By Dr. Jim Dahle, WCI FounderOne of the strangest economic events of the 2020s is that consumer sentiment is dramatically lower than it has been at any other time when the economy was otherwise doing quite well. People think the economy is doing terrible when it is actually going gangbusters by any objective measure. It's really quite a phenomenon, and I'd like to explore it a bit in this post.
Is the Economy Good Right Now?
My crystal ball is always cloudy. I have no idea what the future holds. But as I write this post at the end of January 2024, the economy is doing just fine.
- Fourth-quarter GDP growth was an annualized 3.3%, significantly higher than the forecast of 2.2%.
- Inflation has been moderating and is down to 3.35%, dramatically better than the peak of 9.06% in June 2022.
- Unemployment has remained under 4% for the last several years. Most businesses are begging for anyone to hire.
- The stock market was up over 26% in 2023.
- Cash is paying over 5% for the first time since 2008.
- Even bonds made almost 6% in 2023.
- Despite dramatically increased interest rates, home prices are holding steady.
- While inflation was higher than wage growth for about two years (2021-2022), wage growth is now 5.2%, 2% higher than inflation.
Even the deficit/federal debt—as measured by the amount of GDP required to service the interest—is better than it was back in the 1990s, despite similar interest rates.
Anecdotally, things also seem great.
- The Fed seems to have “nailed” the soft landing that was feared to be impossible.
- Restaurants are full.
- You can't get a ticket to entertainment events.
- Even college football players are making money hand over fist.
Yet despite this rosy picture, consumer sentiment (i.e. how people think the economy is doing) is terrible.
People think the economy is worse today than it was during the Global Financial Crisis. As a reminder, that was when the stock market was down 40%+, people were worried about the safety of their money in money market funds, 9 million jobs were lost, GDP was falling by more than 4%, and 30% of homeowners (including me) were underwater on their mortgage.
What is going on? Is our command of economic history really that poor? How can we explain this phenomenon? I think there are a number of contributing factors.
More information here:
How Our Portfolio Performed in 2023 (Including Real Estate!)
How Politics Impact Perception of the Economy
Perhaps the greatest factor is simply where you get your news. If you read CNN, which leans more left, you'll hear a rosier picture of the economy than if you read Fox News, which leans more right. Your political persuasion has a dramatic effect on your view of how well the economy is doing. Check this out:
Basically, if “your guy” (or woman) is in the White House, you think things are going great. If “your guy” is not, you think we're en route to Hades in a milk pail. I think a lot of that is fed by the division of media in this country. It used to be that most people read, listened to, and watched the same sources of news. Not so much anymore. There is liberal news and conservative news. Social media echo chambers make it even worse. Plenty of people from the Fed to NPR blame social media.
I find it all very fascinating especially since the president honestly just doesn't have that much of an effect on the economy, no matter how much credit they try to take when it's going well or how much their opponents blame them when it's going poorly. Even if presidential policies had a huge effect on the economy (which they don't), there is such a huge lag (years or even decades) in the effects of those policies that it would be challenging for the typical non-economist to really sort out who gets credit for what.
However, politics cannot explain all of this. Check out this graph:
I love the crossovers that happen on Inauguration Day. Really? The economy is dramatically worse in the fourth week of January than it was in the third week? Are voters really that dumb? (Don't answer that.) The reason I include this graph is that something happened starting in early 2020 that seems to have lowered consumer sentiment to a “new permanent plateau.” Whether you lean right or left politically, the numbers are 20% lower than they should be.
More information here:
Why You Should Ignore the Financial Media
The Pandemic's Impact on the US Economy
Well, we all know what happened in 2020. We ran out of toilet paper. Clearly, the cause of this economic malaise is dingleberries. Oh wait, correlation is not causation. But a few things did happen starting in 2020 that may explain all of this. Worldwide economic output dropped dramatically. Even though that drop was extremely temporary, it was scary. Just ask your favorite joint surgeon whose “elective” cases were all put on hold for months. We lost a lot of faith in our economy, in our governments, and in our scientists. I think that had a significant effect that lingers on.
