The Economic Theory That Explains Why Americans Are So Mad
20Digest
This segment of the podcast continues the discussion about the affordability crisis, focusing on the political implications of the current economic situation. Ezra Klein argues that the Democrats are facing a difficult challenge in balancing their goals of promoting domestic manufacturing and providing affordable goods, particularly in the context of electric vehicles. He suggests that the Democrats' policies, while well-intentioned, may not be politically popular, as they could lead to higher prices for consumers. Klein also discusses the potential for a political backlash against the Democrats' focus on foreign conflicts, such as the war in Ukraine, while the cost of living continues to rise for many Americans. He argues that the Democrats need to develop a clear and compelling economic message that addresses the affordability crisis, as it is likely to be a major issue in the 2024 election. Klein also suggests that the Democrats should focus on policies that address the cost of living, such as childcare, healthcare, and housing, as these are likely to be more popular with voters than policies that focus on consumer prices. The segment concludes with a discussion of the importance of having a strong economic message in the upcoming election, but also acknowledges that other factors, such as personal opinions of the candidates, could play a significant role in determining the outcome.
Outlines
Introduction
This Chapter introduces the topic of the episode, which is the disconnect between economic data and public perception. The host, Ezra Klein, sets the stage by discussing a model that predicted consumer sentiment based on economic data, but failed to accurately predict sentiment after the pandemic. He argues that the economy is more complex than simply "good" or "bad" and that we need to be more precise in our analysis.
The Debate About Expectations
This Chapter delves into the debate about why people are not happier with the economy than they are, despite low unemployment and falling inflation. Klein argues that the debate is not about whether the economy is good or bad, but about our expectations. He points out that people are experiencing a significant affordability crisis, particularly in housing, healthcare, childcare, and higher education, which is driving their dissatisfaction.
Animal
This Chapter is an advertisement for the "Animal" podcast, which explores the stories of people who have a deep connection to animals.
The Affordability Crisis and Consumer Sentiment
This Chapter continues the discussion about the affordability crisis and its impact on consumer sentiment. Klein and Lowrey discuss the reasons why people are not feeling good about the economy, despite the fact that their personal financial situations are relatively good. They argue that the high cost of living, particularly in areas like housing, healthcare, and childcare, is driving dissatisfaction, even if people are not experiencing material hardship.
The Politics of the Economy
This Chapter shifts the focus to the political implications of the economic situation. Klein and Lowrey discuss the growing partisan divide in economic expectations and the difficulty for the Biden administration to effectively address the affordability crisis. They argue that the media's coverage of the economy has become more negative, which is contributing to the public's perception of economic hardship.
Biden's Economic Messaging
This Chapter examines Biden's economic messaging and its effectiveness. Klein and Lowrey discuss Biden's recent interview with CNN, where he was asked about the economy and his response. They argue that Biden's messaging has been complicated and that he has not been able to effectively communicate a sense of "having it under control." They also discuss the lack of a comprehensive policy package to address the affordability crisis.
Trump's Economic Agenda
This Chapter analyzes Donald Trump's potential economic agenda and its implications. Klein and Lowrey argue that Trump's agenda is likely to be inflationary, due to his support for tariffs and his stance on immigration. They discuss the potential impact of Trump's policies on the cost of living and the economy as a whole.
The Politics of Affordability
This Chapter delves into the political implications of the affordability crisis, focusing on the challenges facing the Democratic Party. Klein argues that the Democrats are struggling to balance their goals of promoting domestic manufacturing and providing affordable goods, particularly in the context of electric vehicles. He suggests that the Democrats' policies, while well-intentioned, may not be politically popular, as they could lead to higher prices for consumers. Klein also discusses the potential for a political backlash against the Democrats' focus on foreign conflicts, such as the war in Ukraine, while the cost of living continues to rise for many Americans. He argues that the Democrats need to develop a clear and compelling economic message that addresses the affordability crisis, as it is likely to be a major issue in the 2024 election.
The Future of Prices and Consumer Sentiment
This Chapter explores the potential for a mean reversion in prices and consumer sentiment. Klein suggests that with inflation below 3.5%, things may start to normalize as supply chains readjust and wage growth stabilizes. He argues that the Democrats should focus on addressing the cost of living crisis, particularly in areas like childcare, healthcare, and housing, as these are likely to be more popular with voters than policies that focus on consumer prices.
