An Economic Recovery That Gets No Respect
A score of recently-released objective metrics of U.S. economic performance are uniformly positive.
Yet tunnel vision is framing the public discourse about the economy and the widespread perspective is that the economy is weak and Americans are in bad shape.
What's to explain in the gap between reality and general perceptions of the economy?
Expecting what's happening lately to continue is how people are hard-wired to think. Behavioral finance research shows how people sometimes tend to overweight the importance of recent events in their outlook for the future.
Politicians, as a practice, almost never say the economy is doing just fine. It's confounding, but politicians must talk down the economy, perhaps because being upbeat would alienate too many voters.
The last time economic news was this good, it was a real estate bubble. The simple facts are: inflation is dormant, job openings are at a record high, and we're experiencing the best economic expansion since the economic peak of 2006 and 2007.
The last period of such economic wonder was an asset bubble! This time, however, rising economic figures are real — not the result of a debt-binge. Economic growth is rolling along at a slow, sustainable pace, which makes it less likely policymakers will muck up the picture.
Historically, economic downturns in the U.S. were most often caused by policy mistakes by the Federal Reserve. They tighten credit when they should loosen or vice versa. Because inflation has been so tame, the Fed has leeway — room for error. Easy credit is not risking inflation.
We could list 20 economic data points recently released to illustrate just how smoothly the economy is running. But let's just focus on this one because it dispels the myth that Americans are worse off now than they've ever been.
In 1980, 38% of American households were in the middle-income bracket, versus just 32% now. Similarly, about 24% were classified as poor or near-poor versus 17%, according to the most recent data available. The ranks of the upper-middle income have swelled from 15% in 1980, to 29% of the American population today.
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