Paul Krugman: ‘Mr. Biden, Your Good Economy Won’t Sell Itself’

It’s “Morning In America” again, people. Accept that there is good news and allow yourself to feel good about it. Stop being “nattering nabobs of negativity” and wallowing in Covid Hell self-pity. Brighter days lie ahead, Bunky.

Nobel Prize winning economist Paul Krugman has good advice for the Biden admnistration today which they would be wise to follow. Mr. Biden, Your Good Economy Won’t Sell Itself:

Thirteen months into the Biden administration, Democrats face a troubling paradox. By many measures the economy has done very well, hugely outperforming expectations for growth and job creation. A record number of Americans say that it’s a good time to find a quality job. But inflation has spiked, consumer sentiment has plunged, and polls show that economic perceptions are currently a big liability for their party.

How should President Biden talk about this situation? Obviously he needs to acknowledge the inflation problem. But there’s a debate among pundits, and presumably within the party’s inner circles, about how much he should tout his achievements. Some commentators seem to believe that emphasizing the good news would be a mistake, that his best move would be to demonstrate that he’s in touch by acknowledging that things have gone wrong — that he should, in effect, ratify negative narratives about the economy.

Who the fuck are these people? Fire them, immediately. They are clearly incompetent.

Well, I remember the 1970s, and if you ask me, pundits calling on Biden to show “humility” seem to be suggesting that he should give a version of Jimmy Carter’s infamous “malaise” speech.

And play right into the meme that Republicans have been trying to push.

Furthermore, if Biden emphasizes the positive he will have reality on his side. I’ve been arguing for a while that the economy is doing much better than either consumer surveys or polling suggest. And two important new studies reinforce that case.

The first study, by researchers at the Federal Reserve Bank of Dallas, involves real wages — wages corrected for inflation. I’ve seen many articles simply asserting as fact that wages haven’t kept up with inflation. But is that true?

You might think this is a simple question to answer — just compare average wages with the level of prices. But the pandemic has messed up such comparisons by skewing the composition of the work force. In 2020 average wages went up a lot, not because individual workers were getting big raises, but because the millions of Americans laid off were disproportionately in low-paid occupations like restaurant work. Those same occupations have led the recovery in employment over the past year, so that true wage growth has been higher than the average might suggest.

The Dallas Fed study, which attempted to correct for these effects, found that real wages actually rose in 2021, although they slipped slightly in the second half of the year.

I’m not saying that workers are doing great — they aren’t. Nor should we take this study as the final word; maybe real wages are actually down a bit rather than up a bit. But these estimates are inconsistent with claims that workers have suffered large declines in their purchasing power.

And in terms of the politics, it seems worth noting a historical comparison: Real wages for blue-collar workers declined fairly consistently over the course of Ronald Reagan’s presidency, despite the 1985-86 plunge in world oil prices. Yet Republicans won not one but two landslide presidential election victories in the 1980s largely on the strength of perceived economic success. 

The old political axiom: Politics is perception. This is why you should accentuate the positive.

Still, people dislike inflation even when their incomes are keeping up, perhaps because inflation creates a sense that things are out of control. This helps explain the decline in consumer sentiment over the past year, although both The Times’s Nate Cohn and I have found that the decline in confidence is bigger than you would have expected even given inflation aversion.

But there’s more. Researchers at the Federal Reserve Bank of New York point out that their bank’s survey of consumers, like other surveys, says that Americans expect high inflation this year but don’t expect it to persist. Furthermore, longer-term expectations of inflation have become less responsive to current price increases than they were in the past — which is the opposite of what you’d expect to see if people really perceived an economy spinning out of control.

Republicans are desperately, recklessly trying to create this inflation psychology feedback loop, but this study suggests that their malignant efforts may not be succeeding outside of the conservative media bubble.

So Americans aren’t suffering big declines in real wages, and they see inflation as temporary, not a runaway phenomenon. Why, then, hasn’t the good economic news on other fronts made them more upbeat?

Maybe because, for whatever reason, they haven’t heard that good news.

