How the economy is doing has always been a contentious topic, particularly when friends and family with different politics gather for Thanksgiving dinner. And the question has gotten even thornier this year, with consumer sentiment and polling data about the economy becoming historically de-linked from official measures of economic health like GDP. It’s not our job to tell people how they should feel about the economy, but we can at least add some facts as context to common complaints.
Myth: “The economy is simply bad under the Biden administration”
In January 2020, the share of Americans saying that the U.S. economy was in “poor” shape was below 10%, but in recent months that share was above 40%. However, the unemployment rate in early 2020 and the middle of 2023 was essentially identical. The share of adults between the ages of 25 and 54 with a job was actually higher in the more recent period. Economic growth in the last quarter of 2019 was 2.6%, while it was 4.9% in the third quarter of 2023. The economy is growing (at least) as fast as it was pre-pandemic, and jobs are more plentiful.
This higher-pressure labor market has substantially eroded inequality in wages. Consider one metric of inequality—the ratio of the 90th-percentile wage (the wage earned by the worker who has higher pay than 90% of the workforce) to the 10th-percentile wage. Between 1980 and 2019, this ratio rose enormously by about 34%. But a full third of this 39-year increase has been erased in less than three years after 2019 because of rapid growth in pay for low-wage workers, which has not been a historical norm. If this inequality reduction sticks, it could well be the single most important development in the economy in decades.
Myth: “Inflation has crushed living standards and that was the Biden administration’s fault”
Inflation was too high for most of the past two years. But, average wages for most Americans are higher today than pre-pandemic even after accounting for inflation. So, jobs are both more plentiful and pay more than they did pre-pandemic.
As for blame, the case for the Biden administration causing inflation is extraordinarily weak. Inflation was global, with every single advanced economy in the world seeing a pronounced increase in inflation, even as these countries took widely divergent responses to the pandemic recession. As of today, the U.S. has substantially lower inflation and lower unemployment than nearly all of our advanced country peers.
Myth: “But prices won’t ever go back down”
That’s mostly right if we’re talking about an average index of all prices in the economy. But these broad indices never really do go down in absolute terms (at least not in modern times). And that’s fine—what matters is the relative growth of wages and prices, and so long as wage growth outpaces price growth, living standards rise. The economy has seen a significant reset of both wages and prices relative to pre-pandemic times. It would be nice to enjoy today’s nominal wages that are 20% higher than in December 2019 while still being able to pay December 2019 prices for everything, but it’s always true that it would be nice to have today’s wages and last year’s (or last decade’s) prices. But that’s not how the economy works.
For specific goods like energy and food, however, prices do often go down. And energy prices are way down relative to recent peaks—peaks driven by global events like the Russian invasion of Ukraine.
Further, some genuine progress has been made in ameliorating long-running cost pressures on U.S. families stemming from health care and education. The American Rescue Plan (ARP) lowered drug prices and provided more generous aid to families buying health insurance in the individual market. And the administration has tried to cancel significant amounts of student debt and expand programs that allow less burdensome repayment plans.
Myth: “The Biden administration kept gas prices high by stopping domestic oil and gas drilling”
For good or bad, this is flat untrue—the U.S. hit an all-time high in gas and oil production in 2023.
Myth: “Debt is out of control in recent years”
The federal government’s debt measured as a share of the nation’s gross domestic product (GDP) has fallen since the first quarter of 2021 (the Biden administration’s first quarter in office). While it is true that the American Rescue Plan boosted deficits substantially in the first quarter of 2021, that was by design and the ARP was the reason why unemployment recovered so quickly in the wake of the pandemic recession as compared with previous crises. But since this planned boost to the deficit jump-started recovery, we have seen some of the largest one-year reductions in federal government borrowing in history. Key Biden administration deficit-reducing actions include a tax on stock buybacks, a minimum corporate income tax, boosted Internal Revenue Service (IRS) enforcement to stop rampant tax evasion and avoidance among the rich and corporations, and reforms to stop pharmaceutical price gouging of public health insurance programs like Medicare.
“So, you’re saying everything’s great now?”
The economy still has plenty of challenges and problems. We allowed a significant and compassionate expansion of the U.S. welfare state undertaken in response to the pandemic to roll back in 2022, causing a huge one-year rise in poverty (and particularly child poverty). Despite a pronounced upsurge in workers’ interest and activism about joining unions, we have not fixed the legal and policy roadblocks to protect this vital right. The federal minimum wage remains at $7.25, and in inflation-adjusted terms has hit its lowest level since the 1950s. Our care economy institutions are in near-crisis and need public investment. Tax rates faced by the richest households and corporations are at the lowest levels in decades.
On each of these issues, however, progress would be made if even a sliver of Republicans in Congress would get on the right side of these issues.
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