Expectations

 There has been much consternation recently over the apparent disconnect between how the U.S. economy is actually doing and how Americans perceive it. On the one hand, we have low unemployment, rising wages, cooling inflation, and strong GDP growth that has defied warnings of recession. On the other, we have widespread economic discontent, according to polls and surveys assessing how Americans feel about the situation. And since people tend to blame the incumbent president for the current state of the economy, this spells trouble for Biden in the 2024 election—and therefore potentially the future of American democracy. 

As the AP article linked above and other commentators observe, the explanation for this discrepancy appears to still be inflation. Economists will say: but inflation is cooling! And it is. But inflation is measured year-over-year, and people have longer memories than that. They know that current inflation rates are measured against last year as a baseline, and that was in turn a terrible year for inflation. What they really remember is how relatively cheap things were two or three years ago, and they want to go back to that. And I certainly can't blame them. 

I hate inflation too, just like everyone else. I don't like the fact that my savings, even when they were just sitting there in my bank account and I have been disciplined enough not to touch them, still managed to shrink in value over the last several years. Indeed, it was inflation that finally taught me why people care so much about investing. I was always iffy on the proposition of investing before, being of a cautious disposition. I thought: "why take a risk on something that might not pay off, when you can just leave your money where it is and at least not lose it." 

But, it turns out, that's not an option either. If you leave your money in place, you are still taking a gamble—it's just, in that case, you are gambling on the inflation rate. So, you have to invest, not only in the hope of making returns, but also just in the hope of retaining the real value of what you already have. As a character in Saul Bellow's novel Mr. Sammler's Planet puts it, investing is in part a matter of "First making your money, then keeping your money from shrinking by inflation." It's a version of the "Red Queen Effect"—you have to keep moving just to stay in place. 

That's exhausting! No wonder people hate inflation! But, if people dislike it so much, why aren't they more relieved when it slows down? It's for the same reason noted above: people have long memories—at least for things that directly affect them. So they don't just want prices to stop rising so dramatically; they also—as the AP article points out—want price levels to return to what they remember them being, and what seems to them the fundamentally just rate. 

To quote another literary example, I'm reminded of a character in Denis Johnson's novel Angels. The book was published in 1983, which was no longer a time of high inflation in the U.S. But this character still remembers what prices were supposed to be a few years ago. She is therefore not impressed by the inflation slowdown that was engineered in the early 1980s by the Federal Reserve. She wants prices to go into actual reverse. She wants to undo the '60s and '70s too. "I live on a fixed income," she says, and she insists the president do something about the price level. The 1980s had plenty of other economic trouble too—such as a recession at the start of the decade. But it is the high prices that she hates the most. 

I understand all of these frustrations. But what I don't get is why people aren't more conscious of how much worse it could have been—or worse it could still get, if Trump is re-elected president. I mean, don't people remember the misery of the Great Recession? At least we don't have that again; at least it's possible in the current economy to find a job. 

I think a large part of the problem is that the policy measures it takes to bring down inflation are often simultaneously ones that make inflation more painful; and by the same token, the measures that people most want government to initiate, during a time of high inflation, are precisely the ones the government should not undertake, because they would be inflationary. 

After all, what brings down inflation? Tighter credit marks, more slack in the labor market, and slower wage growth. Yet, those things all make high prices harder to cope with, because they pull money out of ordinary people's pockets. And what do people want at times of high inflation? Higher wages, more income supports from the government, debt relief, etc. Yet these policies would all be inflationary. 

But all of this, in turn, just leads me to the further conclusion that the economy under Biden's watch has therefore been little short of a miracle. For all the frustration with high price levels, we have actually been spared the worst of the trade-offs described in the last paragraph. Wages have grown, unemployment has remained low, and inflation has cooled—all while Biden has pursued a set of economically populist policies, including vast public spending on infrastructure that has created more jobs. Under standard economic theory, this should scarcely be possible. This is what makes "Bidenomics" such a mighty achievement. We should be celebrating in the streets!

But somehow, people are still discontented. People seem to have already forgotten that everything could have been so much worse than it is. Suppose the government hadn't delivered stimulus during the pandemic, for instance. Maybe we would have had less inflation; but we also would have entered a global depression from the lock-downs that might still be lingering today. Compared to that ruinous prospect, the frustrations of the present economy are quite minor. 

But for some reason, people don't live with a sense of the incredible peril that we just miraculously escaped. It's like they've already forgotten the possibility of recession. All they are focused on is how things could be incrementally better still. It's like people already treat the historically unique, unprecedented moment during the pandemic, when we all got stimulus checks, asset prices skyrocketed, and yet inflation had not caught up with us yet in the form of higher consumer prices, as the baseline. That's the norm, in people's minds, even though it only happened once and probably cannot happen again. There is something going on here related to people's expectations, according to which Biden cannot win. No matter how well he does, people still expect more. 

The problem seems to be, that for many people, the bad times in the past are always the exception, and the good times of recent memory the norm. This means that they will always be disappointed by the imperfect present, even when we should be celebrating that things are not infinitely worse. But we should be doing the opposite. We should focus on how much worse things could have been by this point, because then we can be prepared for some hard trade-offs and grateful for the fact that the whole system has somehow hung together. We should say of our thoughts, as A.E. Housman wrote of his, that "Mine were of trouble/ And mine were steady," because that—as he put it—is how people have managed to be "ready/ when trouble came."

The truth is, after all, that the universe does not owe us what D.H. Lawrence once called a "long smooth run." Instead, as he put it, the "deluge" might come at any moment. Cast in this light, the fact that we are actually doing quite well, considering that we just came through a global pandemic that nearly throttled the world's economy, is something we should all be grateful for. "Bidenomics," for all its discontents, has indeed been a miracle.