Americans are not feeling good about their booming economy

Wages and benefits have been moving up smartly, but only in nominal terms. As the economics researchers Jason Furman and Wilson Powell III pointed out in an analysis for the Petersen Institute, total compensation is 0.6 per cent below its December 2019 level after adjusting for inflation. Irwin wrote that economists see rising wages and rising prices as “two sides of the same coin.” For most people, though, the net effect in today’s economy is that the coins they are getting don’t go as far.

It stands to reason that changes in the real value of wages would have a bigger effect on public sentiment than changes in the unemployment rate. The number of people paying more at the pump and the grocery store is much larger than the number of people who have gotten new jobs.

It might, then, be more instructive to examine what our last two periods of widespread happiness about the economy — throughout 1998 to 2000, and from mid-2018 to early 2020 — had in common. Both were times when the standard of living for most people was rising, and had been rising for a while.

One complication in this story is that people’s financial conditions have improved, thanks to the extensive transfer payments that the federal government implemented during the pandemic. It may be, though, that people don’t see those transfers as substitutes for a continuing stream of income that they feel they are earning.

The simplest explanation for why the public thinks it’s a bad economy is that, for most people, it’s a bad economy. We don’t need to come up with a theory about the effects of modern partisanship on views of the business cycle, any more than we needed such a theory in 2006 or 2014. We need only consult the great democratic maxim: The foot knows best where the shoe pinches.