Book Recommendations
This Chapter concludes the episode with Ezra Klein recommending three books to the audience. He suggests "Franchise, The Golden Arches in Black America" by Marcia Chatelain, "A Place of Greater Safety" by Hilary Mantel, and "Nickel and Dimed" by Barbara Ehrenreich.
Keywords
Affordability Crisis
A situation where the cost of essential goods and services, such as housing, healthcare, childcare, and education, rises significantly, making it difficult for individuals and families to maintain a reasonable standard of living. This crisis is often characterized by a mismatch between income growth and the rising cost of living, leading to financial strain and a sense of economic insecurity.
Consumer Sentiment
A measure of how confident consumers are about the economy and their personal financial situation. It is often used as an indicator of future economic activity, as consumer spending is a major driver of economic growth. Consumer sentiment can be influenced by factors such as employment levels, inflation, interest rates, and overall economic confidence.
Inflation
A general increase in the prices of goods and services in an economy over a period of time. Inflation can erode the purchasing power of money, making it more expensive to buy the same goods and services. It can be caused by a variety of factors, including increased demand, supply chain disruptions, and government policies.
Housing Crisis
A situation where the cost of housing, particularly in urban areas, rises significantly, making it difficult for individuals and families to afford adequate and safe housing. This crisis can be caused by factors such as limited housing supply, increasing demand, and rising interest rates. It can lead to homelessness, overcrowding, and displacement.
Partisan Economic Expectations Gap
A phenomenon where individuals' economic expectations are influenced by their political affiliation. This gap can lead to a divergence in perceptions of the economy, even when objective economic data suggests otherwise. It can be exacerbated by political rhetoric and media coverage that reinforces partisan biases.
Saliency
The degree to which something is noticeable or important to an individual. In the context of economics, salience refers to the extent to which certain economic factors, such as price increases, are perceived as important by consumers. Salience can be influenced by factors such as frequency of exposure, personal experience, and media coverage.
Annie Lowrey
An American journalist and author who is known for her work on economics and social policy. She is a staff writer at The Atlantic and the author of the book "Give People Money." Lowrey's work often focuses on the experiences of low- and middle-income Americans and the challenges they face in navigating the economy.
Ezra Klein
An American journalist and political commentator who is known for his work on politics, economics, and culture. He is the host of the "Ezra Klein Show" podcast and a columnist for The New York Times. Klein's work often focuses on the intersection of policy, politics, and public opinion.
Joe Biden
The 46th and current president of the United States. Biden is a member of the Democratic Party and has been in public service for over 50 years. His economic policies have focused on addressing the affordability crisis, promoting economic growth, and reducing inequality.
Donald Trump
The 45th president of the United States. Trump is a member of the Republican Party and is known for his populist and nationalist views. His economic policies have focused on tax cuts, deregulation, and protectionist trade policies.
Q&A
Why are people unhappy with the economy, even though unemployment is low and inflation is falling?
The podcast argues that the affordability crisis, particularly in housing, healthcare, childcare, and higher education, is driving dissatisfaction, even if people are not experiencing material hardship. The cost of these essential goods and services has been rising steadily for decades, creating a "boiling the frog" effect where people are not fully aware of the extent of the problem until it becomes acutely noticeable.
How does the affordability crisis affect consumer sentiment?
The high cost of living, particularly in areas like housing, healthcare, and childcare, is driving dissatisfaction, even if people are not experiencing material hardship. The podcast argues that the salience of certain price increases, like those for food and gas, which are more noticeable than those for housing or healthcare, is contributing to the sense of economic hardship.
What are the political implications of the affordability crisis?
The podcast discusses the growing partisan divide in economic expectations and the difficulty for the Biden administration to effectively address the affordability crisis. The media's coverage of the economy has become more negative, which is contributing to the public's perception of economic hardship.
What are some potential economic policies that could be implemented to address the affordability crisis?
The podcast suggests a number of potential policies, including increasing housing supply, lowering healthcare costs, and expanding access to childcare. These policies would require significant investment and political will, but could have a significant impact on the cost of living and the economy as a whole.
How does the affordability crisis affect the political landscape?
The podcast argues that the affordability crisis is making it difficult for the Biden administration to effectively communicate a sense of "having it under control." The lack of a comprehensive policy package to address the affordability crisis is also contributing to the political challenges facing the administration.
What are the potential economic implications of Donald Trump's agenda?
