.
In an Atlantic essay titled “The Worst Best Economy Ever,” Annie Lowrey seeks to explain a situation that few know exists:
Joe Biden is, at the moment, losing his reelection campaign. And he is doing so while presiding over the strongest economy the United States has ever experienced.
While not an economic historian, I have a reasonable understanding of the American economy over the last century or so and had no idea that we are living in anything like the best economy we’ve experienced in our 248-year existence. Why was I not informed?
The jobless rate is below 4 percent, as it has been for nearly two and a half years. Wage growth is moderating, but it is higher than it was at any point during the Obama administration; overall, Biden has overseen stronger pay increases than any president since Richard Nixon. Inflation has cooled off considerably, meaning that consumers’ purchasing power is strong.
None of that sounds like a booming economy. A low jobless rate is a good sign, of course, but the figure we follow excludes those who aren’t looking for work or are in part-time jobs but want full-time work. Until quite recently, labor force participation was down considerably from pre-pandemic levels. Wage growth was high because inflation was high. And few are going to give Biden credit for the inflation rate going down when the rise was on his watch; prices on the things we pay attention to are radically higher than when he took office.
Yet Biden’s approval rating is below 40 percent. His disapproval rating is 56 percent. Donald Trump is beating him handily in most key swing states. And there’s a chance that Trump might edge out Biden in the popular vote, particularly if he continues to expand his popularity with Black and Latino voters in blue and purple states.
This reality has engendered panic among many Democratic campaign operatives, and no small degree of dismay too. What does it mean if Biden can’t win a campaign as an incumbent in an economy like this—during an election in which most Americans say the economy is the most important issue to them?
Because voters overwhelmingly think “an economy like this” is something decidedly different from “the strongest economy the United States has ever experienced”? As someone who will certainly vote for Biden again this fall, I think he’s done a reasonably good job of managing the economy—to the extent such a thing is even possible—given the shocks to the global system created by the pandemic. And am quick to note that the United States has done better at coming out of the crisis than just about any OECD country. But, no, I don’t perceive of this as a great economy considering that my purchasing power has gone down over the last four years and the value of my retirement savings is considerably less than what it was when Biden took office.
Voters’ dissatisfaction with Biden and Biden’s economy seems to have two central components: Americans think less of the economy than the headline numbers suggest, and they are thinking less about the economy at all.
Indeed, the sunny numbers about the economy—the low jobless rate, strong wage growth, soaring wealth accumulation, and falling inequality—fail to account for some cloudier elements. Americans remain stressed by, and ticked off about, high interest rates and high prices. Homes and cars, in particular, are unaffordable, given the cost of borrowing and insurance. And inflation has moderated, but groceries and other household staples remain far more expensive than they were during the Trump administration.
So, housing, transportation, and food are unaffordable but, otherwise, the economy is doing great? Conversely, people who have jobs don’t pay much attention to the jobless rate.
The majority of Americans are better off because their incomes have grown faster than prices. But most people, understandably, think of their swelling bank account as a product of their own labor and price increases as a result of someone else’s greed. People want prices to come down. That’s not happening.
Right.
Americans also tend to say that even though they are personally doing well, the overall economy is doing poorly. Political scientists think this has to do with the news they are consuming, which tends to focus on the negative or to caveat good trends: Wage growth poses challenge for the Federal Reserve! Holding economic conditions constant, financial reporting has gotten more negative over the past four decades. This negativity gap was big during the end of the Trump administration, and it’s even bigger during the Biden administration. Social media puts a gloomy filter on the news too. Folks click on and share dire stories more than they do upbeat ones.
I suspect that’s right. But a trend that’s been ongoing since before Lowrey was born is not an explanation for how people perceive Biden.
At the same time, American voters’ perception of the state of the economy has become heavily mediated by their partisan biases: Republicans tend to think the economy is a wreck if Democrats are in charge, and Democrats tend to think the economy is a disaster when Republicans are in the White House. That is dampening voters’ overall assessment of the economy right now. “The size of the partisan divide in expectations has completely dominated rational assessments of ongoing economic trends,” Joanne Hsu, the director of the University of Michigan’s surveys of consumers, has concluded.
