“Oh cursed spite,” economics writers have been lamenting over the past few weeks. “Consumers hath a dim view, but thee economy is robust.”
The fact that the data about how well the economy is doing doesn’t line up with consumer sentiment is, to data people, a tragedy of epic proportions.
To me, the fact that people try to measure, with numbers, how people feel is on par with Shakespeare’s best comedies.
Imagine going into therapy:
“Well, the data on your income and spending habits this week indicate you’re happy, but your mascara is running down your face. I don’t understand the disconnect. Let’s look at more data to figure out why.”
In fact, that seems to be exactly what The Economist is saying here:
Although Americans report being worried about their finances, they are behaving as flush as ever—and in economic forecasting, actions speak louder than words. When used to project future spending rather than consumer sentiment, the same battery of economic variables has fully maintained its forecasting power since 2020.
I love data. I love economics. But data is a gateway to a story, not the story itself.
And these economics writers seem to be missing the story.
Boom Times are Here!
First, let’s look at the good data.
The economy, by all statistical measures, is doing well. We have the lowest unemployment rate since 1969.
(But that’s a bad thing, say supply-siders.)
Wages are up.
(This is making Larry Summers’ stomach turn.)
Inflation is coming down from its post-pandemic, supply-chain and greed-caused high.
(But the Fed says inflation was the fault of consumers, not greedy corporations, despite evidence to the contrary.)
Private investment in manufacturing has soared since Biden’s signature pieces of legislation: The Bipartisan Infrastructure Law; the CHIPS Act; and the Inflation Reduction Act.
The White House says it has incentivized over $500 million in pledged spending from the private sector for infrastructure, manufacturing and renewable energy.
Actual spending seems to be about half that. So far. A lot of pledged spending is stuck winding its way through local codes, with a big dose of NIMBYism.
But this private investment debunks the idea that public investment drives the private sector out. It has always been the case that public investment spurs private investment.
This is why we have the internet. And federal highways. Both of which were created by the government, and spurred the invention of entire economies that hadn’t before been dreamed of. Zoom meetings? The drive-thru window?
Elon Musk’s SpaceX is building off all of the research and development from NASA. A government agency.
How We Measure Success
Let’s look at the ecosystem of the economy as one corporation. Say, Uber, under Travis Kalanick.
“It’s a disruptor!” economists crowed.
“A new way of doing business!” tech people roared.
“He’s a young, hip, white guy,” the other young, hip white guys cheered. “We’ll give him money!”
Uber has become a staple of U.S. 21st century society. It has, like Kleenex, come to represent its entire industry. Even if people use the Lyft app, they often will say, “I’m gonna call an Uber.”
By all accounts, Uber has treated its employees badly and its customers as expendable. It ignored laws in various cities, using technology to go undetected.
Even drivers - who were supposed to be freed from corporate overlords - say driving for Uber is a rigged game, the company often puts their safety at risk, and it has flooded some markets with so many drivers, they can’t make ends meet.
One engineer, Susan Fowler, detailed how, in her first weeks with Uber, her manager messaged that he wanted to have sex with her, and that same manager wouldn’t let her transfer to another team because the company was losing women, and he would resort to kneecapping her career to keep his diversity numbers up.
“On my last day at Uber,” wrote Fowler, “I calculated the percentage of women who were still in the org. Out of over 150 engineers in the [Site Reliability Engineering] teams, only 3% were women.
People who work for Uber aren’t all happy with Uber. That’s clear.
But the corporation does well. It’s successful. And for economists, that seems to be the only measure.
Money and Happiness
The Biden administration has implemented policies that are taking us on the first steps down the long road to reverse 40 years of government policy decisions meant to keep wages low and stock returns high.
As former Clinton Labor Secretary Robert Reich says in his eminently watchable Wealth and Poverty Class, economics cannot be divorced from politics - and treating working people like crap has been a political choice.
During this time, workers and consumers (who are the same people) have felt helpless, and less in control of their lives. As I wrote in my piece, I Want To Speak to a Person, we feel nickeled and dimed, and we can't get easy redress for our complaints. We can’t even clearly order something online without getting hit with the “real price” after we’ve committed.