Inflation Spike
I think a bigger problem than the pandemic itself was our response to it. The Fed (and similar entities worldwide) opened the taps too wide and left them open too long. Now, I don't blame them. It's hard to get it just right, and I guess it's better to err on the side of inflation than deflation. But in retrospect, they clearly blew it, at least toward the end. And we ended up with inflation as high as 9%.
Most adults and all young people had never experienced high inflation before. I'm almost 50 years old. I have no practical memory of the stagflation of the '70s. I don't remember sitting in gas lines. I never had an 18% mortgage. To see interest rates go up 4% in a year was a once-in-a-lifetime experience for most of us. It was bonkers. Even our bonds lost 10%-15% of their value. That really makes people feel pessimistic about the future.
“I'm finally getting some savings put together, but now everything costs twice as much!” one might say. The low consumer sentiment is probably, in part, related to this traumatic economic shock even though inflation has now moderated (although certainly not reversed; we're seeing disinflation, not deflation). The Fed even thinks consumers just have not yet adjusted to the new higher prices we're paying.
Housing Crisis
Perhaps the worst part of our current economy is the housing affordability crisis. Many people, particularly young people, don't feel like they can ever buy a home. Rents are through the roof but so are the prices of new houses, despite the rapid increase in interest rates back to “more normal” levels. The main factor driving this is limited supply. We just stopped building houses back in 2008 and never really caught up again. Even many people who are already in a home feel trapped in it by their low mortgages. They don't want to give up a 2.75% mortgage to get a 6.75%. The impact of the largest part of most people's budgets most likely has an outsized impact on their sentiment about the economy.
The End of Freebies
There have also been a lot of freebies passed out in the last few years. Student loan interest rates went to 0%, and payments were not required. Business owners got their “free” PPP loans forgiven. Most other people got three rounds of stimulus checks. That's all over now. Plus, for those who need or want to borrow money, interest rates are 4% higher. Maybe it feels a bit like the cops just showed up at the house party and it's time to go home.
More information here:
Your Crystal Ball Predictions for 2024
It's not entirely clear why so many people think the economy is terrible. There are probably multiple contributing factors, but it's hard to know which are the most important. What I really want to know, though, is what are people going to think the next time the economy really is terrible.
What do you think? Is there something we're all missing that suggests the economy is terrible right now? Why do you think the gap between sentiment and traditional measurements of economic robustness is historically wide?
Not everyone is a physician or has a physician’s salary.
Many of my relatives work for a living, some in factories, some in construction and plumbing, and some just work at walmart.
The economy to them, is how much money they have left over at the end of a pay period.
Inflation under Biden has hurt people that live paycheck to paycheck. That is a fact. That is exact why Donald J Trump will be reelected President of the US in a few months.
It doesn’t matter what the reality is, what matters is people’s perception of the reality. And people perceive the economy as being bad because they don’t have enough money to pay for things they need and want. And that is the vast majority of people.
I know the stock market is where it was about 3 years ago. That doesn’t help me look at the current president in a favorable life for re-election. Mostly because I intend to retire soon.
Maybe Biden doesn’t care about my retirement but I do. I don’t want to be dependent on the government because they don’t trust the government.
I think you need to reread the part on partisanship for why people have the thoughts they have. Funny it’s all Biden’s fault and not Trump’s big money handout at the beginning of the pandemic, or the pandemics effect on shipping products or even getting products produced, or the taxes put on China from Trump and carried on by Biden, or rates kept so low for way too long (under both dem and republican presidents). But you go ahead and just blame the party you don’t like. Let’s just blame dems so you don’t have to feel bad about who you vote for.
It will be hard to answer this post without political coloring. The last two administrations printed and spent too much money, causing post pandemic inflation. No one I speak to is connecting the dots on “free” money and the current situation.
Your post has its facts straight, but economic sentiment is still in the toilet.
