Biden's economy is booming, at least on
paper, where the numbers show that its economy has been growing quite a bit faster than
comparable economies like Europe, 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 President 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 questions, I have been scouring
the Internet for convincing explanations from economists, and I've actually found three
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
increase 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 speaking. Real GDP, which is GDP corrected for inflation.
Inflation itself. Unemployment and the average real rate, 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 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 the generous economic stimulus provided first
by Trump and then by Biden. Stimulus that likely gave businesses the confidence to quickly
rehire 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 measures, the massive inflation spike that 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 can really not be said for real
average wages, which, as you can see here, have only recently returned to their pre-pandemic
trend as inflation is now falling. 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 vulnerable people who don't earn that much out of a job, the average wage
actually went up because it only reflected the wage of these high income earners.
But then, as the more vulnerable people were hired back quite quickly, the average
real wage dropped again. So this bump at the start of the pandemic is pretty meaningless
for judging how well the economy was doing at the time. And for now, I think it's best to just
ignore it and just focus on this drop over here, which makes clear that, you know, when everybody
was hired back, most working Americans saw the spending power of their wages drop during Biden's
tenure because their wage growth, which did grow, did not keep up with inflation.
So if we look at 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 the 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 2023 for Europe, the United Kingdom and Japan. So then why are American just as
negative as, for example, Europeans about the state of their economy? Well, while there
are many explanations circulating online, I only found three that could be supported by at
least somewhat convincing evidence of these.
Biden's favorite explanation is that you are
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After of course, hearing about why Biden feels that you are being misinformed by the
media, which is quite refreshing right this time, it's not Trump that is lashing out at the
media. It is Biden who said that the media is not 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 economists does show that
media sentiment about the economy has gotten significantly worse over the past 50 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 mattered. In an influential survey by the
University of Michigan, which is the blue line. While this remains a much more positive
so I don't think negative news stories can fully explain the vibecession under Biden.
Which brings us to the second theory, which states that it's not only that the US media is
exceptionally competitive and therefore negative, it is also uniquely polarized politically.
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 a sudden thought
that the economy was in terrible shape.
Similarly, when Biden was elected in 2020,
Republicans all of the sudden thought that the economy was going down the drain while Democrats
thought that 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 would not
change that much if there is a new president.
Sure, under Biden, Republicans hate the economy,
but that was always going to happen. 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 that
much? 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 actually mostly the red states economies that
are darker on the economic growth map, meaning that they are the ones who have been booming.
But why are red the Republican states doing so much better than blue Democratic states?
Well, one plausible explanation that has been put forward by economists and 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 from blue states to red states.
Ironically, it also means that Biden is a massive subsidies for new factories are mostly benefiting
red states. Now, this could explain why Democrats are relatively negative about the economy,
which in turn could explain why, on average, people are also relatively negative about
the economy. After all, citizens of booming Republican states will be negative about the
economy because Biden, this president.
So where it matters less that their economies
are doing relatively well. Meanwhile, blue state citizens are still more positive than those in red
states, but they are not super positive because their economies are actually not doing that
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 actually right and
actually the numbers are wrong? Thanks to Rising in equality, something that can essentially
already be seen. If we look back at the differences between real GDP, the average income
and the average real wages of American workers. As you can see here, well, real GDP dropped during
the pandemic, 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. At least up until 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's only now that we see that
people are getting more optimistic about the economy. Some more evidence for this theory can
actually 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 costs of living due to inflation, we can see that it is now also higher than it was
when Biden took office. Even though, like general inequality, it had dipped significantly thanks
to Biden's relief funds during COVID. So while average GDP growth looks pretty good, lagging real
wage is and increased inequality suggests that it is plausible that up to now, only a few Americans
are really profited from this booming economy.
And therefore it makes total sense that most
Americans were 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
the most logical conclusion 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 cannot
be seen if we only look at 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 survey.
And so the fact that red states
outperform blue states by a lot and benefited from Bidenomics more could really
have impacted overall economic sentiment. Third, while I did think that it was interesting to see
that research confirms that the media is getting more and more negative despite the economy not
getting more and more negative. It is part of a larger trend that is not unique to Biden.
So overall, I think that it made sense that 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 lo 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'll 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 YouTube. And yeah, let me know in the comments below what you thought about this
take. Were these the three most important reasons for the difference between pessimistic economic
sentiments and positive data about the economy?
Or do you think I missed another credible
explanation? Finally, if you want to know more about why exactly inflation is falling so
fast now, check out this video over here.
