Why A “Good Economy” Does Not Always Benefit You
Going into every election, political parties do everything they can to convince you that only they should be trusted to manage the economy. That makes sense, since the economy consistently polls as the most important issue to voters. In this year’s presidential race, President Joe Biden wants to convince voters that they are better off with him presiding over the economy. While a lot of the media coverage of the economy is positive, actual voters aren’t feeling that way: far more Americans polled say the economy is poor than good, and more say it’s getting worse than getting better.
This got me thinking more about how we make that judgment (about whether the economy is good or bad) in the first place. Generally speaking, we can all agree that recessions suck because wages, income, and employment go down across the board. But what happens when the economy is “good”? That must mean everyone is better off, right?
…not so fast. In this piece, I’ll break down how economists measure the economy, why that does not reflect most people’s experience, and how we can all think more critically and demand that people’s needs actually get met.
Note: while the examples I use (dollars, labor statistics, etc.) will be American, all of the key points I make below also apply to other countries with similar economies.
HOW ECONOMISTS JUDGE THE ECONOMY
First, we have to define some terms. While researching this piece, I looked at a lot of recent articles talking about the state of the economy, and almost all of them cited a few of the same statistics in assessing how good the economy is or isn’t. I’m gonna talk about each of these statistics, what they really show, and to what extent they do or don’t matter for you.
GDP
For the uninitiated, this stands for gross domestic product — essentially, this is the size of the (metaphorical) pie that we as Americans get to share. Of course, having more pie in total across the economy should in theory mean more pie for you, right? On the graph below, every time GDP goes flat or down (the pie stops growing) we have a recession, as pictured by the grey stripes:
Unfortunately, more pie total hasn’t meant more pie for you in decades. Income inequality has gotten so bad that nearly two-thirds of all new wealth goes to the top one percent of the wealthiest Americans. GDP also doesn’t account for leisure time or how much labor was required to produce goods/services, for pollution/environmental destruction/climate change, for labor or economic activity outside of official markets, or for free innovations that dramatically improve our lives. More stuff is not always better.
UNEMPLOYMENT
The unemployment rate is calculated by a survey called the Current Population Survey (CPS), which counts the number of employed and unemployed people. The formula looks like this:
Simple, right? People (including respected economists and news outlets) equate this with the number of people who need jobs — but that’s not what it is.
I’ll list some hypothetical examples of who isn’t counted as “unemployed” by that formula. Dennis*, who works 15 hours a week at Denny’s and can’t pay his bills? Counted as employed. Claire*, Dennis’ new coworker who got laid off from her corporate consulting role and needs emergency cash to care for her sick mother? Counted as employed. Taylor*, a freelance worker who has lost half their clients? Counted as employed. Your uncle Henry*, who has been unemployed for a while and gotten discouraged, so he hasn’t looked for work in the past four weeks? He’s been taken out of the equation altogether and counted as a “discouraged worker”, rather than as unemployed. While employment overall has gone up under the Biden administration, underemployment is still rampant and more workers than ever are seeking additional part-time jobs to make ends meet.
So no — the unemployment rate does not show how many people need work, let alone how many people need work that provides them a livelihood or fits their skillset and potential.
*None of these names are real, but the scenarios are.
INFLATION
We’ve all experienced the stuff we need to live getting much more expensive, and probably by more than our paychecks have gone up. According to one calculator, an item costing $1 fifty years ago would cost at least $6–7 today. However, inflation is not the same thing as prices, and there’s no one consistent measure of inflation across the country.
While the federal government conducts surveys to measure the changing prices of consumer goods (like grocery and household items) and of housing in urban areas, these surveys have several flaws, and different economists/outlets refer to different numbers when describing how much inflation is happening at any given time. The federal government acknowledges this as they continue to update their methodology for calculating inflation, but the average person wouldn’t know it. We all know inflation is happening, but we can’t know precisely how much grows for everyone.
THE STOCK MARKET
Indexes like the S&P 500 or the Dow Jones measure how much index funds containing combinations of small shares from America’s biggest companies are increasing or decreasing in value. Thus, media outlets cite them to assess how well the economy is doing. A good stock market benefits all of us, right?
