This is a gift letter from Paul Krugman to his subscribers-
Voters may feel one way, but the economy itself feels fine
Author Headshot
By Paul Krugman
Opinion Columnist
Ten finance guys are drinking in a bar. Nine of them are Masters of the Universe — wheeler-dealers who make many millions of dollars every year. The tenth is what Gordon Gekko, in the movie “Wall Street,” called a “$400,000-a-year working Wall Street stiff.”
Then the stiff leaves for a while, maybe to answer a call of nature. When he leaves, the average income of the guys still in the bar shoots up, because he’s no longer dragging that average down; when he comes back, the average drops again. But these fluctuations in the average don’t reflect changes in anyone’s income.
Why am I telling you this story? Because it’s most of the story of wages in the U.S. economy since Covid-19 struck. In 2020 the average wage of workers who still had a job shot up, because those who were laid off were disproportionately low-wage service workers. Then, as people resumed in-person shopping, started going to restaurants and so on, growth in average wages was held down because those low-wage workers were being rehired. You need to look through these “compositional effects” to figure out what was really happening to earnings as that played out.
Until recently I thought everyone — well, everyone following economic issues — knew this. (Assuming that people know more about the numbers than they actually do is an occupational hazard for nerds who become pundits.) But lately I’ve been seeing even mainstream news organizations publish charts that look like this:
FRED
And these charts are accompanied by commentary to the effect that real wages generally rose under Donald Trump but have generally fallen under Joe Biden, which in turn is supposed to explain why Americans are feeling so negative about the economy.
But that’s not what these charts actually tell us. Mostly they reflect the working stiff temporarily leaving the bar, then coming back.
There are wage measures that try to adjust for changes in the mix of workers, like the Atlanta Fed’s wage growth tracker. If we use this measure instead of average wages, the picture looks like this:
Federal Reserve Bank of Atlanta, Bureau of Labor Statistics
The spurious wage surge of 2020 is gone, as is the wage stagnation of early 2021. It’s still true that wages lagged behind inflation in 2021 and 2022, but they have run well ahead of inflation this year.
Even this view of economic performance, however, misses some of the temporary distortions caused by the pandemic. Prices of many commodities were very low in 2020 — the price of oil briefly went negative! — not because policy was good but because the world economy was flat on its back, depressing demand. These prices surged as the economy recovered, and there were also large but temporary disruptions to supply chains — remember all those ships waiting for someplace to unload their cargoes?
Oh, and Russia’s invasion of Ukraine brought war to one of the world’s major food-producing areas.
In the end, it’s basically a fool’s errand to try and compare economic performance before and after the White House changed hands; there was just too much crazy stuff going on. What we can say, with considerable certainty, is that while prices have gone up a lot since the pandemic began, most workers’ wages have risen significantly more:
FRED
OK, at this point one runs into a buzz saw of criticism. I am regularly assured by correspondents that economists’ measures of inflation are meaningless, because they exclude food and energy. No, they don’t; economists often use measures of “core” inflation for analytical purposes, but the Consumer Price Index, which is what I’m using here, includes everything.
Or I’m told that real people know that inflation is still running hot, whatever the government numbers may say. Actually, the American Farm Bureau Association, a private group, tells us that Thanksgiving dinner cost 4.5 percent less this year than last. Gasbuddy.com, another private group, tells us that prices at the pump are down more than 30 percent since their peak last year. Neither turkeys nor gas prices are good measures of underlying inflation, but both show that the narrative of inflation still running wild is just not true.
Sorry, folks, but “immaculate disinflation” — rapidly falling inflation without a recession or a big rise in unemployment — is actually happening. The 2021-22 inflation surge definitely rattled Americans after decades of relative price stability, and I’m not here to lecture people about their feelings. But I guess I am here to lecture journalists about using statistics. Presenting misleading numbers that seem to justify public opinion is actually an act of disrespect: Voters have a right to their feelings, but journalists have a duty to present the facts, as best we can understand them.
And while the public’s negative view of the economy is a major puzzle, acknowledging that puzzle is no reason to soft-pedal the evidence that the U.S. economy is currently doing very well — indeed, much better than even optimists expected a year ago.
WE need to contrast this to Americans for Prosperity Action's story about the horrendous economy that Nikki Haley is going to be telling now that she is being backed by the Koch network.
Krugman’s assessment is spot on. Several weeks back a commenter to a Substack newsletter (who’s and the date of I wish I remembered) had an observation that went like this:
Commenter lived in North Carolina and saw lots of shiny newer pickup trucks on the roads, shopping centers full of people spending freely, folks talking of recent or planned family trips, people talking of new businesses and job opportunities; a picture of a roaring improving economy, and wondered why is this not the horrible economy people talk of, MSM reports, and pollsters print. His simple analysis was what we see outside is not what we discuss at the dinner table next to a stack of new larger bills in the mail, watch on Faux News, or hear from friends and relatives.
People vote on their emotions and guts and, with the assistance of biased MSM, the lies they’re being fed. Critical thinking is not a strong trait among Americans. Republican strategists know this. Feed the sheep what you want them to hear and think.
