One of the questions that comes up many times during a presidential election season is, “Are you doing better than you were four years ago?”
The answer often lies in emotions and behavioral biases, which don’t all the time match the information. For a numbers nerd like me, that is frustrating. Let me say on the outset that this column shouldn’t be intended to influence your political leanings.
Rather, it's an try and use various data points to color a comprehensive picture of where the U.S. economy is and the way Americans as an entire are doing. Naturally, it doesn't apply specifically to everyone.
To state the plain: the pandemic has wreaked havoc on our lives, causing widespread suffering that can solid its shadow for a few years to return. For the US economy, the impact was profound, although not long-lasting. The COVID recession lasted only two months, the one two recession months since June 2009.
Although scars have formed in the course of the pandemic and its aftermath, the U.S. economy is “now nearly 10 percent larger than it was before the COVID-19 crisis,” in response to analysts at Capital Economics, despite a crippled economy, a resurgent surge in inflation and a surge rates of interest to curb inflation.
These last two aspects appear to be weighing on us, which is why the Brookings Institute tried to reply a vital query: “Has salary kept pace with inflation?” Their answer is yes, but with a caveat. In the early days of the pandemic (2020-2021), low-income earners saw large gains as firms competed for staff. Then prices accelerated, wiping out much of those gains, leaving many Americans depleting their pandemic-era savings — and for some, even going into debt.
“Real” wage growth, which adjusts wages for inflation, has been moving in the proper direction for nearly 18 months. But Loretta Mester, president of the Federal Reserve Bank of Cleveland, said many staff “still haven't caught up on all the backlog… They're still in a bit of a bind.”
Brookings believes this dynamic “may help explain why the average American consumer is pessimistic at a time when the economy is doing well in many respects.”
Part of the issue is that we’re still facing higher prices overall and as humans we’re basing our assessments on a pre-COVID world. “Anchoring” is a cognitive bias where we depend on a current data point to influence our considering. For example, we could take 2019 prices and compare them to 2024 prices without bearing in mind the rise in wages that helped cushion the impact of those higher prices.
Anchoring is one among the explanations economists often worry about inflation, since the recent low price becomes the benchmark for what you concentrate on “fair” today. Of course, only a few staff consider that inflation had anything to do with the wage increases they enjoyed – in our opinion, we deserved those wages, while inflation was an unfair cost that eroded those gains.
As with many seismic events, the important thing to normalization could also be a tried-and-true coping mechanism: time. Anyone who lived through inflation within the late Nineteen Seventies and early Nineteen Eighties can inform you how they endured the pain of long lines for gas and 18 percent mortgages.
But with the good thing about hindsight they may remind us that they got through that point and on the opposite side the scars have faded and so they enjoyed a long time of mostly low inflation.
Whether or not you are feeling higher than you probably did 4 years ago, I can guarantee you that this time will develop into a story during which you may teach your kids and grandchildren the necessity for resilience and perseverance.
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