Why? IMHO it’s the cost of everyday goods and services. There are a lot more people noticing McDonald’s prices and their higher grocery bill than the all time stock market highs.
The reach of social media is astounding and there are an entire group of people making compelling videos complaining about the cost of living. Most people I talk to notice the cost of groceries and they want disinflation to a much greater degree than we have seen. They want “prices back where they were” before the pandemic.
You can go to Sam’s Club, Costco, and Aldi’s to try to reduce the impact, but a lot of things are almost double what they cost in early 2020. My new heat pump was $12,500 and the installer said it was $6000 in 2019. I priced a set of tires recently and they were $1300 installed for “medium grade” tires.
With less “surplus” income, the folks in the bottom three quarters are feeling stepped upon and they are unhappy. In 2022, fifty percent make less than $75K and only about eleven percent make more than $200K. I’m sure the less affluent are the “more affected” in this pinch.
Meanwhile, most of the WCI community are looking at their portfolios, their home equity, and 2.5% mortgages and feeling entirely different.
I believe you have hit the nail on the head. Not only or housing prices out of the reach of most Americans, Wall Street Journal published a story today, indicating that the cost to maintain a car has gone up dramatically. Housing and automobiles are the two most significant expenses for a very large percentage of households.
Comparing the economic numbers to sentiment is pretty much as easy as logic to emotions. Closing the distance between them is the confidence of walking a real pathway to success versus the hope in a vision of a real pathway. Your picture of our country is represented by “If I look so good why do I feel so bad?” This is a common situation many times in our life as we have lost hope. What brings someone here? We are in the era of Loss in life and Grief of missing. Even in our economic data, people have not been comforted to reach confidence yet. The Vision is weak.
Your comment of adaptation of the inflated pricing is an understatement. It reminds me of the course the EU took to normalize pricing in each country as they adapted to the euro. People struggled to understand the new world as it transitioned overnight.
Pull the blanket off the economic numbers and explain this.
Consumer debt is high and increasing.
Government debt is high and increasing.
Savings rates are low and actually dipping into retirement savings is increasing.
Repayment of home loans (foreclosure deferred during COVID) and student loans (same).
(Largest purchases of our lives) Homes and Cars are all time highs. Car parts are expensive.
Food is expensive. Eating out is ridiculous
Energy is being forced to transition to newer and more expensive forms.
Taxes are higher as items are priced higher and home values have appraised higher.
The emotions of this economy are high. Sentiment is low.
As a lefty I postulate that fear over the fate of the American ideal- ie free and fair elections- is under threat given Jan 6 2021 shenanigans and the possibility- affecting the entire world- that the US will reelect Trump and who knows what that will bring (him being a wild card) or his followers will again try to overturn Democracy. However I expect the inflation, which as Dr. Ellis and the others above notes, affects a large part of the population adversely no matter how good the economy is on other measures.
An in-law is concerned at dramatic drops in orders for his product as well as the European strikes, indicating expected manufacturing slowdowns worldwide. If most consumers feel unable to buy new cars or homes or appliances this is likely the case, so a constriction is already starting.
Jim, just a quick note to say I really appreciated this post. Good job on measured logic and balanced perspective.
There was worldwide inflation during COVID. The US had less than almost everywhere else. For this to be a criterion by which voters choose a POTUS certainly answers Jim’s question “are voters really that dumb?”. Also, wages have outpaced inflation, so the idea that only physicians are doing well in this economy is nonsense. What do people really think inflation would have been under DJT during this term? You know, the same guy who wanted negative interest rates (really “tremendous” for inflation!). Voting by feelings really is our other national pastime.
The President does not set interest rates, so interest rates would have been the same, unchanged, and inflation probably would have been the same, too, minus any effect that another round of stimulus spending added (assuming DJT would have vetoed another round of stimulus in his second term, which may not be a very safe assumption). The President gets the blame for inflation and the economy during the time he is in office whether he has anything to do with it, or not. It has always been that way. The voting public does not study economics or even legislation. The President gets all the blame or credit, right or wrong, for whatever the public perceives as happening, right or wrong.
