On agency and economic perception
People assign themselves credit for what is good in the economy and Biden blame for what is bad
Economics is rarely thought of as a core subject for education like math, English, or even one’s own national history, and existing outside the ‘STEM’ area has garnered little attention from recent initiatives. Henry George would be alarmed at this state of affairs. Of the sciences, he wrote (perhaps over optimistically) that “We may safely accept what chemists tell us of chemistry, or astronomers of astronomy…the ordinary duties of men and of citizens do not call for such special knowledge”, but he found economics a different subject entirely. Because there was ever reason in the world for an elite few to lie about economics, George saw it as necessary that “with matters which relate to the production and distribution of wealth…must be the intelligence of the masses, for as to such things it is the common opinion, and not the opinion of the learned few, that finds expression in legislation”
This of course is not yet the case - major misunderstandings about the functioning of the economy persist and in some ways are worsening, as the gap between people’s perceptions of the economy and real indicators - or even their perceptions of the economy and their perceptions of their own finances - widens.
There are undoubtedly several reasons for this - a major one being partisanship among Republicans who will never admit the economy is good while Biden is president. But I think there are other reasons - four indicators that people use to judge the strength of the economy. The problem for Biden is that people attribute some of them to their own pluck and hard work, and others to ‘the economy’ as an impersonal force, and the present economy is such that the latter indicators seem bad while the former seem good. These consist of unemployment, wages, inflation, and the stock market.
Unemployment
Folk wisdom tends to attribute (un)employment more to personal merit to a greater degree than other indicators. When other people are unemployed, they probably aren’t working hard enough. When we ourselves are unemployed, we may blame the economy but the guilt and shame many people feel from not having a job indicates that they still attribute that condition in some way to their own actions or failures. So, even as unemployment and labor force participation numbers are setting records and bucking long term negative trends, individuals experience this mostly as their own personal success. Most people weren’t unemployed in recent years and attribute their consistent job to their own competence, and even those whom an economist would say definitely found work because of the solid macroeconomic conditions probably attribute their newfound employment to their own actions.
Wages
Wages are perhaps more obviously due to the economy overall - after all, most people basically take the wages offered and there is less of a role for assertiveness and pluck, relative to the process of initially finding a job. Nonetheless, even as nominal wages rise, many workers probably consider their own wages to the result have having had a great year in terms of their work performance (and their bosses are likely to present raises that way too, managing to make a cost of living wage also function as a reward for good behavior). So ‘the economy’ doesn’t really get credit, in their minds, for rising nominal wages.
The Stock Market
“Does your 401(k) miss Trump?” is a fairly common low effort meme on Facebook, and it reflects the fact that unlike wages and employment, people tend to attribute the performance of the market to presidential actions. The stock market seems distant and unrelated to everyday life and thus this intuition is reasonable - though of course inaccurate. If anything, presidents probably have an easier time impacting the labor market than the stock market, but that’s not how it seemed. A mid-career professional with a 401(k) knew he couldn’t take credit for the rising market between 2016 and the arrival of COVID, and so chalked it up to Trump. By contrast, the DJIA has been relatively flat since its initial post-shelter in place recovery, leaving the 60 some percent of Americans who own stock annoyed that their ‘make money for nothing’ trick isn’t working anymore.
Inflation
Of course, the big one - inflation has emerged as a larger concern than it has been in decades. This, again, people understand is out of their hands - they show up to the store and prices are up, must be ‘the economy’. And of course prices for most goods rarely go back down barring a severe recession, and so even as inflation itself cools - as it has done - prices are still higher than they were when Trump was president. And so, the judgement is that ‘the economy’ has delivered higher prices (which are of course unrelated to the higher nominal wages earned by individual responsibility).
An unfortunate confluence
The economy the US is facing today is unusual in its combination of rising nominal wages, very low unemployment, relatively high inflation, and a sluggish stock market. These indicators are mixed, to be sure - but the positive ones (wages and unemployment) are economic indicators that the typical worker tends to ascribe primarily to their own efforts or virtues, while the negative ones are those that they tend to see as under the purvey of the government or indeed the president personally.
None of this lends itself to an easy solution for the Biden administration. In the short run it will take mighty messaging and real progress on inflation; in the long term it a stronger system of economic education may help improve voters’ ability to evaluate economic policies more rationally. But developing a theory for why voters counterintuitively dislike an economy that should at least in theory be good for them is at least helpful in explaining the apparent incongruity in a manner a little more sophisticated than simply ‘the media reports bad news about the economy’. It remains to be seen how this translates into electoral outcomes - after all, perhaps voters who are in *reality* comfortable economically, even if they think the economy is bad, will still vote like workers in a good economy. Either way though, a model for understanding why what is on balance a good economy can be perceived poorly can save us from conceding that it is bad, actually simply because people think so.