I have zero doubt that this is right. But, alas, there’s this:
Yet even many Democrats are not convinced that this is a good economy. In one recent poll, just 22 percent of self-identified liberals said they were better off now than they were a year ago. That’s perhaps because they’re all reading and watching those glum news reports. And it is perhaps because Democrats are clustered in coastal states battered by the cost-of-living crisis.
People who can’t afford a place to live do tend to have a dim view of the economy.
The direction of the economy seems to be a factor as well. At least some leading indicators are declining, pointing to a “fragile—even if not recessionary—outlook,” according to the Conference Board, a nonprofit think tank. Debt is rising; fewer building permits are being issued; in some states, unemployment is up. (California’s jobless rate has increased 0.8 percentage points in the past year.) “Economic indicators are not speaking with one voice,” John Sides, a political scientist at Vanderbilt University, told me. “Given the salience of inflation relative to other factors, it’s easy for the public to feel bad. It’s easy for reporters to write stories about bad things.”
But, again, that doesn’t sound like Teh Best Economy Evah.
Still, the stock market is booming. Millennials are catching up to Baby Boomers in wealth accumulation and homeownership rates. Low-wage workers are making huge income gains. In terms of growth, the United States is trouncing its high-income peers around the world. There’s a massive boom in new-business formation. Consumers, their grumbling about high prices aside, keep spending.
Forty percent of Americans own zero stocks. Baby Boomers are shedding wealth because they’re selling homes and cashing in their stocks to retire. And, since the oldest of them are pushing 80, they’re gradually dying off and their kids are inheriting their wealth. But, yes, we’re still doing well compared to most of the world. And we tend to just put things on the credit card rather than endure belt-tightening.
Yet voters don’t seem to care. The public’s perception of Biden’s economy has proved remarkably stable—even as prices have moderated, even as stocks have taken off, even as the unemployment rate has remained at historically low levels. That fits with research showing that voters pay more attention to downturns than to upturns: They seem more apt to punish a party in power if there is a recession than they are to reward a party in power for overseeing a boom. The economy might be less salient for voters when it is good than when it is bad.
That seems right.
But then Lowrey takes a huge pivot:
The trend also fits with emerging political-science and polling literature showing that economic factors are weighing less heavily on voters’ assessment of the president. Gas prices used to be a good proxy for the public’s feelings about the performance of the White House. But there has been “hardly any association” for the past decade, Kyle Kondik at the University of Virginia’s Center for Politics has found. Similarly, presidential approval used to be strongly correlated with the consumer-sentiment index, the political scientist Lee Drutman has shown, but that stopped being the case back in 2004.
Why is the link between the economy and political sentiment fraying? Ironically, the dramatic improvement in material well-being over the past 50 years might be part of the answer: As countries get richer, voters have more latitude to vote their values, putting topics such as environmental protection, LGBTQ rights, and racial equality ahead of issues such as taxes, jobs, and wealth redistribution. This election cycle, voters might cite the economy as being the most important issue to them when talking to pollsters and journalists, but they may ultimately show up to vote (or change their vote) on the basis of another issue—abortion, say, or immigration.
While I’m a political scientist by trade, I haven’t explored that literature (which is well outside my professional wheelhouse). But it certainly seems plausible that relatively minor economic shifts in a wealthy country don’t radically impact voting behavior.
But that’s also likely heavily influenced by this:
Plus, American voters have become more partisan in recent decades—more likely to be immovably aligned with one party or another, and to see their political affiliation as a major component of their personal identity. Polarization “attenuates” the effect that the economy has on elections: Reliable Republicans just aren’t going to vote for Biden, and reliable Democrats just aren’t going to vote for Trump.
That leaves a sliver of persuadable voters. Drutman describes these folks as “disaffected from both parties, and mostly disengaged. They skew less wealthy, and younger, than the rest of the electorate. They defy easy ideological categorization. They vote sometimes, if they can be convinced the stakes are high enough to pay attention, or a new candidate breaks through and energizes them.” At the moment, neither candidate seems to be doing a great job of engaging those pivotal voters, many of whom don’t seem to like either of them.
A strong economy did not save Trump from becoming a one-term president. It might not save Biden either.
This cycle is also highly unusual in that, in the first time in more than a century, both candidates have served as President. This isn’t 2008 or 1992 or 1976 when a relative unknown can emerge as the face of big change.