There are many indicators of a large divergence between what people say about their own situation — which they rate as pretty good, financially and otherwise — and what they say about what’s happening to the nation as a whole. That is, they imagine that others are doing badly even though they themselves are doing OK.

Some of this represents immovable partisanship — nothing will convince Republicans that things aren’t terrible. But as Greg Sargent of The Washington Post points out, recent polling finds that when voters are presented with information about the good news on jobs, growth and unemployment, their assessment of the economy — and of Democrats — improves substantially.

So Biden should indeed talk about his successes. He shouldn’t ignore the negatives — although denial of awkward reality has historically worked well for Republicans. But he should tout the good things that have happened on his watch. After all, if he won’t, who will? A good economy won’t sell itself.

As Greg Sargent writes:

Democrats have voluntarily put themselves in a political straitjacket. They regularly tell themselves they must be extraordinarily tentative about taking credit for their accomplishments, because this risks angering voters who are still struggling, potentially sparking backlash.

But what’s often missing from such assessments is a more nuanced approach: Democrats can be vocal in highlighting ways life is improving on their watch, while simultaneously speaking directly to voter concerns about how far we still have to go.

[It’s] often suggested that views of the economy are clouded by inflation and overloaded supply chains, and the GOP edge on inflation seems to confirm this.

But the question is how Democrats should address this problem. One approach might be to take more credit for the positive impact their policies had on the recovery while also acknowledging the downsides and pledging to do more to address them.

“This is a political failure on our part,” Democratic strategist Simon Rosenberg, who has been pushing his party to lean harder into that argument, told me. “The good news is we have time to fix it.”

That new polling hints at a way forward. The survey tested something novel: It asked voters about a series of specific economic metrics, and asked whether they see these as “indicators that the economy is recovering.”

The result: When asked this way, sizable majorities of voters see many of these metrics — the creation of 6 million jobs last year, GDP growth of 5.7 percent, the 4 percent unemployment rate — as indicators that the economy is indeed recovering.

Note: Therein lies the problem with all the negative polling over the past few months. The way the survey questions are framed in negative language produces the negative result. Some pollsters do this deliberately (partisan push polls) intending to produce this result.

What’s more, after voters answer those questions, the percentages on the initial questions flip around, with voters trusting Democrats over Republicans on job creation by 48 percent to 40 percent, and on economic growth by 47 percent to 42 percent.

One takeaway: Leaning harder into emphasizing these specific metrics of recovery might help Democrats on overall questions of economic stewardship.

“There’s an audience who can be persuaded when we say Democrats have gotten the economy up off the mat,” Jesse Ferguson, a strategist who advises this survey, told me. “It’s not ‘mission accomplished,’ but it’s ‘mission underway.’”

With inflation and supply chain woes darkening perceptions of the overall recovery, some Democrats seem skittish about emphasizing its positive aspects. The theory seems to be that, if the spending in the recovery act is partly to blame for downsides such as inflation [it’s not], voters will punish them for not flagellating themselves over this.

Did Republicans ever engage in self-flagellating for their disastrous policies that caused the Great Recession of 2008-09? Or for their malignant policy of total obtruction and sabotage of the Obama administration, which led to a full decade before the economy fully recovered from the Great Recession? Or for Trump’s disastrous handling of the Coronavirus Pandemic in 2020, causing the steepest economic recession since the Great Depression, that we are now on the verge of climbing out of this year after only two years, under the leadership of President Biden? Hell No! Republicans never apologize for their disastrous polices and sabotage of the economy, they always try to cast blame on someone else. (And too many Americans fall for it time and again).

But as Paul Krugman argues, that’s a lopsided conception of the situation. We have to ask whether we might be worse off today if we had lower inflation but hadn’t taken aggressive steps to help millions of struggling people and to jolt the economy out of paralysis created by a generational public health emergency.

Indeed, with Republicans (and media coverage) hammering at inflation daily, being overly skittish about making this case means voters will hear only one side of that story.

“Is inflation higher than we wanted?” says Rosenberg. “Yeah, but what’s the alternative? Slower growth? We did the right thing. We have to defend it.”

