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Larry Lindsey

President & CEO, The Lindsey Group

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Here’s why Americans are unhappy with the economy

Jan 29

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There is a lively debate about how the U.S. economy is doing, and whether it’s been getting better or worse as the nation emerges from the pandemic. Democrats point to an increase in wages, record-low unemployment, and an increasing number of Americans who report they are now “happy” with their job. Meanwhile, Republicans point to skyrocketing mortgage rates, the housing crisis, and increased costs for consumer and commercial loans.

With each side presenting legitimate arguments, many Americans are left without a clear picture of how the economy is doing or how they should feel about it.

Straight Arrow News contributor Larry Lindsey briefly reviews some of the data behind these talking points and then challenges Democrats to expand their thinking to better understand why so many Americans still feel left out in the cold.

Making things also worse are things that don’t even appear in the inflation index, but are very important to how people feel about how their lives are going. Public schools, for example. Families with kids know perfectly well that public schools are declining in quality. And they got that presented to them during COVID, when they basically had to homeschool their kids. That’s deteriorating. It’s not in the price index. But it’s an important part of whether you think things are getting better or worse.

A similar situation is true with crime, which is getting worse in the country. Compounding that is a sense that you hear from many, even Democrat mayors, that we are being overwhelmed at the borders, and we now have tent cities going up to house all these people. We had 2.4 million illegal immigrants come across the southern border last year. That’s a phenomenal number. It’s three times the amount of legal immigrants that enter the country.

So all of these effects of Biden policies are making Americans feel worse. It’s not just that their spending power of what they earn is going down. It’s the fact that they can’t buy the things they used to be able to buy, in part because of regulation, and the so-called public goods that they use — safe streets, public schools — are declining as well.

This, unfortunately, is the centerpiece of President Biden’s policies. Perhaps the administration and Celinda Lake and Democratic pollsters may want to take that into account when they figure out why Americans are feeling bad, even though the administration thinks things are getting better.

The big question in American politics now is why do Americans feel so bad? Celinda Lake, a democratic pollster, said things are getting better. Why do people think that things are going to get worse?

 

President Biden had the answer. He accused the news media of reporting misinformation and disinformation and scolded them for not reporting the right facts. Well, what are the right facts?

 

Since Election Day 2020, real average hourly earnings, that’s after inflation, are down two and a half percent. What that means is that for every hour you work, you can buy two and a half percent less than you could buy when President Biden was elected. And when you look at weekly earnings, it’s even worse. They’re down 3.2%. Why? Because there are fewer hours being worked by each worker.

 

Now, how does that compare? Well, one thing we might do to make Biden’s story a little better, is we can take out the COVID effects. If we do that, in Biden’s first three years, real average hourly earnings are up 1%. In three years, under President Trump’s first three years before COVID, they were up 3.7%, almost four times as much. So yes, people are feeling poor. And they’re feeling that things are not getting better, because they actually aren’t.

 

But I think it’s probably worse than that. Because people don’t just look at their checkbooks when they think about how things are going and whether they’re getting better or worse. One of the things that’s new to the U.S. economy is that you simply can’t buy things that you want. You know, we all remember the shortages that existed during COVID. And those are largely gone. But consider the case of housing.

 

Housing prices are up and mortgage rates are up.

 

The typical homeowner has a 3.7% mortgage. They would be lucky to get a six and a half percent mortgage today. That is a much, much bigger monthly mortgage payment. And basically people are frozen in their houses because they have to give up a low mortgage and get a higher mortgage on the house that they buy.

 

As for purchasing ability, right now, you have to have 60% of median income [sic] which is usually 30% to pay for a typical home. People can’t afford to pay 60% of their income just for their mortgage. So in addition, people are illiquid. Many have kids living in their basement, because they can’t afford a house either. And it’s impossible to move to a different house.

 

Car loans are now 11.7%, raising the cost of replacing your existing car.

 

And it doesn’t stop there. One of the biggest changes for American households is the effective regulation. The administration is now regulating things no one ever dreamed they would have. The most obvious, of course, is to phase out internal combustion engines for electric vehicles. Well, it’s a nice idea, but they didn’t plan for the infrastructure. The biggest problem is there just aren’t enough charging stations in the country to handle all the EVs, nor do we have an adequate electric grid in order to meet the targets for charging vehicles that the administration has put forward. Even car dealers and car companies are now begging the administration to phase out or reduce their electric vehicle requirements because people simply aren’t buying them.

 

Well, we also have new regulation on gas ranges. You can’t have one anymore. If you replace your existing range, you can only buy electric. They’re also regulating dishwashers and ceiling fans. So things that people were accustomed to buying now are either more expensive, or not of the kind that people really want. That’s called a quality adjustment problem.

 

Making things also worse are things that don’t even appear in the inflation index, but are very important to how people feel about how their lives are going. Public schools, for example. Families with kids know perfectly well that public schools are declining in quality. And they got that presented to them during COVID, when they basically had to homeschool their kids. That’s deteriorating. It’s not in the price index. But it’s an important part of whether you think things are getting better or worse.

 

A similar situation is true with crime, which is getting worse in the country. Compounding that is a sense that you hear from many even Democrat mayors that we are being overwhelmed at the borders, and we now have tent cities going up to house all these people. We had 2.4 million illegal immigrants come across the southern border last year. That’s a phenomenal number. It’s three times the amount of legal immigrants that enter the country.

 

So all of these effects of Biden policies are making Americans feel worse. It’s not just that their spending power of what they earn is going down. It’s the fact that they can’t buy the things they used to be able to buy, in part because of regulation, and the so-called public goods that they use, safe streets, public schools, are declining as well.

 

This, unfortunately, is the centerpiece of President Biden’s policies. Perhaps the administration and Celinda Lake and democratic pollsters may want to take that into account when they figure out why Americans are feeling bad, even though the administration thinks things are getting better.

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