Will It Be Morning in Joe Biden’s America?

 

OPINION

PAUL KRUGMAN

Will It Be Morning in Joe Biden’s America?

Jan. 16, 2023

https://www.nytimes.com/2023/01/16/opinion/joe-biden-america-economy.html

 

Paul Krugman

By Paul Krugman

Opinion Columnist

 

If the midterm elections could be rerun this month, Democrats would probably end up in full control of Congress. President Biden’s approval ratings are rising. Inflation is down, and consumers are feeling more optimistic. And Americans are getting a better look at the G.O.P.’s actual policy agenda, which is deeply unpopular.

 

OK, we don’t give politicians who lost an election the opportunity for a mulligan, even when they falsely claim that the election was stolen. But it is, I think, worth noting just how much the economic and hence political environment has shifted in the past few months, and to start thinking seriously about the possibility that Democrats might be in a startlingly strong position next year.

 

It’s hard to overstate how bad things looked for Biden’s party on election eve. The last report on consumer prices released before the midterms showed inflation of 8.2 percent over the previous year, a terrible number by anyone’s reckoning. The unemployment rate was still very low by historical standards, but the news media was full of warnings about hard times ahead, and a large majority of likely voters believed (falsely) that we were in a recession.

 

Given the perceived grimness of the economic environment, Republicans and many political analysts confidently expected a huge electoral red wave.

 

Why didn’t that happen? Part of the answer may be that Americans weren’t feeling as bad about the economy as some surveys suggested. It’s true that the venerable University of Michigan index of consumer sentiment had fallen to levels last seen in the aftermath of the 2008 financial crisis, during the worst slump since the Great Depression.

 

But the Michigan index was probably distorted by partisanship: Did Republicans really believe, as they claimed, that the economy was worse than it had been in June 1980? (Back then the economy actually was in a recession, inflation was 14 percent, and unemployment was above 7 percent.)

 

And another longstanding index of consumer confidence, from the Conference Board, was telling a quite different story, with consumers feeling pretty good about the economy. I’m not sure why these measures were so different, but the Conference Board measure seemed to do a better job of predicting the vote — although the backlash over Roe v. Wade, and against some terrible Republican candidates, surely also played a role.

 

In any case, in mid-January — a bit over two months after the election, but three consumer price reports later — things look very different. There’s still no recession. Consumer prices actually fell in December; more to the point, they’ve risen at an annual rate of only 2 percent over the past six months.

 

And while consumer expectations haven’t caught up with financial markets, which appear to believe that inflation will stay low for the foreseeable future, consumer expectations of inflation are back down to their levels of a year and a half ago.

 

Which raises a question few would have asked even a few months ago: Is Joe Biden — who, for the record, had a much better midterm than Ronald Reagan did in 1982 — possibly headed for a “morning in America” moment?

 

A few months ago I looked at the “misery index” — the sum of unemployment and inflation, originally suggested by Arthur Okun as a quick-and-dirty summary of the state of the economy. I used to think this index was silly; there are multiple reasons it shouldn’t make sense. But it has historically done a surprisingly good job of tracking consumer sentiment. And as I noted even then, the misery index seemed to be declining.

 

Well, now it has fallen off a cliff. If we use the inflation rate over the past six months, the misery index, which stood at 14 as recently as June, is now down to 5.4, or about what it was on the eve of the pandemic, when Donald Trump confidently expected a strong economy to guarantee his re-election.

 

Nor is that the only thing Democrats have going for them. The green energy subsidies in the Inflation Reduction Act are leading to multiple new investments in domestic manufacturing; it’s unclear how many jobs will be created, but the next two years will give Biden many opportunities to preside over factory openings, giving speeches about how America is, um, becoming great again.

 

Now, I’m not predicting a Democratic blowout in 2024. For one thing, many things can happen over the next 22 months, although I don’t think Republicans, even with cooperation from too many in the media, will convince Americans that the Biden administration is riddled with corruption. For another, elections often turn not so much on how good things are as on the perceived rate of improvement, and with inflation and unemployment already low, it’s not clear how much room there is for a boom.

 

Also, extreme political polarization has probably made landslide elections a thing of the past. Republicans could probably nominate George Santos and still get 47 percent of the vote.

 

But to the extent that the economic landscape shapes the political landscape, things look far better for Democrats now than almost anyone imagined until very recently.

 

Paul Krugman has been an Opinion columnist since 2000 and is also a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman