Things are pretty good for America's workers these days. Wages are strong, lots of new jobs are being created, and the unemployment rate is a low 4.6%. What's more, families have plenty of savings socked away and debt levels are low.
And yet surveys show that a big majority of people think the economy is in lousy shape. So what's going on? Neil Irwin dives into this puzzler:
The reasons seem to be tied to the psychology of inflation and the ways people assess their economic well-being....“The major issue is rising inflation and falling confidence in economic policies,” said Richard Curtin, who has overseen the University of Michigan survey for decades. “Consumers see rising prices, and they see no policies that would correct it.”
Well, golly, what could account for this? Why would people be spooked by high inflation that's only been around for a few months and isn't really all that bad anyway? Especially when wages have been keeping up with—and sometimes even exceeding—price inflation?
Man, that is a mystery. I just don't understand where such an odd belief comes from.
Boomers retiring is whats been dropping the unemployment rate since 2009. You probably need it down to 2-3% for a boom......yeah, the late 10's economy wasn't that great. Just another mid-90's style recovered economy. Americans love debt or capex based booms too much, I agree. Another plus is the Boomer retirement phase is ending.
Remove auto and it shows elevated inflation which doesn't match with some existing factors. Something tells me central banks need to scare producers.
Standard Republican talking point.
The only difference this time is that there is a little inflation. And prices have spiked for a few items, so people notice it. It will dissipate once the supply chain rights itself. In the mean time, ready made news items. Shortages: chipe, video cards, cars, used cars, Apple phones, lumber, housing, gasoline, natural gas, oil, etc... When the prices start coming back down for one item, move onto the next...
I'm guessing the real anxiety causing news is the price of gasoline, which really has no relationship to overall inflation. Not that anyone would know this from mainstream reporting.
Inflation this year is real and for people whose companies/institutions are adjusting their salaries based on "historic" inflation rates, it means playing quite a bit of catch-up going forward. If you're only given a 2% raise this year because that's "the historical inflation rate over the past 5 years" you're getting screwed. Maybe some companies or institutions will adjust for that next year, but not likely. Maybe if you're in a powerful union.
A little inflation anxiety isn't going to do much harm. Biden's not nominating any lunatics to the Federal Reserve board. By spring they'll have inflation right where they want it.
Even the twelve-gallons-of-milk people will figure out they still have enough in their wallets to cover it.
By the way, don't a lot of middle-income Americans have fixed-rate debts? A little higher inflation is a boon to them.
Yes, I refinanced my mortgage into a 2.38 fixed rate 15 year loan. I'm not freaking out over inflation but I'm keeping my eye out as I doubt my job salary will keep up with inflation given the current political climate.
To be honest?
Because the people controlling that narrative are, for the most part, Boomers - who experienced the 1970s and 1980s as prime working age adults (with children/families). So it's irrationally scary to them, and they market it in such a way to make it irrationally scary to everybody else.
Amen.
In this instance, it seems likely that indeed the generation(s) that were working age 1970s through 1980s and are also relatively weighted now to retirement (thus fixed income) are indeed driving the media narrative.
While not entirely irrational for them, it is clearly so far an over-reaction. So far. The rational part could be attributed to fear that one can see some basis in a fear that generations not having experienced surprise 1970s inflation and overly poo-pooing inflation risk will not react in time.
Which is not entirely w/o foundation although I would be confident in Central Banks whose approaches and tools are better than those that led to the 1970s errors.
The people controlling the narrative are not boomers, they are bankers who *never* want any inflation because they are borrowing short and lending long. And their lobbyists and PR folks can always find some "real working Americans" to complain about the price of milk. Funny, nobody ever complains that their house went up in value.
Indeed.
Germany is still hypersensitive to inflation risks based on the Weimar Republic hyperinflation of almost 100 years ago ... not that what THAT led to isn't something to be hypersensitive about.
America's economic fears have for a long time centered on the Great Depression -- and DEflation -- but the fairly miserable economic experiences of the 1970s and early 1980s are starting to eclipse that.
Weimar hyperinflation began and ended some years before the Nazis were anything beyond a joke. What catapulted Hitler and his goons into power was the Great Depression when one out of three workers was unemployed.
And season that with coverage of recent (historical terms) hyperinflation in various countries and what it did there and even those who didn’t experience the 70s/80s will wonder/worry.
Kevin: "[Inflation has] only been around for a few months and isn't really all that bad anyway"
*Annual* Social Security COLA adjustment will be 5.9%
--> Kevin refuses to address that issue. <--
Does he think the COLA adjustment should be smaller?
Does he think 5.9% isn't all that bad?
If there are a *few months* of inflation, does that mean inflation isn't a problem?
Kevin know the answer to those questions are NO, NO, and NO.
Cola follows flawed government inflation stats.
Four of the five posts that Kevin links to uses data from
USDA Agricultural Marketing
Bureau of Labor Statistics
Federal Reserve
The one that didn't, had no data and was a fact-free opinion.