The podcast argues that Trump's agenda is likely to be inflationary, due to his support for tariffs and his stance on immigration. These policies could lead to higher prices for consumers and potentially damage the economy.
How does the media's coverage of the economy affect public perception?
The podcast argues that the media's coverage of the economy has become more negative, which is contributing to the public's perception of economic hardship. This negative coverage can be driven by a number of factors, including the salience of certain price increases and the desire to cater to audiences who are seeking out bad news.
What is the "partisan economic expectations gap"?
This is a phenomenon where individuals' economic expectations are influenced by their political affiliation. This gap can lead to a divergence in perceptions of the economy, even when objective economic data suggests otherwise. It can be exacerbated by political rhetoric and media coverage that reinforces partisan biases.
How does the affordability crisis affect the way people experience wage gains?
The podcast argues that wage gains are often perceived as something that individuals achieve, while inflation is seen as something that happens to them. This can lead to a sense of frustration, as wage gains are often eroded by inflation, particularly for those who are experiencing the affordability crisis.
What is the "greed-flation" theory, and is it accurate?
This theory suggests that corporations are taking advantage of the current economic situation to increase prices and profits. The podcast argues that while corporate greed may be a factor, it is not the only driver of inflation. Other factors, such as rising labor costs and input costs, are also playing a role.
Show Notes
There’s something weird happening with the economy. On a personal level, most Americans say they’re doing pretty well right now. And according to the data, that’s true. Wages have gone up faster than inflation. Unemployment is low, the stock market is generally up so far this year, and people are buying more stuff.
And yet in surveys, people keep saying the economy is bad. A recent Harris poll for The Guardian found that around half of Americans think the S. & P. 500 is down this year, and that unemployment is at a 50-year high. Fifty-six percent think we’re in a recession.
There are many theories about why this gap exists. Maybe political polarization is warping how people see the economy or it’s a failure of President Biden’s messaging, or there’s just something uniquely painful about inflation. And while there’s truth in all of these, it felt like a piece of the story was missing.
And for me, that missing piece was an article I read right before the pandemic. An Atlantic story from February 2020 called “The Great Affordability Crisis Breaking America.” It described how some of Americans’ biggest-ticket expenses — housing, health care, higher education and child care — which were already pricey, had been getting steadily pricier for decades.
At the time, prices weren’t the big topic in the economy; the focus was more on jobs and wages. So it was easier for this trend to slip notice, like a frog boiling in water, quietly, putting more and more strain on American budgets. But today, after years of high inflation, prices are the biggest topic in the economy. And I think that explains the anger people feel: They’re noticing the price of things all the time, and getting hammered with the reality of how expensive these things have become.
The author of that Atlantic piece is Annie Lowrey. She’s an economics reporter, the author of Give People Money, and also my wife. In this conversation, we discuss how the affordability crisis has collided with our post-pandemic inflationary world, the forces that shape our economic perceptions, why people keep spending as if prices aren’t a strain and what this might mean for the presidential election.
Mentioned:
“It Will Never Be a Good Time to Buy a House” by Annie Lowrey
Book Recommendations:
Franchise by Marcia Chatelain
A Place of Greater Safety by Hilary Mantel
Nickel and Dimed by Barbara Ehrenreich
Thoughts? Guest suggestions? Email us at ezrakleinshow@nytimes.com.
You can find transcripts (posted midday) and more episodes of “The Ezra Klein Show” at nytimes.com/ezra-klein-podcast. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs.
This episode of “The Ezra Klein Show” was produced by Rollin Hu. Fact-checking by Michelle Harris. Our senior engineer is Jeff Geld, with additional mixing by Efim Shapiro and Aman Sahota. Our senior editor is Claire Gordon. The show’s production team also includes Annie Galvin, Elias Isquith and Kristin Lin. Original music by Isaac Jones and Aman Sahota. Audience strategy by Kristina Samulewski and Shannon Busta. The executive producer of New York Times Opinion Audio is Annie-Rose Strasser. Special thanks to Sonia Herrero.
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I'd love to get Annie's take on how subscriptions and dynamic pricing relate to affordablility. There are subscriptions for all kinds of products and services that we used to be able to purchase once, like software, music, video games, classes, storage, printer ink, even our cars now come with subscriptions. Dynamic or surge pricing penalizes people that a need the service at a peak time or based on where they live.