Add on to that the long-simmering post-recession housing crunch, when the rate of corporate or trust ownership of rental properties tripled. Even individual landlords don't manage their properties, but hire out property managers. Rents have risen way more than incomes, and renters often feel the property company is not responsive - especially as time goes on and the landlord wants to turn over the unit to charge more money.
We are also being TOLD to be gloomy. Advertising used to be focused on how wonderful the product experience was (remember “I’m Luvin’ It,” which never mentioned food?). Now advertisers are focused on giving people FOMO. “You got your hotel room for $30 less than mine,” the woman says indignantly. “Use the product I’m the spokesman for and you won’t be a chump next time,” comes the answer.
Why is booking a hotel room a competition?
So, it’s COVID’s fault, then
The paragraph from The Economist I posted above ends with this line:
…since covid began, the correlation between sentiment and both current and future spending has vanished.
They even include a handy chart that shows the correlation between the economy and consumer sentiment since 1980, which runs along the same line until 2022, when consumer sentiment got gloomier.
But the piece ends with a shrug. “Blame COVID” is their answer. Without telling us how, exactly COVID affected consumer gloom?
When COVID started, within two months we all got $1,200 checks, and $600 for each child.
Then we got two more rounds of stimulus.
More telling is that unemployment payments rose to $1,000 a week, which means lawmakers and their advisors know that people have to make at least $52,000 a year in order to come close to making ends meet.
This must have been a shock to people making $40,000 a year who had been told for so long that they were lucky to even have a job.
In addition, the 2021 American Rescue Plan raised the Child Tax Credit from $2,000 per child to $3,600 per child under 16 and $3,000 per child over 16.
The credit - which people normally claim when they file their taxes - was changed so that people got monthly payments. So they had the money when they needed it - not in April of the next year as one lump payment.
Most importantly, parents got the full amount of the tax credit, no matter the family’s income. In years past, if a family didn’t make enough to pay taxes, they didn’t get the tax credit.
Let’s remember, as Reich notes, it is government policies that have suppressed salaries and created a system in which more money flows to the top. Add to that the insult of, “You didn’t make enough, so we’re not going to help your children get what they need to learn and grow with this credit we give to children whose parents do make enough.”
In 2021 and 2022, the poverty rate for children plunged, to 5.2 percent. Then the higher tax credit, monthly payments and income requirement exemption expired at the end of 2022 (thank you Joe Manchin!), and - surprise! - child poverty has risen to 12.4 percent. That’s still better than the 14 percent rate in 2019, or the 22 percent of children in poverty in 2010, at the height of the recession, according to Pew.
VOX has a great explainer on this.
Collective Unconscious
The point is, we all feel this.
We felt, as stimulus and unemployment money came in, that we finally had enough income to make ends meet.
We felt like a weight had lifted when the child tax credits started hitting our bank accounts on a monthly basis.
When Biden announced he would forgive student debt, the colors of empathy started to creep into our Collective Unconscious. Our society cared about us. We were moving from “every man for himself” to “education is important for a society to grow, and we will hark back to the 1960s and help people go to college.”
That was all pulled away. By the Supreme Court invalidating student loan forgiveness. By the child tax credits reverting to $2,000, with no monthly disbursements and a block on families that make too little. All this was happening while prices were rising because of the lingering supply chain issues of the pandemic - and because of corporate greed, as UBS Global’s Wealth Management chief noted in the Financial Times.
Many of us know how it feels to see a ray of hope and then have it snatched away. We realize it when we get our dream job and find it’s a toxic work environment. We realize it when we find an affordable place to live in a good school zone, and get harassed or ignored by the landlord. We realize it when we are finally able to make ends meet, when it becomes perfectly clear that the argument that it was our fault we were making too little money was a lie. And then it is taken away by political leaders who profit from that lie.
It is much harder to lose a ray of hope than to never have had it at all. And this makes us, collectively, sad. Even as the economic signs are good.
Fix that, and you will fix consumer sentiment.