Apropos of nothing, this is something that's always annoyed me when some old geezer whines about "being on a fixed income."
As opposed to what? Those of us in the workforce who are lucky to get any raise at all, much less an automatic COLA? Those of us who could be fired without cause at any minute?
In those cases (that is, the real world), a "fixed income" sounds pretty good. Cushy, even.
/endRant
Kevin: "wages have been keeping up with—and sometimes even exceeding—price inflation"
Cash savings have not been keeping up with price inflation. Interest rates are, at best 0.05% (most small accounts accrue 0;01%). That's not 5%, but 1/100th of 5%.
That is a function of the FED keeping short term interest rates low to stimulate the economy. It is not a direct reflection on inflation. When the Fed raises their rates, in part to curb inflation, then the rate the bank pays will go up--to a point.
Aside from the drumbeat of scare stories about inflation and worker shortages, I do think it's the supply chain problems that are actually giving most people the sense that something in the economy is broken.
Doesn't matter how much money you have socked away if half of the stuff you want at Ikea has been unavailable for a year now.
I hope the supply chain issues help people realize most everything they're having to wait for is a want and not a need. It's time to cut back on our endless wants - for more clothing, a new car, the latest iphone, the newest 8K TV, you name it. Our lives will not be made unbearable if we can't have everything we want right this minute.
Shortages are sporadic and local, not nation wide-- often depending on A) how much panic buying your neighbors are doing and B) how far you live from a major sea, lake or river port. Here in and around Baltimore there are no barren store shelves beyond what we normally have (in poorly run stores which fail to restock promptly). Probably because we have a port here and a good transportation network for getting goods from port to retail in the region. And because out population is less likely to tune in and believe Faux News and other such sources acting like we're suffering shortages on the level of a besieged and starving city.
An acquaintance always brings up Weimar Germany, with its images of folks pushing wheelbarrows of currency. This individual also believes in the efficacy of ivermectin to cure COVID and that vaccinations are a totally individual choice that the government has no business with.
Do y'all have any other "belief linkage" anecdotes to add?
The traditional Trumpublican base of wealthy people and corporate bigwigs tend to be more anti-inflation than other people because any inflation inevitably leads to a struggle of labor demanding higher wages and consumers demanding lower prices ... pushing from both sides on corporate profits.
So they are happy to promote the inflation bogeyman.
And of course they also promote stupidity about COVID because if COVID is contained, Democrats at this point will get most of the credit for it.
Good explanations! On the COVID front, how can the US have fallen to the point that one of the two parties not only doesn't care about trying to do what's best for the American people, much less their own constituents, that they are actively trying to kill them, make their lives miserable, and eventually render them irrelevant by breaking democracy??
It's not new. There's a reason anti-business blue states tend to do better economically than pro-business red states. For the last hundred years, at least, Republicans have been about doing what's best for a small class of mid to large scale business owners and those with inherited wealth. The Republican response to COVID was 100% predictable. Thank heavens a Democrat was in the White House when Japan attacked Pearl Harbor.
Covid simply isn't that big. Your not getting it.
Ask the 775,000 dead people's families. A classic Rep. response. Cruelty is the point.
Because so many of us are counting pennies to make ends meet. Me, it's pretty much Social Security, and I come up short every month. Any rise in prices has me wondering if......
That's a tough place to be in. People who scoff at those on fixed incomes should try it sometime. It's not all that much fun.
Maybe, but no one getting Social Security is on a fixed income.
Gas prices. Anyone who commutes is very price sensitive on this one item.
Gas prices have been worse.
The "We're turning into (Gasp!) Venezuela" meme sells papers, buys conservative votes, impoverishes the work force and increases corporate profits. What could be more American than that?
Well, America did elect and angry man in a red hat who spent a lot of time yelling about the press president...
I remember the 70s as a good time to be working. Raises might lag a bit, but they kept up with inflation. A lot of people had union jobs, so they got raises and other employers had to follow or they'd lose their workers. It was a great time to be a borrower since you knew you could pay back your loan and fixed mortgage with cheaper dollars every year. The people who were worried about inflation were the wealthy who were reliant on people paying back those loans with ever cheaper dollars. Since they, as now, control the media, inflation was the big story.
P.S. Does anyone else remember the rise of supermarket super-generic products. I remember one store selling canned pilchard. It was probably good fish, but they should have changed the name.
Re: Generics
Do I ever remember! A number of movies (etc) mocked that trend, too. I recall one scene (and forgot what movie it was in) where people in the kitchen were opening up cans with plain white labels that read simply "FOOD", then reaching into the refrigerator to bring out a cold can of "DRINK".
The most recent of your charts for those were from way back in March of 2021: https://jabberwocking.com/american-workers-are-in-pretty-great-shape/ and sure, at the time it showed those nice little added lines in a good light. But it also showed/suggested they were returning to the norm. The "Its only temporary" assertion would seem applicable to both the "good" and the "bad" things taking place as part of the pandemic.