Whether or not the president changes interest rates, only one president has ever actively pressured the chair of the federal reserve to keep rates low in advance of an election
I believe that according to Jim’s chart, wages in 2023 have finally increased greater than inflation but I read (attached) as of November for only 57% of jobs which is a majority but many have not. There are some jobs not hurting as much as others. Watch for statistical mean. Real people can’t eat statistics.
https://www.americanprogress.org/article/workers-paychecks-are-growing-more-quickly-than-prices/#:~:text=Data%20from%20November%202023%20show,(2017%E2%80%932019)%20average.
Right…which is ABOVE the historical average.
Food prices went up and stayed there. Car prices went up and stayed there; if you can find the one you want. It’s great if you were already a homeowner, but those who didn’t buy prior to 2020 are out of luck.
My physician income certainly didn’t keep pace with inflation. I make about the same nominal dollars as I did pre-COVID. Could make more by seeing more patients, working longer hours, or getting a part time job (glorified term: Side Hustle), but that’s not exactly keeping up with inflation if you have to do more for the same amount.
Thank heavens I found WCI 12 years ago and invested all that money in stock funds in my younger years so that at least overall net worth kept up.
Generally thats what happens, the lower 3+% is still compounding on the 9% and whatever followed. Cost have increased at a pace that has reshaped the American economy
Pretty clear from these initial comments that the most salient section of the post is “How Politics Impact Perception of the Economy”…
My 2 cents is that while wages are outpacing inflation (most especially for the lowest wage workers), people tend to think that increases in their wages are due to their own great good work and that increasing inflation is because somebody else screwed up. They do not see these 2 issues as related and human nature is to think you deserve the good things that happen to you and that external nefarious actors are to blame when bad things happen to you.
Not only is that the fundamental attribution error but that fundamental error is propagated further by social media trying to echo chamber and reinforce that belief by picking on our specific cognitive vulnerability.
“What I really want to know, though, is what are people going to think the next time the economy really is terrible.”
This reader’s take? I’m certain that many people will continue to complain, as they always have.
I totally get it on some level. Inflation is a recurring news item for casual discussion. Heck, I’ll talk about ski season passes going up on the lift with strangers… even though I’ve eagerly bought one (or two) every single year. But on a different level, Americans are terrible with money, and our economy thrives off rampant consumerism.
You need to think strategically about money and develop a plan. Like others, we didn’t always make “doctor money”, and yet still found happiness despite lower paying jobs, varied election results, unwelcome tax law changes (both D and R-led), etc etc etc.
In my experience:
—The patient complaining about inflation at the grocery store likely has a newer iPhone, leases a car, and has some pretty decent health coverage.
—“The economy is bad” is a lame excuse for that sibling to either not look for a job or stay with a terrible employer.
—I have a few relatives receiving military/disability pensions who won’t shut up about how terrible everything is. Nevermind the fact that they’ve received up to $60k/year for the past decade plus. Some of them you you’d gladly thank them for their service after a few decades of low pay (but maybe think to yourself they could be a little happier to be set for retirement!). With others, you’d wonder how on earth they got approved for so much of your tax dollars, and might call up your representative to reform the bureaucracy.
I came to realize that many of these complainers will never change. Even when their political team enters office, they’ll just whine about how that the other side messed things up so much. Without getting too religious, I find it heartbreaking that this country has a severe deficiency in gratitude.
Amen! Recipient (both spouse and I) of govt pensions; he even has a VA one for disabilities which meet their criteria yet don’t qualify him for anything from social security or the DMV (and which wouldn’t keep him from doing his prior job yet give him disabled veteran’s preference for govt jobs). So I try not to complain to those without these benefits- in fact we thank them for funding our retirement now if they pay taxes-and only wish all the rest of the country had health care insurance as good as or better than our Tricare without having to reach 65 or be SS level disabled for two years.