One should always fear the Kochs. They have decimated politics in OK, TX, KS and MO with their gerrymandering and their deep pockets.
This line seems to be incorrect- AFP has been speaking with millions of voters at their doorsteps and on the phone already this year. Generally, these "conversations" are in the form of emails, texts and speeches. The proper phrasing would be 'speaking to" not "speaking with".
You parse well. I am looking into their FEC financial disclosure forms to see where they actually spent the money, and if it looks like it went to actual pollsters, although they raised $78,000,000 so they could have funded the effort in house.
From a purely academic political science perspective, it will be interesting to see how this plays out. Trump’s mafia don thuggery hold over the Republican Party verses Haley backed by Koch/AFPA’s well oiled and fine tuned network. Shakespeare probably couldn’t write drama like this. I only wish this political theater wasn’t real.
I think this is one more reason why Koch waited until now to endorse Haley--He needed Trump to be so obviously losing it that independents and ore centrist Republicans will flock to her in relief. And you will get the younger voters falling for the inclusive, youth oriented, idealistic lies being marketed on the AFP Action website. rather than working for "old" Joe Biden. It will be energetic Mom Nikki vs. old Grandpa Joe. It will be a marketing sweet spot to the young.
If Koch is this interested, you can bet there are a lot more things his strategists are going do than just “ launch extensive mail, digital, and connected television campaigns”… like how they created the Tea Party behind-the-scenes, based on all their work creating state-based anti-tax and anti-regulation propaganda campaigns such as Get Government Off Our Back, Enough is Enough, and Citizens Against Regressive Taxation.
Excellent assessment, Georgia. Haley is a shape shifter and would be a very dangerous tool of the "nobles". In a sense, electing her as president would be the sophisticated, sneaky way to install complete oligarchy and autocracy. With the goal of further enriching the rich and subjugating the masses.
Georgia, Thank you for presenting the true dangers as they are and will be unfolding. As I read the breaking news yesterday of the Koch endorsement of Haley, I feared some within the Democratic ranks would be cheering the cracks in the Republican Party as now splitting open. Nothing could be further from the truth; this is now a full out two front war with two Republican front runners. It needs to be thought of as the last time a Democratic president simultaneously took on two huge enemies - FDR during WWII.
This is a gift letter from Paul Krugman to his subscribers-
Voters may feel one way, but the economy itself feels fine
Author Headshot
By Paul Krugman
Opinion Columnist
Ten finance guys are drinking in a bar. Nine of them are Masters of the Universe — wheeler-dealers who make many millions of dollars every year. The tenth is what Gordon Gekko, in the movie “Wall Street,” called a “$400,000-a-year working Wall Street stiff.”
Then the stiff leaves for a while, maybe to answer a call of nature. When he leaves, the average income of the guys still in the bar shoots up, because he’s no longer dragging that average down; when he comes back, the average drops again. But these fluctuations in the average don’t reflect changes in anyone’s income.
Why am I telling you this story? Because it’s most of the story of wages in the U.S. economy since Covid-19 struck. In 2020 the average wage of workers who still had a job shot up, because those who were laid off were disproportionately low-wage service workers. Then, as people resumed in-person shopping, started going to restaurants and so on, growth in average wages was held down because those low-wage workers were being rehired. You need to look through these “compositional effects” to figure out what was really happening to earnings as that played out.
Until recently I thought everyone — well, everyone following economic issues — knew this. (Assuming that people know more about the numbers than they actually do is an occupational hazard for nerds who become pundits.) But lately I’ve been seeing even mainstream news organizations publish charts that look like this:
FRED
And these charts are accompanied by commentary to the effect that real wages generally rose under Donald Trump but have generally fallen under Joe Biden, which in turn is supposed to explain why Americans are feeling so negative about the economy.
But that’s not what these charts actually tell us. Mostly they reflect the working stiff temporarily leaving the bar, then coming back.
There are wage measures that try to adjust for changes in the mix of workers, like the Atlanta Fed’s wage growth tracker. If we use this measure instead of average wages, the picture looks like this:
Federal Reserve Bank of Atlanta, Bureau of Labor Statistics
The spurious wage surge of 2020 is gone, as is the wage stagnation of early 2021. It’s still true that wages lagged behind inflation in 2021 and 2022, but they have run well ahead of inflation this year.
Even this view of economic performance, however, misses some of the temporary distortions caused by the pandemic. Prices of many commodities were very low in 2020 — the price of oil briefly went negative! — not because policy was good but because the world economy was flat on its back, depressing demand. These prices surged as the economy recovered, and there were also large but temporary disruptions to supply chains — remember all those ships waiting for someplace to unload their cargoes?
Oh, and Russia’s invasion of Ukraine brought war to one of the world’s major food-producing areas.
In the end, it’s basically a fool’s errand to try and compare economic performance before and after the White House changed hands; there was just too much crazy stuff going on. What we can say, with considerable certainty, is that while prices have gone up a lot since the pandemic began, most workers’ wages have risen significantly more:
FRED
OK, at this point one runs into a buzz saw of criticism. I am regularly assured by correspondents that economists’ measures of inflation are meaningless, because they exclude food and energy. No, they don’t; economists often use measures of “core” inflation for analytical purposes, but the Consumer Price Index, which is what I’m using here, includes everything.
Or I’m told that real people know that inflation is still running hot, whatever the government numbers may say. Actually, the American Farm Bureau Association, a private group, tells us that Thanksgiving dinner cost 4.5 percent less this year than last. Gasbuddy.com, another private group, tells us that prices at the pump are down more than 30 percent since their peak last year. Neither turkeys nor gas prices are good measures of underlying inflation, but both show that the narrative of inflation still running wild is just not true.
Sorry, folks, but “immaculate disinflation” — rapidly falling inflation without a recession or a big rise in unemployment — is actually happening. The 2021-22 inflation surge definitely rattled Americans after decades of relative price stability, and I’m not here to lecture people about their feelings. But I guess I am here to lecture journalists about using statistics. Presenting misleading numbers that seem to justify public opinion is actually an act of disrespect: Voters have a right to their feelings, but journalists have a duty to present the facts, as best we can understand them.
And while the public’s negative view of the economy is a major puzzle, acknowledging that puzzle is no reason to soft-pedal the evidence that the U.S. economy is currently doing very well — indeed, much better than even optimists expected a year ago.
Thanks for posting this here.
WE need to contrast this to Americans for Prosperity Action's story about the horrendous economy that Nikki Haley is going to be telling now that she is being backed by the Koch network.
Krugman’s assessment is spot on. Several weeks back a commenter to a Substack newsletter (who’s and the date of I wish I remembered) had an observation that went like this:
Commenter lived in North Carolina and saw lots of shiny newer pickup trucks on the roads, shopping centers full of people spending freely, folks talking of recent or planned family trips, people talking of new businesses and job opportunities; a picture of a roaring improving economy, and wondered why is this not the horrible economy people talk of, MSM reports, and pollsters print. His simple analysis was what we see outside is not what we discuss at the dinner table next to a stack of new larger bills in the mail, watch on Faux News, or hear from friends and relatives.
People vote on their emotions and guts and, with the assistance of biased MSM, the lies they’re being fed. Critical thinking is not a strong trait among Americans. Republican strategists know this. Feed the sheep what you want them to hear and think.
One should always fear the Kochs. They have decimated politics in OK, TX, KS and MO with their gerrymandering and their deep pockets.
This line seems to be incorrect- AFP has been speaking with millions of voters at their doorsteps and on the phone already this year. Generally, these "conversations" are in the form of emails, texts and speeches. The proper phrasing would be 'speaking to" not "speaking with".
You parse well. I am looking into their FEC financial disclosure forms to see where they actually spent the money, and if it looks like it went to actual pollsters, although they raised $78,000,000 so they could have funded the effort in house.
From a purely academic political science perspective, it will be interesting to see how this plays out. Trump’s mafia don thuggery hold over the Republican Party verses Haley backed by Koch/AFPA’s well oiled and fine tuned network. Shakespeare probably couldn’t write drama like this. I only wish this political theater wasn’t real.
I just read this as well in Salon- Very scary stuff.
Trump’s aberrant behavior is getting worse. Why are Americans ignoring his decline?
Mental health experts plot out what they believe is Trump’s increasingly psychopathic behavior
By CHAUNCEY DEVEGA
Senior Writer
https://www.salon.com/2023/11/29/trumps-aberrant-behavior-is-getting-worse-why-are-americans-ignoring-his-decline/
Pretty scary stuff. It seems most people have political fatigue and aren't really paying attention. Or else they are simply ignorant.
I think this is one more reason why Koch waited until now to endorse Haley--He needed Trump to be so obviously losing it that independents and ore centrist Republicans will flock to her in relief. And you will get the younger voters falling for the inclusive, youth oriented, idealistic lies being marketed on the AFP Action website. rather than working for "old" Joe Biden. It will be energetic Mom Nikki vs. old Grandpa Joe. It will be a marketing sweet spot to the young.
If Koch is this interested, you can bet there are a lot more things his strategists are going do than just “ launch extensive mail, digital, and connected television campaigns”… like how they created the Tea Party behind-the-scenes, based on all their work creating state-based anti-tax and anti-regulation propaganda campaigns such as Get Government Off Our Back, Enough is Enough, and Citizens Against Regressive Taxation.
Excellent synopsis and scary as hell.
Excellent assessment, Georgia. Haley is a shape shifter and would be a very dangerous tool of the "nobles". In a sense, electing her as president would be the sophisticated, sneaky way to install complete oligarchy and autocracy. With the goal of further enriching the rich and subjugating the masses.
Danger! DANGER, Will Robinson!
Georgia, Thank you for presenting the true dangers as they are and will be unfolding. As I read the breaking news yesterday of the Koch endorsement of Haley, I feared some within the Democratic ranks would be cheering the cracks in the Republican Party as now splitting open. Nothing could be further from the truth; this is now a full out two front war with two Republican front runners. It needs to be thought of as the last time a Democratic president simultaneously took on two huge enemies - FDR during WWII.
Thank you.
Georgia, long time, no see. You good?
Thanks for your help peering into AFP and their newest alliance.