But the Americans don’t believe that

But the Americans don’t believe that

For more than 12 months, the United States has been marked by great contradiction. According to several important indicators, the US economy is performing well. Yet a clear majority of Americans insist that this is not the case.

Normally, you would expect Americans to cheer that inflation has fallen from a high of 9.06 percent in June 2020 to its current rate of 3.2 percent, while unemployment remains below 4 percent (and is near historic lows). Another positive sign is the high level of consumer spending that continues to drive growth.

However, survey after survey suggests that these same big-spending consumers are extremely pessimistic about their economic prospects. Moreover, these sentiments are hurting President Joe Biden’s popularity, and possibly his re-election chances.

A recent poll conducted by ABC and the Washington Post indicated that only 30% of Americans approve of Biden’s handling of the economy. Likewise, a poll conducted by the Financial Times in cooperation with Michigan Ross found that nearly 70% of Americans believe that the Biden administration’s policies have harmed the American economy. Only 14% of Americans considered themselves financially better off now than they were when Biden took office in January 2021.

For any president who is less than a year away from running for a second term, these are bad numbers.

So how do we understand the discrepancy between these disappointing polls for Biden and some good overall economic trends? What are the political repercussions?

One reason Americans are economically miserable is that they are still angry about the effects of inflation. As any economist will tell you, low inflation and low prices are not the same thing. Inflation may have fallen in America, but prices have not. Fair or unfair, many Americans blame Biden for this.

High prices put pressure on everyone, especially low-income consumers. They are less able to absorb higher costs. Many of these Americans are increasingly relying on debt, including credit card debt, to pay more of their daily expenses. It’s no coincidence that credit card delinquencies are on the rise. Such trends can only create a feeling of economic insecurity among Americans.

Another factor at work is housing. With America’s 30-year mortgage interest rate at 7.9 percent on average, this puts home purchases out of reach for younger, less affluent Americans. Even if these rates decline, there is a significant housing shortage in most urban areas of the country.

These are the kind of dynamics at work in the US economy that make it difficult for the Biden administration to sell a positive economic message. Biden can point to the big picture all he wants, but at the micro level of American life, this message doesn’t cut much ice.

And the administration’s insistence that “job economics” — expressed legislatively in the Infrastructure Investment and Jobs Act (2021), the Semiconductor and Science Act (2022), and the Inflation Reduction Act (2022) — has turned things around, not generated destinations. Positive views regarding Biden’s economic performance among Americans.

That’s because there’s plenty of evidence that Biden’s combination of increasing government spending, strengthening industrial policy, expanding regulation, and quietly continuing Trump’s protectionist approach to trade is leading to all the expected results: a misallocation of resources across the economy, rampant striving. Behind the rent. And above all, the growing regulatory jungle that is costly for small and medium-sized companies.

Biden did not help his cause by publicly acknowledging that the Inflation Control Act was less about reducing inflation and more about trying to boost investment in the fight against climate change. This admission of what millions of citizens angry about inflation had done to themselves damaged the administration’s economic credentials.

Biden’s political challenge is made more difficult by the fact that many Americans remember Donald Trump’s presidency as one of the country’s good economic times.

Looking back, we know that this story requires significant qualifications. For example, Donald Trump’s protectionist policies have raised manufacturing costs, reduced the number of manufacturing jobs, undermined American exports, and increased consumer prices.

Trump has also done little to rein in government spending. This has contributed greatly to the obscene growth of America’s public debt. Likewise, Trump’s stimulus packages in March and December 2020 to support the economy during the pandemic, like Biden’s, contributed to the rampant inflation that began in March 2021.

However, none of these facts stopped Trump from touting his economic record. These messages seem to affect the crucial swing states and those electoral districts that Biden and Trump are competing over.

Can Biden change perceptions about his administration’s economic performance in the next 12 months?

There’s not much the federal government can do to lower prices. Aside from catastrophic events such as the Great Depression, the overall price level rarely falls.

There is not much Biden can do on the legislative front. In presidential election years, the federal legislative process stops. Republicans in the House and Senate also have no political incentive to help Biden.

Likewise, Biden can do little to influence monetary policy. This is maintained by the Federal Reserve. If inflation starts to rise, the Fed will likely start again raising interest rates, thus increasing borrowing costs, including mortgage rates. If that happens, Biden will bear the political blame, as all presidents do for interest rate increases.

Ultimately, Biden’s political fate – and Trump’s, for that matter – may depend on whether Americans begin to see the connections between their daily economic lives and some positive macroeconomic trends.

It is often said that winning an election is about who wins the game of perceptions. In the US presidential election in 2024, this appears to be no more true than who wins the narrative about the US economy among ordinary Americans.

    (tags for translation) Republicans 

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