Americans say the economy stinks. But they spend like it’s a wonderful thing

Americans say the economy stinks.  But they spend like it’s a wonderful thing


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CNN

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There is a dilemma that economists and political strategists have been discussing for more than a year: The economy is good, but Americans say it is bad.

Despite all the positive news about inflation (which is slowing), the labor market (the best in a generation), and consumer spending (which is still strong!), Americans can’t seem to shake their despair, at least when they answer polling calls.

Only 2% of voters say the economy is excellent, according to a poll conducted by The New York Times and Siena College. That could be a big problem for Democrats trying to promote Biden’s economic policies. (Although Democrats had a very strong showing in Tuesday’s election.)

But there is a mystery within the puzzle: despite what Americans say, they are not behaving like a people particularly concerned about the economy.

People aren’t inclined to spend thousands on Taylor Swift tickets, dinners, and vacations when they’re worried about where their next paycheck will come from. But that is exactly what We the People have been doing, month after month, even in the face of high borrowing rates.

Consumer spending, the biggest driver of the US economy, pushed US GDP to grow at a staggering annual rate of about 5% in the last quarter – more than double the previous quarter.

Naturally, in order to pay for all this, Americans are diving into some dangerous places — something you wouldn’t normally do unless 1) you’re desperate, or 2) the job market is booming and you feel like your job is safe.

Although many fall into the first bucket, many spend like drunken sailors because they know they can. That’s why Americans are withdrawing money from their 401(k) retirement accounts at an alarming rate to pay the bills.

Meanwhile, Americans are racking up record credit card debt and falling behind on those payments. Total balances reached New high of $1.08 trillion.

This turmoil of conflicting emotions does not constitute an obscure academic problem for economists. It’s also a political conundrum that could shape the 2024 presidential race.

So, what gives?

According to Federal Reserve Chairman Jay Powell, “people hate inflation.”

This is true, but it is squishy. People don’t really care about inflation when it’s barely noticeable at 2% or even 3.7%. They care the prices, Which does not fall.

Your morning cup of coffee still costs 60 cents more than it did before the pandemic, and there’s no incentive for Starbucks (or anywhere) to lower prices now that they know you’re willing to pay for it. This is work, and it is something that neither Democrats nor Republicans can change. (And let the record show that selling addictive steroids at exorbitant prices is a very solid business plan.)

Sure, paying more money for coffee isn’t fun, but there are deeper issues that seem to be fueling our collective malaise.

Not least because housing — the thing Americans are told from birth is key to building wealth — hasn’t been this expensive since 1984, thanks to the double whammy of high prices and high mortgage rates. It now takes approximately 41% of the average household’s monthly income to cover the principal and interest On an average priced home.

For young people living paycheck to paycheck, the dream of home ownership (and the financial security that comes with it) seems frustratingly out of reach. This is a psychological wound that may require more than just monetary policy to treat.

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