What irks me is that federal politicians, if they can stay in office for 10 years (two Senate terms), get a pension similar to mine, and like me military time or other govt employment reduces the number of years they need to get reelected to qualify. No wonder they do so much campaigning.
When I first moved to Alabama I attended a local Democratic Party meeting which had 50% attendees there to heckle not sign up. Two rows of church goers walked out when they decided abortion wasn’t on the agenda. By the time a pensioner (quite certainly now MAGA if still alive) shouted out “Nobody better socialize my Medicare!” the whole room turned to him and said “Medicare IS socialized medicine!”
Give me a break. I can’t take this analysis seriously. You didn’t even mention Shrinkflation. C’mon Jack!
https://x.com/POTUS/status/1756713597864988940?s=20
I love Hot Tamales. The candy. LOVE them. Before they were something like 0.99 but often on sale for 0.79. Now they’re 1.25 and I resent paying that. FINALLY I decided I can’t hold out and I bought five packs. The packs looked funny. It turns out they’re 3/4 of the size they were before but 50% more money. Grocery prices are outrageous.
Been to the grocery store or looked for a home recently? Are you aware of the record trillions in credit card debt currently? You can believe all the govt numbers you want especially in an election year, yes the same govt that told us 95% efficacy, but all you have to do is open your eyes and ears.
It’s because of late-stage capitalism, baby. During the pandemic all the corporations had easy excuses to raise prices on everything and blame inflation/supply issues but now that those have dissipated, have they lowered their prices? Of course not! Record revenues and profits abound in all big-name corporations. Because they know people have to eat/live/shop no matter the price. They’re never gonna give it back. Great for stockholders (mostly the wealthy) and terrible for the huge majority of common folks.
Good article. I do agree that politics plays a lot into peoples perception and expectation (like my partner who missed out on all of last year’s stock gains due to fears that Biden would destroy the economy …. And Despite being massively wrong still strongly believes the stock market is going to gain 50% of the day after Trump wins the next election). However, I think the previous commenter made an excellent point.
If you gain 10% wage gross with 8% inflation you should logically feel like you got a 2% raise. However, if you feel like you’re wage growth was deserved and don’t realize how much of it came from inflation, your feelings tell you that you got robbed of 80% of what you deserved. Combine that with generally poor financial literacy of the voters who expected inflation coming under control would mean prices coming down (without realizing how disasterous deflation often is) can you get a group who is very pissed off about an economy actually making gains compared to inflation for the last several years.
As is often the case, politicians and now media with a particular point of view to push, can easily take advantage of peoples lack of understanding.
That being said, this physician group particularly does actually have some grumbling they can do. There is an interesting article about how 50% of the increase in the wage gap that has occurred over the last 20 years was obliterated in the last three because the people in the lower income bracket have made decent gains while those in the upper brackets have had roughly equivalent declines in income after inflation adjustment.
I thought Obama’s policies were going to crash the market. I learned my lesson. Choose an AA and stay in.
“The Fed (and similar entities worldwide) opened the taps too wide and left them open too long. Now, I don’t blame them. It’s hard to get it just right, and I guess it’s better to err on the side of inflation than deflation. But in retrospect, they clearly blew it, at least toward the end. And we ended up with inflation as high as 9%.”
That statement is debatable. Inflation was a worldwide problem. Inflation peaked earlier and lower in the US than in other parts of the developed world. Inflation went up for a minute but then it came down. All without rampant unemployment or a lasting recession. I’m no economist but this looks like as good an outcome as possible,.
Political views have probably always colored economic perspectives and I wonder if that has ever been more true that it is today for all the reasons mentioned in the post.
When I try to dig into economic conversations and ask specific questions about data or policy, it doesn’t take long before a different political perspective surfaces. It seems to me that much of the time, the economic opinion is not well researched, rather it is rather a talking point fueled by something different.
