Biden’s economy is booming! At least on paper, where the numbers show us that its economy has been growing quite a bit faster than comparable economies like Europe, the United Kingdom and Japan. On top of that, unemployment is still extremely low and inflation is now falling faster than ever. And, yet, recent surveys reveal that Americans are very negative about their economy, and especially the way that president Joe Biden Handled it, compared to Donald Trump.
So, how is it possible that a seemingly booming economy could cost Joe Biden the election?
Are people just imagining things, or is the economy really not as good as it seems on paper?
To answer these question, I have been scouring the internet for convincing explanations from economists and, I’ve actually found 3 fascinating theories that could explain the difference between what the numbers say and how voters feel about the economy. Theories that range from increased inequality, to increased media negativity, to Republican states like Texas and Florida outperforming Democratic ones like California and New York. Theories, that all have some pretty convincing evidence to back them up.
But, which theory has the most convincing evidence? Well, to answer that question, let’s first review the
Key numbers which suggest that Biden’s Economy is booming
Specifically, we’ll have a look at the four most commonly used indicators to reflect how well average Americans are doing economically: real GDP, which is GDP corrected for inflation, inflation itself, unemployment, and the average real wage, which is the average wage, again corrected for inflation.
First, as you can see here, America’s real GDP per person indeed looks relatively good when compared to other major economies such as Europe, the United Kingdom, and Japan. Everyone was hit hard by the Covid pandemic lockdowns. But, only America’s economy recovered to the pre-Covid trend line, potentially due to generous economic stimulus provided, first by Trump and then by Biden.
Stimulus that likely gave businesses the confidence to quickly re-hire everyone that lost their job when the pandemic began, meaning that after a big spike unemployment is again at an all time low.
However, there was also a dark side to this recovery, unprecedented inflation, making life much more expensive for ordinary Americans. Sure, many of these price increases were caused by pandemic related supply chain disruptions, and later the war in Ukraine. However, most economists agree that without generous stimulus measure, the massive inflation spike you see here would likely not have happened, or at least reversed more quickly afterwards.
And, while the GDP numbers still look good when corrected for inflation, the same cannot be said for real average wages, which as you can see here, have only recently returned to their pre-pandemic trend, as inflation fell.
But, okay, before we get into this drop of real wages here, we need to talk about something strange. You see this bump over here. It means average real wages went up at the start of the pandemic. But, why?
Well, we can actually see this bump because at the start of the pandemic many vulnerable people lost their jobs. And, with a lot of low-wage earners out of a job, the average wage actually went up, because it only reflected the wage of higher earners. But then, as the more vulnerable workers were hired back, the average real wage dropped again.
So, yeah, the bump at the start of the pandemic is pretty meaningless for judging how well the economy was doing and, for now I think it is best to ignore it, and just focus on this drop over here, which makes clear that most working Americans saw the spending power of their wages drop during Biden’s tenure because their wage growth did not keep up with inflation.
So, if we look at all the metrics, we can see that America’s economy definitely took a big hit from the pandemic. First, GDP dropped massively, while unemployment rose. But, then, as stimulus kicked in, GDP and unemployment recovered. However, then, inflation spiked so much that actually, for a long time the average wage corrected for inflation fell and it only recently recovered. And while that looks bad, it can always be worse as real wages continued to fall in Europe, the United Kingdom, and Japan in 2023.
So then, why are Americans just as negative as, for example, Europeans about the state of the economy?
Well, while there are many explanations circulating online, I only found 3 to be supported by at least somewhat convincing evidence. Of these, Biden’s favorite explanation is that you are being
Misinformed by the media
Which is quite refreshing right? This time, it’s not Trump that is lashing out to the media, it is Biden who said that the media isn’t properly reporting about the state of the economy.
And, let’s be honest, it is true that especially on social media like, here on YouTube for example, videos about the collapse of the American economy were trending in 2023, even as the economy recovered from a global pandemic shutdown. Therefore, some started to say that 2023 was not the year of an economic recession. But, rather the year of a vibecession, in which just the ‘vibes’ were really bad.
But, why were the vibes in the media so bad?
Well here, many have pointed out that the cause could be something called ‘negativity bias,’ which means that, when given the choice, people tend to watch negative news stories more often than positive ones.
But, are Americans more exposed to negative news than, for example, Europeans?
Well, yes that is likely for two reasons. The first is that Americans, on average, rely more on social media for their news, which is extremely competitive and therefore creators are more likely to exploit your negativity bias to get views. The second reason is that, even if you just look at traditional media, Americans are more likely to be confronted with sensationalized negative news as their media landscape is much more commercialized.
But, is this really why people were so negative about Biden’s booming economy?
Well, recent research by economist does show that media sentiment about the economy has gotten significant worse over the past fifty years, even as the economy kept growing. However, as you can see from the red line over here, when Trump was president, economic news also got way more negative. But, at the same time, the economic sentiment measured in an influential survey by the university of Michigan, which is the blue line, remained much more positive.
