The economy is bad – economists are too optimistic by not comparing to pre-COVID era.

Naturally, the chattering class’s first step in figuring out what’s at the root of Americans’ pessimistic attitudes about the economy is to discount them. Economic commentators like Kyla Scanlon have coined terms like the “vibecession” as a way of explaining how, when the economy is good, people still just feel bad about it. And although Krugman and others claim to be adopting more sophisticated analyses, their conclusions really come back to some version of the idea that the economy is actually good and the “bad vibes” are in our head.

Krugman’s most recent articulation of the paradox focuses on the idea that Americans are evaluating the national economy very differently than their personal financial situations. People feel good about their personal situation but bad about the nation as a whole. To draw this conclusion, he points to the Federal Reserve’s October 2023 report, where 72% of survey respondents reported that they were “doing okay” (39%) or “living comfortably” (33%). Conclusion: people feel good about their individual financial situations.

But taken in another light, these data don’t paint the rosy picture Krugman sees. Most respondents said they were in “about the same” shape as last year (48%), while more people said they were worse off (31%) than better off (21%). And 28% of respondents reported that they were “finding it difficult to get by” or “just getting by.” Furthermore, it’s not at all clear what the most popular selection, “doing okay,” really means. Couldn’t those who report they are “doing okay” still be suffering from high prices and housing costs? Indeed, shouldn’t the main takeaway here be that just 33% of Americans report living comfortably?

How people experience the economy is a complicated question. By and large, analyses like Krugman’s and Scanlon’s are static and don’t account for critical over-time contextual information that shapes voters’ attitudes toward the economy. In particular, they don’t account for the fact that most people are comparing their current position not to last year or the year before but rather to the pre-pandemic economy.

“The Job Market Is Booming!”

Commentators’ truncated time horizon is an especially serious problem for explanations of job creation and relative wages. Despite the fact that inflation surged in 2021 and 2022, says Krugman, “wages of nonsupervisory workers, who account for more than 80 percent of private employment, are up by about 24 percent, while consumer prices are up less, around 20 percent.”

It’s true that wage growth has outpaced consumer prices, but this does not mean working Americans are experiencing meaningful improvements in their quality of life as a result. Most obviously, even by Krugman’s own estimate, average real wages have only outpaced consumer prices by 1% per year since 2021. That’s not nothing, but it’s not much either, especially since growth in real wages over the past four years follows forty years of stagnation in workers’ purchasing power — driven by, among other reasons, a sharp increase in benefit costs and the decline of labor unions.

In other words, a 4-percentage-point increase in consumer purchasing power between 2021 and 2024 is hardly enough to make working Americans — struggling to get by after decades of spiraling income and wealth inequality, a shrinking middle class, tens of millions of lost manufacturing jobs, children earning less and less than their parents, and evaporating personal savings — feel that things are looking up.

Never Had It So Good?

The compound weight of decades of declining economic opportunity and the post-COVID inflation shock has generated pain among working-class Americans that’s not easy to shake. And while wage increases are met with cheers, workers are well aware that they have earned those increases — indeed, if worker productivity is any measure, they deserve much greater increases. They work hard, and a raise does not feel like a handout from the Biden administration — nor should it. Yet that’s exactly how pundits seem to think workers should respond.

On the other hand, inflation at the grocery store and persistently high housing prices does feel like a punishment for good behavior. And many workers blame Democrats for that. While the Biden administration has admirably focused on ways to make the economy work for working people, there are times when an over reliance on economistic thinking can make us forget the big picture.