On cue, Paul Krugman, a New York Times columnist and Nobel Prize-winning economist, expressed his frustration last Thursday at the apparent disconnect between the public’s perceptions of the economic health of the country and the statistics.
I say “on cue” because President Joe Biden’s approval rating remains in the dumpster. The poor economy is one major reason.
Not so, according to Krugman. The economy is “booming,” said Krugman. He noted that Biden’s recent State of the Union made that clear. Last year, the United States added 6.5 million jobs, which was more than ever created in a single year. Krugman fact-checks these claims and declares them “entirely correct.” Of course, to any sensible person, these added jobs were not created in any sense of the word. The economy is still, by most employment measures, attempting to recover from the 2020 lockdowns and the associated transfer of wealth from Main Street to Wall Street.
For instance, the labor force participation rate has yet to recover. The labor force participation rate is the proportion of the population that is either working or looking for work. During Donald Trump’s presidency, the prime age, 25 to 54 years of age, labor force participation rate finally recovered to the level it was before the 2008 recession. Unfortunately for the average person, labor force participation is still low by comparison. The U-6 unemployment rate, which takes account of those who are marginally attached to the labor market or employed part time for economic reasons, actually ticked up in February while Biden was crowing about the strong economy he allegedly created.
But what about GDP growth? Isn’t it true that Biden oversaw the greatest growth in real GDP in decades in the last quarter of 2021? Again, this is a recovery story. After the lockdowns ended, GDP began to climb back to the Trump trajectory it was on. The outlook for this year is much different.
The Atlanta Federal Reserve’s GDPNow estimate of 2022 first-quarter GDP growth is at 0%. This estimate is purely model-generated and is not subject to politically motivated judgments of economists with an ax to grind. During the pandemic, the GDPNow forecast consistently overpredicted GDP growth, as it does not take into account fiscal policy designed to ease the pain of the lockdowns. This isn’t good news for Biden’s economic record for the new year.
No discussion of the economy is complete without mentioning inflation. Long before the Russian invasion of Ukraine was a major concern, consumer price inflation was surging.
“Too much money chasing too few goods” is a convenient shorthand definition of inflation. During Biden’s first year in office, his anti-energy policies and the general uncertainty his administration represents sent consumer prices soaring. Energy prices affect every aspect of our modern economy through transportation costs and, even more so, for food because of the use of fertilizer made from natural gas.
For some reason, Krugman has overlooked the data and arguments in favor of the average person’s outlook on our economy. Perhaps he should remember that economics is about studying people’s decisions and actions, not about convincing them that his preferred political party’s policies are making their lives rosy.
Levi Russell is an assistant teaching professor at the Brandmeyer Center for Applied Economics at the University of Kansas and a fellow at the Leonine Institute for Catholic Social Teaching. You can email him at [email protected].
