We learned today that the economy just had a strong quarter, with GDP up 4.2 percent. Corporate profits are doing great, as is the stock market. But paychecks and middle-class incomes … not so much.
And according to one poll also out today from Rutgers University, effusively titled “Unhappy, Worried and Pessimistic: Americans in the Aftermath of the Great Recession,” people are feeling … well, you get it.
The figure below takes a swipe at the question of why the economy’s getting better but so many are not feeling it. Each indicator is adjusted for inflation and measured over the economic recovery from the Great Recession, which began, at least according to the officials who date recessions (I don’t mean they go out with them), in June of 2009. And yep … that’s five years ago, so this expansion is actually longish in the tooth.
Since June 2009, the economy writ large, i.e., real Gross Domestic Product, is up 11 percent, but the next two bars show where most of the growth has gone. Corporate profits are up 45 percent and the stock market has close to doubled, up 92 percent. And, of course, the next bar shows where the growth hasn’t gone: median household incomes are down 3 percent in real terms over the past five years. And, truth be told, they weren’t doing all that great before the downturn.
There are numerous explanations for this disconnect between the apparent well-being of the economy and that of most of the people in it. Clearly, inequality is playing a role. As the figure shows, there’s growth, but it’s not reaching the middle.
That phenomenon explains both the mechanics of the movements of the bars as well as the pessimism from the poll: The game feels rigged if you play by the rules but fall behind. And it feels especially rigged if the folks who are implicated in blowing the economy up in 2007 are the only ones who’ve not just recovered, but more than recovered.
Second, there’s the issue of levels vs. trends. There’s no question that the economy is improving, and not just GDP and profits but middle-class incomes as well. Sentier Research, the source for the household income data, finds that while the median household’s income is down from about $55,600 to about $54,000 over the past half-decade (mid-2009 through now), it actually reversed course and started slowly climbing back since mid-2011.
So if you’re a middle-class household, the trend is your friend even while the level bedevils.
What’s unusual about all this is that people’s views about the economy are typically more driven by recent trends than distant levels. We tend to take more solace from the fact that things are getting better than we do from the fact that they’re not back to where they were.
What’s different this time around? It could be that how things are getting better in this case matters. Real hourly wages have been stagnant at best in recent years, so if working families’ incomes are growing, it’s through more work, not higher hourly pay.
But there’s a more nuanced explanation that can be drawn from the Rutgers poll, one that reveals economic anxiety not just about where things are, but where they’re going. Just over 70 percent of respondents believe that the economy was permanently damaged by the Great Recession, up from about 50 percent in 2009.
According to Carl Van Horn, who directed the poll, this perception:
affects their attitudes about what they think is going to happen to themselves. Many people tell us they can’t retire when they want to. They’re going to have to work longer. They’re concerned about the cost of education for their children or their grandchildren. They don’t think that good jobs or good wages are going to be available anymore.
You never want to read too much into one poll, but that is a very stiff headwind blowing against the constitutional optimism that we tend to associate with America, especially five years into an economic recovery. Moreover, and I found this particularly interesting, it comports with recent economic findings that show precisely this phenomenon: the Great Recession did in fact do very significant damage to growth rates across the globe. One study found that the loss of potential output in the U.S. amounted to $7,500 per household.
Simmering behind all of this is political dysfunction, or more precisely, the well-founded pessimism that our politics is unable to diagnose problems and prescribe solutions. The thing is, our system was created to be dynamically self-correcting, to create frequent opportunities to change our political personnel if they’re failing to meet our needs and aspirations. I think it’s fair to conclude that the data and attitudes I’ve just cited suggest that the sooner we invoke that self-correction mechanism, the better.