Personally I’d go with Americans are economically illiterate.
I think a former neighbor of mine explains the trend. He had a good union job most of his life and ten years after retirement his industry went into decline, layoffs, off-shoring, the whole nine yards.
His theory was that business success depended on how good a person is – that all this was happening because company executives were morally corrupt. The president of his former employer had a rather spectacular divorce and he pointed at that as proof that he was right. As for jobs, they’re like cookies in a cookie jar. There are only so many to go around, and they should go to really good people – those who went to church, didn’t get above themselves (he was fuzzy on this but he knew it when he saw it), knew their place and loved America.
Had he been alive he would have voted Trump and would still be supporting him. I think there’s more like him out there than we think.
We no long live in the age of information; we are in the age of propaganda. And propaganda doesn’t care about information.
Example: there is constant buzz about Biden’s approval rating. Well, here’s Trump’s: https://projects.fivethirtyeight.com/polls/favorability/donald-trump/. About the same.
Trump is the perfect purveyor of propaganda. He’ll say anything and repeat it often whether factual or not. As long as it is negative about the opponent. No one likes it but until the Democrats start talking the same way they will lose. Every sentence out of their mouths should start with “the failed Trump administration”, “the corrupt Trump administration”, “the lousy Trump economic policies”, etc. Steady drone of negative information is ruling the day, unfortunately.
Over the past few years, there’s been an increase in both costs of everything, and wages. Even if wages increased more, the increases are not uniform, and there are a lot of winners and losers because of that variation, and the losers are not going to think it’s the best economy ever while they are further behind. People who see their brother or their friend struggling are not going to think it’s the best economy ever.
Rapid, uneven change is unpopular.
I’m baffled that this is a surprise to anyone. Even an economist should be able to figure it out, because it holds true even with consumers having perfect information.
Just a note that you ought to adjust the labor Force Participation Rate for age. The Boomers are retiring. If you do that then the LFPR is or near record levels.
Steve
@Gustopher:
“Over the past few years, there’s been an increase in both costs of everything, and wages.”
In addition, many people tend to view increases in their wages as primarily due to their merit, and not due to general economic conditions.
@Gustopher:
Yeah, this is the reasoning I’ve given before. The effects are very uneven, and the pundit class looks at aggregate averaged charts and seems to assume that’s the reality for the majority.
The pundits like to talk of inflation as a number but it is really a compound interest the consumer has to pay from then on. Mitigated only when wages rise and memories fade
The inflation in Trump’s years was just a half point above Obama’s. Biden’s inflation is 2-3 points below Carter and Ford, but at 5.7% year over year, that still three times what is was for Trump. And Biden got the post-pandemic 9% in 2022, a year after he took office. His fault, nobodies fault, the guy in the White House gets the “credit”. And people still remember the pre-2021 prices. Look on the bright side, by the time Reagan entered office, people had forgotten the lower prices when LBJ was in office.
@Gustopher:
Yes, which is a significant reason why everywhere, developed and developing economies, inflationary bursts are always political poison.
Another reason that we know from behavioural economics is humans have a structured and deep cognitive bias to loss-aversion overweighting the significant to resource loss versus gain from what a pure maths perspective would suggest (which in evolutionary terms when one thinks about it is quite explainable and reasonable).
which of course corresponds (from blog post quote) with
Even the national data given in the blog post suggests issues – income gains at lowest level of tranches solid, yes, and of course the Lefties celebrate – fine but the broad national average at next tranches are weak, and one can suspect that sub-nationally the structuring may be negative in regions. And as human short-medium memory is more structured to feeling loss (the relative pain and stress of the 20-23 inflationary spike period) than gain, the inflation period has overweight impact on perception.
Why politically speaking inflation denialism/minimisation/people-are-ignorant from the Left has been massively politically stupid
In fact proper economists – working ones at least – are quite aware of this.
Pundits and Political Commentators (oft engaging in partisan / My Team motivated reasoning) do struggle / overlook / deny.
@Andy: You have indeed although sadly ignored by many or most of the Team commentators.
One should likely expect that sub-national disaggregation by region as well as socio-economic tranches will reflect that the national averages are hiding some regionally structured differences.