For example, when I talk with a conservative leaning person on their perceptions of “Bidenomics” it’s usually only a few sentences until the words “guns” and “abortion” come up. When I question a progressive leaning person on the their perceptions of the “vibecession” it’s usually only a few sentences until the words “climate” and “abortion” come up.
Both sides have logical inconsistencies I struggle to follow:
The right leaning ire for student loan forgiveness happens not to mention their PPP loan forgiveness.
The left leaning ire for climate degradation and capitalism happen not to mention their Keurig pods that arrived overnight on Amazon Prime.
The pro-life right who are very concerned with babies being born don’t support legislation for gun reform, universal pre-k, healthcare expansion, or increasing education budgets.
The pro-choice left sure give people a lot of grief about their choice whether or not to get their Covid shot.
Macroecomnics is not the strong suit of the American public. Football is.
We are much better at cheering for our blue team or red team than we are at discerning the nuances of global and domestic economics.
For all the information we have available to us, we seem less and less willing and able to utilize it effectively and more and more reliant on screaming for our team to win regardless of the logic or the data.
The only thing I have observed that helps with this is actually talking to each. Face to face interactions with people of different political persuasions seems to be optimal for reducing the ideological cheerleading and boosting the evidence based thinking.
At the risk of sounding like a homer, this is one reason I love WCICON. Of the 500-600 people there I’m sure all the political opinions were present and occasionally discussed but cohesive ideas, universal ideals, and collaborative goals superseded these ideological differences.
It was wonderful, and I left there desirous to find more opportunities to be with like minded people, even when, and perhaps especially when, that like mindedness does NOT include political agreement.
Very well stated. People are illogical at best.
The “both sides” nature of those comparisons, as they always inevitably are from centrists, is darkly funny. You have liberals hypocritical about Amazon Prime and promoting a lifesaving vaccine, while conservatives are hypocritical about $750 billion in forgiven loans and denying extremely helpful social programs like universal pre-K/healthcare, gun reform, and education budgets. These are not equal problems!
Thank you, Jon. The “but but but bOtH sIdEs” argument is absolutely insane to me, considering that one “side” actively sought to destroy and overturn a free election while simultaneously (as you astutely noted) howling and yelling about student loan forgiveness as they’ve taken every penny of corporate welfare and $750B in forgiven loans. One “side” is hypocritical about lattes and philosophical nuance. The other literally is okay with anarchy and destruction if they save 3 pennies on their taxes and their “team” is in power. Bonkers!
Hi Jim.
I think you are misunderstanding inflation in your chart. I mean we all know this but the chart kind of lies about it. When you have inflation 9% then 6% then 4% the inflation RATE is going down but no one cares about that. People care about can they afford groceries. The graph would look like prices are going down but prices are going UP. The RATE is going down. But the can of beans cost 9% more, then a month later 6% more than it did last month then the next month it’s still going up. 4% more. (Or whatever those rates are.) And those costs are not coming down. So everything costs 30% or 40% or 50% more than before and salaries are not keeping up. I think that’s why people see the economy as terrible. They can’t afford anything.
As regards the unemployment rate, don’t forget the words “unemployment rate” don’t mean anything. What does it measure? Of the people employed or who want to be employed, what % are unemployed. That is to say, people who are not looking for work are not counted. When the economy is particularly good or particularly bad that is not a useful metric. When the economy is particularly bad and people are on government welfare, they are not looking for work. I think the employment rate (or whatever it’s called) of what % of people 18-65Y is a useful metric as it looks at how many people are employed. The unemployment rate is distorted if large groups of people are simply not looking for work. As such I think it is a useless metric at this time.
I’m very much aware of the difference between deflation and disinflation. Yes, I agree that people think they want deflation…until they get it.
My point isn’t just that inflation has come down (disinflation) but that wage growth now exceeds it.
