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Voters Are Right to Be Mad About the Economy
Things just aren't that good right now, including in some ways that don't show up in the data
Every so often, I get asked about the “disconnect” between negative public opinion about the economy and actual economic data that looks pretty good.1 Our current economic situation is very strange, and the recovery from the acute depths of the COVID crisis has been faster than most experts expected. There are a lot of positive economic data points you can point to.
Still, there’s a lot wrong in the economy right now, and I think the idea that displeased voters are out of touch with the data is overrated. They have good reason to be displeased.
Here are a few things I would say about the economy right now:
It’s unusually easy to find a job (and poll respondents will tell you that if you ask specifically about the job market).
Household balance sheets are in strong shape and GDP growth is fast.
Inflation is very high, and as a result, real incomes are barely higher than they were before the pandemic.
Real disposable incomes are lower than they were last summer.
The pandemic has worsened the experience of being a worker or a consumer in ways that aren’t captured in the data, but that rightly affect public perceptions of whether the economy is working.
I want to expand on this last point because I think it’s an underrated reason behind the public discontent. Longer wait times for products and services, workers having to wear masks all day, angry customers losing it at workers more often — this is all part of the economic experience and people don’t like it. And it’s not effectively counted in the economic data.
Even before headline inflation went through the roof last year, there was a lot of arguing about whether we were experiencing “hidden inflation” because COVID was impairing the quality of products and services. This concern wasn’t Shadowstats-type conspiracy nonsense. There are valid concerns about whether techniques statistical agencies use to adjust for product quality change when measuring inflation became less accurate while some unusual things were happening in the economy. For example: how do you adjust airfares for the fact that beverage service is cut back and you have to wear a mask through the whole flight? Is the Bureau of Labor Statistics tracking whether restaurants are serving your meals with plastic utensils, or not giving you paper menus, or requiring you to place your whole order at once? These deteriorations in the consumer experience generally aren’t counted in the inflation data, but people notice them as consumers and aren’t happy. They effectively amount to a reduction in real income.2
It’s not just consumers who are annoyed. COVID makes working worse, in ways that also aren’t counted in the economic data.
Unlike prices and product quality, the government doesn’t even try to adjust wages for job quality. There are reasons for this — wage indices are supposed to measure how much money people earn by working, and quality adjustment would not serve that end. But it’s still true that being paid $25 an hour to be an actor is more pleasant than being paid $25 an hour to work in a meatpacking plant, and it may also be true that certain kinds of jobs become more or less pleasant over time in ways that make workers more or less satisfied with a given wage.
Certainly it’s true that a lot of jobs became less pleasant over the last two years, especially customer-facing service jobs. Jobs involving in-person interaction create significantly more risk of disease than they did before 2020. Customers also turn into little monsters more often.3 In a lot of cases, jobs involve new and annoying sanitation protocols (some useful against COVID and some mostly theater), including enforcing customer compliance with those protocols. And this goes beyond jobs involving customer service narrowly construed — the reasons that teaching or working in a hospital have become less pleasant are closely related, for example.
So this may be a reason that job availability and wage growth haven’t translated into more positive public sentiment: The available jobs aren’t as desirable as they would have been in 2019, and wage growth had been compensating for increased unpleasantness, but in recent months, as inflation has eaten up the wage gains, people aren’t even getting added compensation to offset the added annoyance.
And yet, it’s also worth noting that some jobs have become persistently more pleasant due to the pandemic. I’m mostly talking about office jobs that have now shifted to work from home. Even better, quite a few office jobs now offer workers extensive choice between going to the office and working from home. For this set of workers, the labor market is better than it looks if you just look at the wage data. Partly that’s because of quantifiable financial savings — earning the same amount per hour but shedding your commuting expense is like getting a raise. And partly it’s because of qualitative improvements, like working in your sweatpants.
A lot of commentators about the economy are in this situation, and that’s something important to keep in mind if they say public sentiments about the economic situation are excessively negative.
Of course, there are also people who hate working from home and would like to go back to offices that are closed. There are teachers who are scared of getting COVID and are furious they’ve been forced back into the classroom; there are college professors who miss in-person class and want their students back; there are professors who like teaching from home where it’s harder for students to bother them. These factors affect perception of the economy and the labor market situation in both directions — on average in a negative direction, I’m pretty sure — but either way they’re not captured in the economic data.
It’s one more thing to remember whenever you are tempted to argue with voters about whether they’re underrating how good the economy is right now. Some of the economic data looks great (unemployment) and some of it looks bad (inflation), but a lot of the economy isn’t even in the data at all.
And it’s another reason to think “Return to Normal” is the number one thing that can improve Biden’s poll numbers: It would improve consumer and worker experiences to an even greater degree than you might expect from looking at the data. Over the next year, if job conditions are normalizing and work is becoming less annoying on average, then public satisfaction with the economy should exceed what you’d expect from looking at the numbers, just as it has lagged what you might expect from a look at the numbers in recent months.
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For example, I was asked about it in my Clubhouse conversation about inflation and the economy with Politics + Media 101 on Monday.
There is a flip side of this, too. To the extent product and service quality is returning to normal in ways not counted in the data, that is hidden deflation — and to the extent inflation was understated during the peak pandemic, it should be overstated in the pandemic’s runoff.