Joe’s Truly Excellent Economy
Most people are better off than they were before COVID. And America’s economy is the envy of the world. So. Much. Winning.
Before we get started: I’m getting a little exuberant today, but only because Noah Smith and some of the green eye-shades at the Financial Times are giving me cover. Get buckled up for that rarest of birds: Optimistic JVL.
In the spirit of exuberance, here’s a 20% off upgrade offer:
1. Excellent. Party On.
I got a lot of pushback from
my best friends people after Thanksgiving when I said that the economy was actually pretty good and that the people who say the economy is very bad—just like the Great Recession!—are suffering from a mass delusion.
“You’re such a Biden fanboy,” they said.
“You don’t understand the trials of the average American,” they said.
Fair enough. But here is noted prog-skeptic economist Noah Smith’s assessment:
[T]he U.S. economy is truly excellent right now.
Truly excellent? Even I’ve never gone that far!
Noah goes on to explain why things are so good, but the bulk of his piece is about the power of narrative.
What Noah illustrates is that if you’re hell-bent on seeing the economy as being bad, then you can spin any piece of data into part of a story about American Carnage.
For example: Participation in SNAP programs is up. You could see this as a negative—more people need food stamps—or as a positive: More people at the low end of the economic scale are now able to qualify for food stamps because they’ve been able to get jobs. (Work requirements are part of SNAP programs.)
Another example: The Bureau of Labor Statistics (BLS) expects slower job growth for the next ten years. But, as Noah points out, that’s not because the economy is fundamentally weak. It’s because the workforce is aging and we are near full-employment.
You can only add so many jobs to an economy where everyone is already working.
The narrative is why we get headlines like this:
At this point, it’s almost a joke where we expect NYT stories like: GDP Growth Tops 5%, Creating Trouble for Biden.
This media narrative is probably a contributing factor to the mismatch between people’s feelings and reality—just as partisanship is a contributing factor. But they have media and partisanship in Europe, too and when the FT’s John Burn-Murdoch looked at the gap between economic reality and consumer sentiment in the U.S. and Europe he found that only America has it.
And it gets weirder: The gap between reality and perception in the U.S. isn’t just real, it’s enormous—even though, compared to Germany, France, and the U.K., the American economy is in much better shape!
A brief aside: Why is the U.S. economy in better shape? Because of policy decisions made by the Biden administration. Here are the Democratic shills at . . . the Financial Times?
The US economy is soaring. It grew at an annualised 4.9 per cent pace in the third quarter. That followed three quarters where growth exceeded the 2 per cent or so many people see as the long-term speed limit. . . . Meanwhile, Europe is stagnating. . . .
Since the pandemic . . . the two regions have diverged massively. Both recovered better than anyone had expected — but the US much more so than the EU. . . .
Let’s first note that the two have had pretty similar monetary policy. . . . The obvious other suspect is fiscal policy. And here there is a big difference. The next chart shows one measure of fiscal stimulus: the change in the government’s primary (before debt service) deficit in the US and the EU. America’s increase in 2020 was more than 2 percentage points of GDP larger than the EU’s. . . .
[S]ome US policies were more progressive than Europe’s. They focused on unemployment benefits, which were temporarily made very generous, for those who lost their jobs rather than on wage support for those who kept them but were temporarily furloughed. The US also saw significant wage compression as the strong labour market in the recovery raised wages faster at the bottom than at the top. All this, plus the direct cash distributions Washington opted for several times, made for a much larger accumulation of unspent money in the US than in Europe . . .
At least one lesson for policy can be tentatively drawn. It seems clear that the size and nature of Washington’s pandemic fiscal stimulus is still bringing the American economy significant benefits. Despite the chorus of criticism from the pillars of the economic establishment that the fiscal response was too big, that response is still holding up the US economy at no greater inflationary cost than what the EU has experienced.
Yeah, you know who gets credit for all of that?
Moving on . . .
2. Happy Talk
Here’s where I’m going to swerve and tell you why maybe everything turns out okay.1