I disagree that you should somehow include in the unemployment rate those who are not looking for work. Sometimes people aren’t looking for work because their spouse’s job is good enough to support the family. The point of using unemployment rate as an economic measurement is to see if there are jobs out there. There are lots of jobs, thus, the unemployment rate is nice and low. When there are lots of people who want work and not very many jobs, that’s a bad thing, like in the Great Depression. The argument you’re using seems mostly designed to try to say “pay no attention to record low unemployment” which seems like it must have some sort of political motive behind it.
If people don’t have to work because their spouse’s job is so good or because their investments have gone up so much that’s a good thing. Maybe not such a good thing if they don’t have to work due to overly generous welfare, but I have yet to see a welfare program good enough that it would entice me to not work in order to get it and I think most people feel that way.
Hi. No I’m not saying ignore it for political reasons. I’m saying that when large numbers of people can live off government checks and don’t need to work, a low unemployment rate (ie – (#people unemployed and want to work)/(people working+people who want to be working) if I did that right) is not a useful metric. It leaves out all the people who are incentivized by the govt not to work. My comment is that as the number of people supported by taxpayers increases, the meaning of that metric because not very helpful. It doesn’t comment on the health of the economy. If we had a universal basic income, and say half the population decided not to work at all, the unemployment rate would be the same even though half of the population is no longer doing productive work. I think the % of people working is less able to be manipulated for political reasons and a more meaningful metric as to the health of the economy.
Also, it’s not that I feel this way with Biden at the helm. I’ve thought this definitely back to Obama’s first term and I think earlier than that. Maybe GWB or earlier.
“I’m saying that when large numbers of people can live off government checks and don’t need to work”
Unless you are referring to Social Security or military pensions, this isn’t really a thing. There aren’t large numbers of people living off welfare anymore
My recollection is Pres Clinton got people off the welfare roll with his restrictions but a great number simply moved over to disability/SSI. That’s my recollection at least. That’s my understanding why the unemployment rate is not a useful metric but it’s been a while since I’ve looked these things up.
Nor enough to make unemployment useless as a measure of the economy, especially year to year since the numbers of those people don’t generally change dramatically.
This is a strawman argument. Most government welfare programs require you to look for a job so by default if you are on one you are included in the unemployment numbers. If you want to be a pessimist you can assume most of those people are only faking looking for jobs (even if it can’t really be proven for what proportion of them its true), but that doesn’t change the fact that they should show up in unemployment numbers.
Tyler – re PPP and student loans – yes I am a conservative but I think I thought my way into, not emotioned my way into it –
The gov’t literally told people you can’t go to work and you can’t open your business. The PPP loans were a response to govt distorting the market more severely than we’ve ever seen in our lifetimes and probably more than ever in the history of the United States. The gov’t shut down nearly everyone’s business. People would have rather worked but the govt forced them into penury. The PPP was specifically to keep people on payroll. In contrast no one was forced to take out a student loan. Every single loan was given with the agreement that we lend you money and you pay it back. The fact that later you decide you just don’t feel like paying it back is not a legitimate response.
That is a completely reasonable way to look at PPP vs Student Loans. I don’t disagree.
For sake of conversation and completeness, I hear you saying, “Yes, I got something for nothing and I am the direct beneficiary of American tax payer dollars but because that was a result of unforeseen, unprecedented and uncontrollable economic events related to Covid, I am ok with it”.
That makes sense to me and there are those who would submit that is a somewhat convenient position for a PPP loan beneficiary to take.
It also strikes me as reasonable to hear a student loan borrow say, “If the established (wealthy) business owner got something for nothing due to the unforeseen, unprecedented, and uncontrollable events related to Covid, doesn’t it hold that I can get something for nothing (a portion of my student loans) as a result of those same events? If we are worried about economic stability and growth in our current business owner sector, can we be equally worried about the economic stability and growth of our soon-to-be or desire-to-be business owner sector?”
There is obviously bias for the student loan borrower to think that way.
I am neither a business owner nor a student loan holder so I don’t have a dog in the fight. I see both reason and hypocrisy in both positions. If I had to vote, it seems like both apply or neither apply as good policy. Picking one over the other doesn’t seem as evidence based as it seems politically motivated from where I sit.