And as like the voting politics, Democratic base partisans are blinding themselves to issues by focusing on own-socioeconomic-geographic view (that is Uni-educated urban / sub-urban weighted to professional classes).
This structured myopia and ongoing denialism (and ironic snobbery as reflected in the MAGA idiots commentary) worries me for Nov 24. As does Biden’s worrisome apparent focus on pleasing the Left and inattention to non-base floating concerns, silly gestures like the gas permits…
“the value of my retirement savings is considerably less than what it was when Biden took office”
Really? The Dow was at about 30k when he took office. Now it’s around 40k. The other indexes are roughly similar. Even accounting for inflation I can’t see how you end up with considerably less. Are you all in money market type investments?
@Scott O: Kots of index fund, bonds, and cash. But $1000 in January 2021 is with $820 now. Money is permanently devalued in a way that it hasn’t been in my adult lifetime.
In my management role, we often worked on “change management” with staff. Turns out people hate change of all kinds – even things that benefit them. There’s been so much change in the past four years, people are emotionally exhausted and unable to manage more. Going back to the pre-change world has some appeal (and I say this as someone who will try to move to Canada if Trump wins). Covid continues to wreak its havoc.
@James Joyner:
I get it. $1,000 doesn’t go as far as it used to and that’s very obvious to us every time we go shopping or buy gas. But hasn’t your 2021 $1,000 grown to $1,200 or more by now?
I’m nitpicking. Good article. I agree. Unless retail prices drop to previous levels, which ain’t gonna happen, most people will describe the economy as bad, regardless of employment numbers, wage growth numbers or how we’re doing compared to other countries.
Scott O:
The S&P 500 is up more–about 44% since January 2021, and may be a more representative index than the Dow because of its breadth. But, as noted, a lot of Americans own little or no stocks. One source of disappointment for those with diversified retirement accounts may be aggregate bond funds, which, for a traditionally safer income-oriented investment, have done poorly for 3 years now.
We’ll see if/when the Fed lowers the Fed Funds Rate. The optimism of early 2024 (several rate cuts during the year were indicated) has given way to further wait-and-see. It’s impossible not to see the political implications of Fed rate cuts and the resulting lower mortgage and loan interest rates (and potentially better bond fund performance). Recall the former guy, who’s not someone we want setting monetary policy, browbeating the Fed to cut rates for his political advantage. I don’t believe there’s been any such pressure from the current administration.
According to the Bureau of Labor Statistics the “US Labor Force Participation Rate is at 62.70%, compared to 62.70% last month and 62.60% last year. This is lower than the long term average of 62.84%.”
The rate is 0.14 points lower than the long-term average, which is meaningless statistical noise, and has been for a year. At its peak during the Trump presidency, it was 63.4%, just before it fell off the Covid cliff, but for most of it the rate was around 62.8%. By no stretch of the imagination can these tiny differences be called “down considerably from pre-pandemic levels”. Biden inherited a participation rate of 61.3% and it’s been on a steady upward trend ever since, but really, these are all movements at the margin. The significant decline began at the turn of the century, when a slow but steady trend saw it decline from 67% in 2000 to 62.5 % in late 2015.
All figures from https://fred.stlouisfed.org/series/CIVPART
@Scott O:
I think it depends on your situation. That’s my and Gustopher’s point about the benefits being uneven.
In my case, most of my retirement is in stocks since I’m only 55. Plus, my wife and I bought our house in 2018 before the huge spike in costs here in Colorado when interest rates were low. So our 2.25% mortgage is a great deal, with inflation currently at 3%.
But that’s all good luck and timing, not anything special that we did. If we tried to move here today, we couldn’t afford it due to the much higher cost for an equivalent house and 2-3 times the interest rate – basically, 3x the mortgage payment. Rents are super high too. A lot of people in my area are struggling with housing costs which have grown much faster than wages here, and the pandemic and inflation just made everything worse. There’s lots of building going on and projects planned, but zoning, NIMBY, and the usual sand in the cogs means it’s gonna take time.
@Eusebio: political pressure to lower rates, very Erdoğan, would be both ineffective on Fed Committee and political stupidity as merely giving more inflationary fears sans actually achieving anything (and thus merely being weak looking)
Smarter would be to suspend tariffs to get an immediate pricing effect, let return in 2025.