Speaking of returning to norm, I don't know my way around FRED as well as Kevin, but it would seem the savings rate today is actually lower than it was January 1, 2019: https://fred.stlouisfed.org/graph/?g=Isw6 and not much higher than the low point of that year.
Debt levels were not low in 2019. Instead of the primary dealers, people were using subprime commercial banking. They will again. You don't seem to get how debt cycling works. 2020 these banks were hemorrhaging money and needed to Jack up rates, which would have eventually slowed the economy(interestingly making it worse in gathering payments).
Savings have been declining since 1979 because growth has been dying.
The early 20's German inflation (or even more recent Zimbabwean or Venezuelan) analogies are economically and historically bogus. As long as the dollar remains a global reserve currency, and as long as we are not forced to print money to pay massive war indemnities imposed on us by allied powers following a huge world war that we have lost, inflation is not going to get out of control. Furthermore, hyperinflation was long over by the time Hitler came to power -- it was the Great Depression in the early 30's that paved the way for the Nazis, not inflation.
Current inflationary pressures are a result of supply chain and labor disruptions caused by the pandemic, not an oversupply of worthless currency.
The great depression was the left hegelian battle cry.
https://www.cnbc.com/2011/02/14/The-Worst-Hyperinflation-Situations-of-All-Time.html
In 1937 unemployment peaked at about 25%. At that time that was around 15 million people. Today that would be 51 MILLION people.
FDR created just from creating the TVA and WFP(?) almost 9 million jobs
But it took until Dec 1941 for unemployment to dip below 8-10% and it went real low after that, not getting above 5% until the late 50s or early 60s
Anyone trying to compare todays economy with yesteryears economy is woefully ignorant.
Think about this. I'm an early boomer. My dad remembered the great depression. So what he imparted on ME was always save, never speculate. By the same token it was easier to save back then as well. He bought US savings bonds that paid 8 to 10% interest. My father in law had a bank CD that paid 12% interest until he died in the 2013 time frame. As long as he renewed the CD they could not lower the interest. And they tried !!! Talk about a pressure campaign.
But that age group was fearful of debt and cast a weary eye on speculative investments.
So yeah, the pressure from THEIR parents regarding the great recession and FDR helped them navigate the baby boom time frame
But never forget the biggest impact the WWII generation had on the world was the population growth after the war.
It was staggering. It also explains the level of pollution and climate change and a lot of other things.
It was 9% going into 1941 adding in WPA workers. 5.7% by December when Pearl Harbor hit. 4.2% by March.
But I have all these gold coins to sell...
/s
Kevin,
You are looking at it in macro terms, in which, say 5% inflation is offset in general by 5% wage increases. But this assumes that EVERYONE gets a 5% wage increase. I'm betting there are tens of millions of people out there who are not getting any wage increase. I know that I am one of them - pay is frozen for two years at my workplace. So a 5% rise in prices means I am effectively taking a 5% pay cut. Ouch.
But this assumes that EVERYONE gets a 5% wage increase.
We all tend to operate in terms of large numbers, ignoring subsets, when it comes to discussions like this. (Or we get utterly personal, painting our experience on the larger society).
For what it is worth this is, of last Septermber', the moving 12 month moving average of median wage growth.
!st quartile:4.9%
2nd quartile: 3.8%
3rd quartile 3.2%
4th quartile 2.7%
[CPI: 5.4%]
The wage disparity is normal. the top 25% do quite well, the rest no so much - this applies across all levels of blue collar work as well as white collar.
The 5 links in the final paragraph link to posts debunking/questioning claims from:
CNN
WSJ
WSJ
WaPo
NBC
For good measure, here's a NYT link every bit as scaremongering:
https://www.nytimes.com/2021/11/02/podcasts/the-daily/inflation-economy-pandemic-biden.html
The media problem for the country, and for Democrats in particular, is more than just Fox. The distortions of so-called mainstream media can be more damaging because they are expected to be nonpartisan and more reliable. I would contend Hillary Clinton lost in 2016 less because of Fox and Facebook than because of the NY Times, WaPo, CNN, and NPR. There was some legit news to report, but all the sensationalizing and hyperventilating were an abandonment of journalistic standards and common sense. We saw the same thing with reporting on Biden's withdrawal from Afghanistan. So it goes with inflation.
I would contend Hillary Clinton lost in 2016 less because of Fox and Facebook than because of the NY Times, WaPo, CNN, and NPR.
Al Gore lost for similar reasons in 2000.
https://www.cnbc.com/amp/2021/11/08/fed-vice-chair-clarida-says-another-year-of-inflation-like-this-one-would-not-be-a-policy-success.html
If the grocery aisle shows increases, lack of increases elsewhere won’t register or matter: https://www.marketwatch.com/amp/story/high-inflation-causes-meat-sugar-and-other-grocery-staple-prices-to-soar-11636726612