There are so many odd things about this election but one main disconnect is many people report that they think the economy is doing poorly. That is so far from the facts that it boggles the mind. The good news is that the economy is doing quite well. We have:
- 3.8% unemployment
- 14.8 million new jobs created in the past 3 years
- 3.4% real GDP growth rate
- 4% inflation rate (and falling)
- 1.4% real earnings growth rate (and increasing)
So why are so many people so negative? First and foremost, people think the economy is bad because they have been told this over and over by the Republicans and the conservative media. If you hear the sky is falling 100 times, you begin to think maybe it is. This is one of Donald Trump’s favorite tactics- repeat a falsehood over and over until people begin to believe it is true, But in addition to this form of brainwashing, many people have personally felt the pinch of the current economy. They articulate it mostly in terms of inflation and high prices. Althoguh real (adjusted for inflation) earnings is growing, it had plummeted in the latter part of the Trump adminstration during COVID and has only returned to being positive during Biden’s term. But this alone does explain people’s cranky outlook.
Second, there is a long-term trend, the growing wealth gap between the haves and have nots that underlies people’s negative perceptions. The wealth gap has been steadily growing in the US for many years. While income captures the amount of money you earn or receive on a regular flow basis, wealth is the value of your assets- your house, money in your retirement account, stocks, etc.), Households with high levels of wealth have higher spending levels than those that have little or no wealth. Wealth affects what familieis feel they can afford currently. Table 1 shows that over time both the low and middle income groups have been loosing their share of the nations wealth relative to the upper income group. (PEW, 2020),
Table 1. Growth in Wealth in the US, 1983-2016, Median Family Wealth in 2018 dollars
Income group | Median wealth in1983 | Mean wealth in 2016 |
low | $11,300 | $12,300 |
Middle | $102,000 | $115,000 |
Upper | $341,100 | $848,400 |
In 2022, the top 10% of families, had almost three quarters of the countries wealth ($138.1 trillion). The next 40% of families, got approximately a quarter of the wealth and bottom 50% of families—or 65.5 million families—had 2% of the wealth (St. Louis Fed, 2024) . We are loosing our middle class.
Third, our expectations have increased over time, especially regading housing. Young people are often frustrated by the cost of housing and see their parents as having had much better housing opportunities. But the reality is most people don’t really want a house that was built in the 1950s- they are too small by today’s standards. In1973, the average size of a new house was 1660 square feet. By 2015, the average had grown to 2,687 square feet. In percentage terms, both the average and median size of new US houses have increased by 62% since 1973 ( AEI, 2016), So we are buying twice the house and it costs a larger share of our income.
Finally, we had a rough time of it during the great recession and COVID and those effects linger. The down turns we experiened have residual effects (such as depressing real incomes) that affect the economy for years.