Originally published at Project-Syndicate | May 2nd, 2024
As much as US President Joe Biden would like to believe that the economy is strong, and that his own policies have left Americans better off, polls consistently show that the public isn’t buying it. While there are several reasons for this disconnect, none is especially complicated.
STANFORD – There is a large disconnect between how US President Joe Biden and many economists are describing the state of the American economy, and how ordinary citizens are experiencing it. Indeed, Biden’s team is frustrated at not getting credit for what they believe is a strong economy (which they attribute to the administration’s policies).
Yet voters equate “Bidenomics” with inflation. By a margin of three to one they tell pollsters that the economy and their personal finances are “poor” or only “fair”; more Americans still believe that they were better off under Biden’s predecessor, Donald Trump, and that Biden’s policies have hurt, not helped.
Because Biden trails Trump badly in polls about voters’ top concerns – namely, the economy, inflation, and illegal immigration – he is turning to issues where he has an advantage (abortion), and highlighting Trump’s behavior. Yet there is a good chance that voters’ views on the economy will decide what is shaping up to be a tight contest for the presidency and control of the House, Senate, and some states. And since perceptions often lag reality, Biden must hope that the economy doesn’t deteriorate, that inflation declines further, and that memories of high inflation fade by November.
There are many related reasons for the disconnect between the White House and the electorate. For example: the data that Biden trumpets might offer an incomplete picture of the economy; different subgroups have been differentially affected by trends in inflation and employment; and longer-term economic or related fears may be souring the public’s mood.
While GDP growth was solid last year, the initial estimate of a 1.6% growth rate in the first quarter of this year represents a sharp slowdown (though this, too, is based on incomplete data, especially on net exports and inventories). Not only is growth slowing, but voters still remember that inflation soared to a 40-year high early in Biden’s presidency, owing primarily to his huge deficit spending in a context of nearly full employment.
While the White House (and the Federal Reserve) insisted that this inflation was transitory, the fact is that prices have increased by 20% on Biden’s watch. Moreover, the latest readings of core inflation (excluding food and energy) ticked up to just under 4%, while the Fed’s preferred alternative measure still shows inflation at almost 3%.
True, wage growth recently reached a rate just above inflation. But many lower-income families are struggling to make ends meet as credit-card and auto-loan delinquencies soar.
Fortunately, the Fed eventually got its target interest rate – now 5.25-5.5% – above the inflation rate. Fed Chair Jerome Powell and his colleagues deserve considerable credit for resisting political pressure to cut rates without a firmer basis for concluding that inflation will soon reach the central bank’s 2% target; meanwhile, some are recklessly calling for a new inflation target of 4%.
Job growth seems impressive, with the initial readout for March showing 303,000 positions were added. But in an economy with unemployment at 3.8% (just above the pre-pandemic rate), one must wonder how many of these are part-time or second jobs forced on households with budgets stretched to the breaking point by high inflation.
After all, headline job growth is calculated from a survey of business establishments and includes data on work hours and wages. It is considered more reliable for employment levels than the survey of (60,000) households, which itself is considered more reliable for estimating the unemployment and labor-force-participation rates.
Each has strengths and weaknesses, and they differ in coverage. The business-establishment survey uses a “birth and death model” (for new and closing firms) that is especially problematic around turning points in the business cycle. Just comparing the latest 12 months available to March 2024, it paints a rosy picture in which 2.9 million jobs were added, while the household survey suggests that job growth was only a quarter of that.
The details contained in the household survey mayprovide some insight into why Biden is struggling in the polls, especially among groups that he won handily in 2020. The overall number of employed adult men is down slightly overall, and by almost a quarter-million for Black males. Meanwhile, the number of part-time workers has increased by 1.7 million, suggesting that full-time jobs have declined considerably.
Moreover, there are one million fewer native-bornworkers than there were a year earlier, and about 850,000 more foreign-born workers (most are citizens or otherwise legal). The reasons for these trends might include older native-born workers retiring, undocumented immigrants being granted work permits, and so forth.
While the United States does need workers, it has become a magnet for illegal immigration. In the absence of a more robust immigration system that favors needed skills and includes careful vetting, millions of illegal entrants are crossing the southern border, because the Biden administration refuses to do what is needed to police it. This influx has become a massive political issue that is tearing the country apart and overwhelming public services, not just in border states but also in northern cities.
For perspective, consider that the current (per capita) level of illegal immigration into the US is, by some estimates, five times greater than the surge of refugees and migrants that Chancellor Angela Merkel welcomed into Germany and hence Europe in 2015-16 – a fateful decision that led to the populist backlash that much of Europe is still enduring.
Finally, Americans are pessimistic about the long-term future and their ability to control their own lives. Between hot wars in Ukraine and Gaza, growing tensions with China, technological and labor-market uncertainties, higher crime rates, the immigration crisis, and the exhausting demands for woke conformity in all spheres of society, there are plenty of reasons for voters to feel uneasy.
Those feelings, together with the 81-year-old Biden’s obvious physical and mental infirmities (Trump is 77, but far more energetic), have combined to give the president the lowest approval ratings of any similarly situated incumbent since World War II. That is why Trump – despite his legal problems and polarizing personality – still commands a slight lead in the seven swing states that will decide the election.
Michael J. Boskin: Is Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution. He was Chairman of George H.W. Bush’s Council of Economic Advisers from 1989 to 1993, and headed the so-called Boskin Commission, a congressional advisory body that highlighted errors in official US inflation estimates.