So, I don’t think negative news stories can fully explain the vibecession under Biden, which brings us to our second theory which states that not only is the US media exceptionally competitive and therefore negative, it is also uniquely
And, strangely enough, the university of Michigan survey shows that the implications of this political polarization are very important for how people feel about the economy.
For example, as you can see here, when Donald Trump was elected in 2016, Republicans were suddenly really optimistic about the economy, while democrats all of the sudden thought the economy wasn’t doing great. Similarly, when Biden was elected in 2020, republicans all of the sudden thought the economy was doing poorly while democrats thought it was doing great.
Of course, that fact alone cannot explain why Biden’s economy is so much more unpopular than that of Trump. After all, given that both parties are roughly equally popular, on average how people feel about the economy wouldn’t change that much if there’s a new president.
Sure, under Biden, Republicans hate the economy. But, that was to be expected. However, surprisingly, Democrats are also relatively pessimistic about the economy right now. That is Biden’s real problem.
But, why are Democrats so negative about Biden’s booming economy?
Could it be that for them, it is not really booming?
Well, if you look at America’s economy state by state, and then hold that next to a map of voting patterns, you can see that it’s mostly the red state economies that are darker on the economic growth map, meaning they are the ones that have been booming.
But why are red states doing so much better than blue states? Well, one plausible explanation that has been put forward by economist Noah Smith is that highly restrictive zoning regulations are making it all but impossible to build new houses and factories in blue states. This is contributing to unaffordable housing which then leads to increased homelessness and migration to red states. ironically, it also means that Biden’s massive subsidies for new factories are mostly benefitting red states.
This could explain why democrats are relatively negative about the economy, which in turn could explain why on average people are so negative about the economy.
After all, citizens of booming republican states will be negative about the Biden economy anyway. So, there it matters less what their economies are doing. Meanwhile, while blue state citizens states are still more positive, than those in red states, they are not super positive because their economies are genuinely not doing as well.
If this is true, it means that political polarization is causing Mr. Biden’s economy to be underappreciated rather than media negativity.
But, what if both of these theories about an underappreciated economy are wrong? what if regular Americans are right, and, actually, the numbers are wrong thanks to
Something that can essentially already be seen if we look back at the difference between real GDP, the average income, and the average real wages of American workers. As you can see here, while real GDP dropped during the pandemic, it then recovered quite quickly. However, here we can see that real wages, have really only now just recovered to their pre-pandemic trend.
Essentially, that means that average working people have felt the impact of rising prices more than they have seen their wages increase up to now. So, from their perspective they were genuinely experiencing a recession. And so, they were right to feel more pessimistic about the economy, really until now. And indeed, it is only now that we see that people are getting more optimistic about the economy.
Some more evidence for this theory can be seen if we look at income inequality in the United States. Here, we can see that while it got a lot better in 2020 and 2021, mostly thanks to Biden’s stimulus checks, inequality then once again got way worse in 2022, as the stimulus measures ended.
Similarly, if we look at the supplemental poverty rate, which takes into account the rising cost of living due to inflation, we can see that it is now higher than it was when Biden took office, even though, like general inequality, it had dipped significantly tanks to Biden’s relief funds during covid.
So, while average GDP growth looks pretty good, lagging real wages, and increased inequality suggests that it is plausible that up to now only a few Americans really profited from Biden’s booming economy and therefore it makes total sense that most Americans are as pessimistic as their European counterparts.
On the other hand, if we look at the surveys, we can see that while those that filled them out were relatively negative about the economy, they were actually quite positive about their own financial situation.
Which is why to me the most logical
is that all of these factors play a role, although not equally so.
Most importantly, I think we need to recognize that inflation genuinely made it so that most people experienced a recession. Something that can be seen if we look at real wages but not at real GDP.
Second, I think the fact that voters feel so different about the economy if their favorite president is in charge is so big that it could really mess with the reliability of the overall surveys. And, so, the fact that red states outperformed blue states by a lot and benefitted from Bidenomics could really have impacted economic sentiment.
Third, while, I did think it was interesting to see research that confirms that the media is getting more and more negative, it is part of a larger tend that is not unique to Biden.
So, overall I think it made sense people were more pessimistic than the headline GDP numbers suggested. But, luckily for Biden, inflation is now coming down rapidly and real wages are recovering. And, law and behold, people are now once again becoming more optimistic about the economy.
But, whether or not that effect will be big enough to swing the election in Biden’s favor… Well, we will just have to see. In the meantime, I just want to thank my patrons and members for giving me the financial stability to avoid having to tap into your negativity bias too much here on social media.
And, yeah, let me know in the comments below, what you thought about this take? Were these 3 the most important reasons for the difference between sentiment and the data about the economy? Or do you think I missed another credible explanation?