It’s hard to make a disinterested analysis when you (me) are an interested party but I think that to the extent I know myself I believe it bec it’s right, not bec it benefited me. If the govt says we’re going to shut down your business and everyone else’s business and you’re all going to starve to death, we would rather they just got out of our way and made our own risk-benefit analyses. But IF they are going to distort the market to an extent probably never before known in the history of our country, something more akin to a dictatorship like China, I think the least they can do is to offset the damage they did – they did, after all, force everyone to destroy their own businesses through no fault of their own.
I think voluntarily taking out a student loan and then simply deciding you don’t want to pay it off when the citizens who made that loan are counting on your payments is completely different.
I think it would be more akin to someone took out a mortgage or car payments and one day just decided to stop making payments. The govt did not make you take out that loan. The difference of course is that with the latter there is a tangible good that can be taken from you whereas the degree really can’t. Perhaps for students that don’t pay back loans we can have the university not send transcripts or confirmation that person ever attended unless the loans are being paid off. Not sure what the recourse is other than wiping out one’s credit.
I look at the PPP and stimulus payments and student loan holiday a little differently.
If you remember, this was a time when GDP was contracting in a massive way (because no one went to work in the 2nd quarter of 2020). A massive amount of liquidity needed to be pumped into the economy. It was impossible to do this both quickly AND in a fair way. So there was always going to be some “collateral damage” when it comes to fairness. Kind of like having a military. When you need it, you need it and there’s always going to be a lot of waste like a couple of extra aircraft carriers you never actually needed.
Great post. The first commenter’s political rant basically proved the point!
As did much of the discussion of this post on the WCI forum: https://forum.whitecoatinvestor.com/general-welcome/434169-discuss-latest-wci-blog-post-why-people-mistakenly-think-the-us-economy-is-terrible#post434387
I appreciate you keeping up with their posts and continuing to bring data and a level-headedness forward. It’s very clear the US has handled things as well as or better than every other developed economy in the world through COVID times. I do wish we did less governmental spending AND raised taxes, but somehow modern monetary theory is winning thus far.
I’m going to use the Jim statement and say you wrote the article that I wish I wrote. Ha. Except I’m a terrible writer so better you than me. I just recently read another economist write a similar article also stating that despite sentiment being so bad, this is the best economy since the 90s.
I think the leading reasons sentiment is so high (which you mention) is because the higher prices from recent inflation haven’t set in yet and the salaries growing more than inflation hasn’t yet had an effect on those higher prices. Now if this keeps up for several more months then that will change.
The other big thing as you mentioned is just the partisanship is so much worse now than any time we’ve had in the recent past. Even looking at the comments you can see people clearly have their political views and would rather cut off their arm than admit something good happens under someone they didn’t vote for. I mean, we are at all time highs for the stock market and you’d think the world is ending. I think people need to start getting their news from more middle of the road sources, get out of their corners, and only watch puppy videos on social media. Best thing I ever did was get off social media.
If you think the president or any politician knows anything about where markets are heading your head is on backwards
As Nick Murray says, Buy equities when you have the money and sell when you need money
One man is fully responsible for the devisees we see daily in our lives and in politics
Quite amazing!!!
Like you, we were able to weather the last 3 years without significant impacts to our standard of living. However, our 4 kids and 10 grandkids struggled and continue to struggle. I volunteer to do taxes for people with incomes under $100K (raising families of 4-6 on $60K), so I get another perspective. Many are facing increased costs for education, food, RENT, housing, cars, gas, insurance, registration fees, interest rates, taxes/real estate taxes, and HEALTHCARE (high deductible plans mean they pay out-of-pocket). Their wages went up 0-3%/year over the last 3 years, no increases beat inflation in their fields. A major car repair or medical procedure has to be put on a credit card with high interest rates which makes it difficult to pay off quickly. So if you aren’t in the market, I can see why people are critical of the economy.