In the presidential election of 1992, James Carville coined the phrase, “It’s the economy, stupid!” He had it printed, blown up large, and hung in a prominent place in Bill Clinton’s campaign headquarters to remind everyone of what the election was all about: money, and why the common folk didn’t have enough of it.
In the recently concluded election, exit polling conclusively showed the nation’s “poor” economy was top of mind for voters, who believed it to be a product of the Biden-Harris Administration. Donald Trump had banged that message over and over like a Japanese Taiko Drummer. A plurality of voters bought what he was selling, and he is now set to reoccupy the White House on 20 January.
The only thing wrong with this scenario is that the economy is not poor. Rather, it’s the envy of the world. Inflation has fallen hugely, productivity is rising steadily, unemployment is low, and real wages are rising, all of which shows the American economy to be riding along quite nicely and getting better all the time, thank you very much.
Kamala Harris was never able to convince enough Americans of any of this.
How to reconcile the “poor” economy that propelled Donald Trump to victory with the real economy a plurality of Americans refused to credit and seemed to ignore?
A simple answer is that while headline macro economic data is exemplary, the micro economy —yours and mine — still lags, which is evident anytime one visits the local grocery. Instead of, “It’s the economy, stupid,” it is now, “It’s my economy, stupid!”
The inflation rate may be near the Fed’s gold standard of 2%, but for most Americans, especially those with income in the lower 25th percent quartile, it doesn’t feel that way. Donald Trump’s dystopian messaging resonated with a plurality of our fellow citizens who, looking no further than their personal pocketbooks, inclined to believe the worst.
As noted economist Michael Klein, founder of Econofact.org¹, an academic economic think tank, wrote in early 2024:
Inflation is the rate of change in prices over a given period of time. In its mandate to keep prices stable, the Federal Reserve does not aim for zero inflation, as an inflation rate that is too low can also be problematic for a national economy. Since 2012, the Federal Reserve has set an explicit target inflation rate of 2 percent. But inflation rose well above the Fed’s target following the COVID pandemic, reaching a high of around 9% in June of 2022. As a result, by December 2023 consumers were seeing prices that were on average about 19% higher than they were before the pandemic in December 2019, as measured using the CPI-U. However, the rate of increase of prices had slowed dramatically to 3.4% by December of 2023.
The inflation rate has now dropped even further to 2.4%, getting ever nearer to the Fed’s 2% target. However, while the inflation rate has fallen drastically, prices still remain high.
To counter high prices, wages have been climbing significantly. In fact, since May, 2023, every month has seen wages grow faster than the Consumer Price Index, meaning wages are outpacing inflation, as this EconoFact chart shows using data from the Federal Reserve Bank of St. Louis.
Regardless of the steadily improving economic data, prices and interest rates remain painfully high. However, confounding the reality of high prices is the reality that Americans, despite high prices, appear to be on a spending spree.
As Greg Iacurci reported for CNBC, net worth for a typical U.S. household rose 37% during the pandemic according to data released by the Federal Reserve in its triennial Survey of Consumer Finances. At the same time, net worth dropped for the lower income quartiles.
That 37% percent growth was the largest since the Fed started its modern survey in 1989. It was also more than double the next-largest increase on record: Between 2004 and 2007, right before the Great Recession, real median net worth rose 18%.
How to explain this? Iacurci asked Mark Zandi, chief economist of Moody’s Analytics:
In large part, that was due to the Federal Reserve lowering interest rates to rock bottom at the onset of the pandemic, easing borrowing costs for consumers, Zandi said. An expanded social safety net made it less likely people had to take on debt. And when it became clear the U.S. economy would recover quickly from the early pandemic shocks, due to government support and vaccines, asset prices like stocks and homes “took off,” Zandi said.
The increase in net worth during the pandemic and its recovery has allowed Americans to spend big once again, far outpacing every one of our allies, as this JP Morgan chart shows:
But, as you probably can deduce, not everyone has benefited equally, a point the Fed’s report makes clear. For example, assets like homes and stocks are generally not held by families in the bottom 20% of income. Another case of the haves doing better, and the have nots doing worse.
Studying this makes one realize this presidential election came too early for the democrats and Kamala Harris. Things have been getting better for quite some time, but not fast, or tangibly, enough to ease consumers’ feelings of dread. Consequently, they bought into Donald Trump’s fear mongering. Right up to election day, he continued to lie, saying we have “the worst economy ever.”
What is truly weird to contemplate is that our economy will likely continue its steady improvement, and after three or four months in office Trump will declare the economy saved — and it will all be because of him.
Among a host of other not so nice things, six-time-bankrupt Donald Trump will be remembered for being one of the best bullet dodgers in history.
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¹ EconoFact is a network of leading academic economists that publishes analyses aimed at educating the public with respect to the national debate on economic and social policies. It is published by the Edward R. Murrow Center for a Digital World at The Fletcher School at Tufts University. You can subscribe to its work for free.
