Why are Americans so negative about the economy?

Paul Krugman points out that, despite constant doomcasting by economists, the overall state of the US economy remains strong by all the conventional metrics. The unemployment rate is at the lowest level it’s been since the 1960s, and the labor participation rate — the percentage of adults who are either employed or seeking work — is back to pre-pandemic levels. Over the past six months the annualized inflation rate has been 3.6%, gas prices are back to their historical average in relation to wages, and no other conventional economic metric looks bad at the moment. So what’s happening?

Partisanship surely explains much of this divergence. A newly published study shows that who holds the White House has huge effects on views of the economy; this is true for supporters of both parties, although the effect appears to be about twice as strong for Republicans. The study also finds, however, that these changes in reported views don’t appear to have any effect on actual spending — that they reflect “cheerleading,” as opposed to “actual expectations.”

This is the Fox News effect, and it’s very real: tens of millions of people consume right wing media every day that tell them things are terrible in Joe Biden’s America, so that must be true, even though on average the economic circumstances of these people themselves are, relatively speaking, quite good in historical terms.

Beyond that, there’s good reason to believe that media reports about the economy have had a strongly negative bias. One thing that has gone really, really right in America lately is job creation, yet the public consistently reports having heard more negative than positive news about employment.

And let’s not let economists off the hook. As Mark Zandi of Moody’s Analytics points out, many economists have been predicting recession month after month for the past year. Sooner or later, a recession will no doubt happen, but as he says, “In my 30-plus years as a professional economist, I’ve never seen such recession pessimism,” even as the economy has remained resilient. And this pessimism has surely filtered through to the public.

Of course this raises — not begs, raises! — the question of why economists as a class have been so pessimistic lately, or at least the economists the media choose to cite, which gets us back to the effect media framing has on public perception of quantifiable reality.

Here are a few other factors that may be producing the striking divergence between positive economic data and public perception:

(1) Increasing precariousness in regard to individual economic circumstances. You may be doing well at the moment, but the structure of contemporary capitalism ensures that your present job will disappear the instant that it becomes apparently profitable for your employer to eliminate it. (I’ve noticed that the most enthusiastic citations to Schumpeter’s famous dictum about how capitalism advances by gusts of creative destruction tend to come from people who have tenure).

(2) A culture of constantly accelerating consumerism leaves people feeling the constant stress of the hedonic treadmill: Whatever you own isn’t good enough by definition, as you are reminded constantly by the pervasive culture of advertising.

(3) The amorphous but also empirically well grounded sense that three crucial goods — health care, higher education, and housing — are constantly becoming less affordable relative to median household income.

(4) A countervailing factor is that any short term decline in housing prices tends to make people in the middle, upper-middle, and lower-upper classes feel poorer, since so much personal wealth in these groups is now tied up in residential real estate equity.

I’m sure there are plenty of other factors, but Krugman is flagging a pervasive and important psychological phenomenon, when he points out the extent to which economic news is so widely perceived to be bad in contemporary American culture, quite apart from any measurement of economic health.