Rosenberg argues that Democrats should link this to a broader story, in which Democrats have repeatedly pulled the country out of economic craters created on Republicans’ watch. [As Democrats have had to do after every Republcian administration sice Herbert Hoover.]

“The last three Democratic presidents have all seen strong growth on their watch,” Rosenberg said. “Republicans have brought us three consecutive recessions.” This contrast, he said, “is among the most important, least understood stories in American politics today.”

If this is right, the challenge is to balance this by speaking directly to the trauma that many people continue to experience, and by vowing continued efforts to spur the recovery and spread the fruits of growth more broadly (passing parts of Biden’s Build Back Better agenda would help here).

In fact, Rosenberg noted, the arguments reinforce each other: If Democrats lean into the notion that their policies helped spur robust recovery, that supports the case that they should be kept in charge to continue addressing massive remaining challenges.

The brutal truth might be that until covid is defeated — and here Biden’s record has been very mixed — then no such message will ever break through. But if so, then if we do defeat covid, it might give Democrats a good argument in the midterms.

That case, Rosenberg said, might be this: “We’re leading us to the other side of covid. And we’ve created a strong economy to get us through.”

There is more good news on the Covid front front too. Jennifer Rubin writes, Biden is winning the war against covid. Is anyone noticing?:

[It’s] possible that “normal” is just over the horizon.

The administration, burned twice by the emergence of the delta and omicron variants, is cautiously preparing for victory. The Post reports:

The U.S. has made “tremendous progress” in its ability to protect against covid-19 and plans are under way for the next phase of the pandemic, White House coronavirus response coordinator Jeff Zients said Wednesday. …

“As a result of all this progress and the tools we all have, we’re moving toward a time when covid isn’t a crisis but is something we can protect against and treat,” Zients said during a news briefing. “The president and our covid team are actively planning for this future.”

In 13 months, the Biden administration has managed to fully vaccinate three-quarters of American adults, almost two-thirds of whom are boosted. It has also rolled out a variety of effective treatments. With infection and hospital rates dropping dramatically, the CDC seems ready to catch up with many states in setting a timetable for lifting masking and other restrictions, though CDC Director Rochelle Walensky warned that a variety of factors must be considered, including hospital capacity.

[A]mericans might take a while to readjust to the notion that they need not fear schools or worry that day-care facilities might close on a moment’s notice. They need to get used to returning to offices and entertainment venues fully reopening. When they do, the implications for the country’s mental health and economy will be hard to overstate.

The administration has argued that putting the pandemic behind us is the key to quashing inflation. In November, Treasury Secretary Janet L. Yellen explained, “I think it’s important to realize that the cause of this inflation is the pandemic. It shut down our economy. It boosted unemployment to almost 15 percent, and we’ve been opening up in fits and starts.” She predictedthat “when the economy recovers enough from covid . . . people go back to eating out, traveling more, spending more on services, and the demand for products, for goods begins to go back to normal.” She estimated that “if we’re successful with the pandemic to be sometime in the second half of next year, I would expect prices to go back to normal.”

There are inklings that the economy is ahead of schedule in returning to normal. In January, the economy added about 467,000 jobs, rather than losing jobs as many expected. And on Wednesday, there was another dollop of good economic news: The Census Bureau reported that monthly retail sales rose 3.8 percent.

Below the top-line numbers, there was more good news. Forbes reported: “Total retail sales in January were up 12.7% compared to last year with non-store sales up 8.3%. Apparel and accessories, food services and department stores showed a significant bounce back from January 2021 with sales up 22.3%, 27.9% and 11.5% respectively, as consumers resumed more activities outside the home including shopping and dining.” Recall that the lull in spending on services (when venues were closed and people did not want to go out) contributed to the price hikes and shortages on goods.

The White House has good reason to be wary of premature declarations of victory. It’s still possible that another dangerous variant emerges in the future, and the administration must remain prepared to respond quickly.

Nevertheless, Biden should be able to claim credit for a public health triumph. Victory is tempered by the stunning, heartbreaking loss of 900,000 lives to covid over the past two years. But when the pandemic recedes, deaths diminish, life returns to normal and prices recalibrate, there will be plenty to celebrate.