Sure, about 60% of Americans own at least one stock — still, that number is higher for white people, college graduates, married people, and people over 30. While there are occasions when average Americans benefit from a strong stock market, this is basically negligible compared to how it benefits rich people. In practice, 93% of new stock market wealth goes to the 10% of the wealthiest Americans, and 54% of it goes to the top 1%.
This also does not account for how companies, especially those owned by investment firms, are incentivized to screw over workers in the name of shareholder value. Often, the world’s most profitable companies are also the world’s most exploitative ones. Companies like Meta, Spotify, and Estee Lauder laid off thousands of employees in the past year and had their stock prices soar because investors liked their more “lean” staffing models.
While a strong stock market can benefit people, it typically requires harming everyday people to maintain, and the rich want you to forget that.
WAGE GROWTH
This means, adjusted for inflation, how much the average worker’s wage went up. And yes, we want this number to be high. Still, as with the other statistics we’ve talked about so far, it tends only to be reported by media outlets in the aggregate.
In the context of the current US economy, economists (and those sympathetic to Biden) are celebrating because, for the first time since the pandemic, more Americans have had inflation adjusted-wages go up than go down. While a handful of Americans (about 40%) have had adjusted raises of 5% or more, another significant share (about 25%) have had adjusted pay cuts of 5% or more.
This works out to the average American worker earning a 1% inflation-adjusted raise — essentially, your average American is financially treading water, as they were before the pandemic. While that’s preferable to being in a recession, it’s not much for the average person to celebrate.
WHAT ACTUALLY MATTERS TO PEOPLE
When journalists ask voters about their problems, one key theme comes up: uncertainty. A Tennesee special education teacher interviewed by the New York Times said that while she was “at [her] fullest potential economically” right now, she was “still one doctor’s visit away from not being there.” An Ohio nurse interviewed by the Wall Street Journal said that “even though [she’s] okay right now, there’s a sense it could all go away in a second.” Given how many Americans saw their livelihoods instantaneously go away during a pandemic, can you blame them for feeling that way?
Meanwhile, consumer debt, medical debt, and student debt are at all-time highs. For young Americans, the unpausing of student loan repayments last year presents an immediate impediment to any financial progress many of us have made. Other supports such as the child tax credit or expanded unemployment insurance have also expired, and child poverty is up 137% nationwide. Sectors that have been staples of rural America such as manufacturing, have declined in favor of less stable, service-oriented jobs, while these same regions reckon with the opioid crisis. Despite a supposedly strong labor market, headlines are still dominated by layoffs of tech workers and other groups used to economic prosperity. And I haven’t even mentioned AI and the threat of automation (that deserves a piece of its own.)
To everyday people, the idea that an economy like this is good (or the best that they can hope for) is discouraging to the point of being offensive. People don’t feel like they’re asking for much — as a human resources employee in Indiana told the New York Times, well-being “is about being financially stable. It’s not about being rich, but it’s about being able to take care of your everyday needs without stressing.”
If anyone is supposed to help us achieve financial stability, it’s our politicians — after all, we presumably voted them in to do that. As Americans, we’re taught to expect that if we work hard and do everything “right”, things should work out for us. In other words, we should be able to achieve the American dream.
Unfortunately, going into this election, neither major party is going to ensure your financial stability if you don’t already have it. Let’s go back to that wage growth chart from earlier — it shows the blue line (workers who are earning more) and the red line (workers who are earning less) in basically the same places they were pre-pandemic when Trump was president.
This is a tough pill for both liberals and conservatives to swallow, and something both parties want to keep you in denial about: they claim it as a win when you have merely enough to survive.
That’s not to say there aren’t relevant differences — Biden’s administration has tweaked rules to make it somewhat easier to unionize and increased the minimum wage for federal workers — but the typical outcomes for everyday people aren’t different enough for most people to care.
Next week’s piece will discuss some practical solutions that could go a long way toward ensuring that the American Dream (of being financially stability and realizing your full potential) is actually attainable for people. (To ensure you see it, subscribe to my emails and follow me or this publication!) In the meantime, we must consume news and economic data critically, and demand that our elected officials work for us, not for the corporations who benefit when the economy is “good.” I hope, moving forward, you’ll see through it when politicians from both parties give you crumbs and media outlets pretend you should be grateful for it. Here’s a fun video on this if you need a laugh:
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