There was a time when all a politician needed to know was, “It’s the economy, stupid”. No longer, because any ambitious politician also needs to understand that “It’s the experienced economy, stupid”.
Think of the experienced economy as the one that voters wake up to, in which they go about their lives, and where they go to sleep in whatever abode they can afford.
Reports on the state of the economy show the talk of policymakers has shifted to the possible need for an increase in interest rates to cool a hot economy, with job creation running at a satisfactory if not spectacular rate: 115,000 created last month. In the experienced economy, reality bites. Many families are tapping into savings in order to fill both their petrol tanks and their supermarket trolleys.
They wake up in a flat — a house became unaffordable long ago — in which the air conditioning is turned off because of high electricity prices. Dining out is a forgone luxury.
America’s economy sports a historically low unemployment rate: 4.3 per cent. Its labour force is increasingly well educated: the share of adults who have at least a bachelor’s degree has more than tripled since 1970, to 37 per cent. Yet young (22 to 27 years old), recent college graduates are experiencing an unemployment rate of 5.6 per cent, and a poll of a similar cohort graduating from Harvard University’s Kennedy School shows that “the cost of living, especially inflation and housing … drives both lived experience and urgency”.
In this experienced economy, which will soon include about three million proud holders of new bachelor’s and master’s degrees, job-seeking resumés are largely unanswered, and student loan debt comes to $1.8 trillion (£1.3 trillion).
Reports make it clear that, at long last, the US has a border closed to illegal immigrants, including some very bad people. But the experienced economy contains employers and farmers who can’t find workers, and neighbours watching in horror as illegal arrivals, who have served their communities well, disappear into some unreachable detention camp.
Officially, the share of Americans in poverty has declined. In the experienced economy, 55 per cent of Americans say their financial situation is getting worse. That’s a larger percentage than in any year since 2001.
Economic reports show that America is now the world’s largest oil producer, less affected by the closure of the Strait of Hormuz than most countries. In the experienced economy, the one in which drivers live, the price of petrol this year has gone up by about 50 to 60 per cent.
The US economy is benefiting from enormous investments in AI by major companies, shareholders are seeing their portfolios hit record levels, and chief executives and investment bankers are pocketing bonuses that are handsome by any standard except their own.
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In contrast to that enrichment, 71 per cent of Americans polled by Reuters/Ipsos live in fear that AI will cause permanent job losses. And soaring share prices have little meaning to the 40 per cent who do not own shares directly or indirectly.
In short, troll most data and the economy is in good shape — “roaring”, as the president puts it. But for the flesh-and-blood inhabitants of the experienced economy, the “roar” is largely drowned out by moans. No surprise that between 52 and 68 per cent of voters disapprove of the president’s job performance, his management of the economy, the level of inflation, and his handling of immigration.
Add 54.8 per cent who disapprove of military action against Iran, and the looming midterm elections will prove difficult for the Republicans. But, as Sinatra more or less noted, “It’s a long, long way from May to November” and the midterms.
Those on the ballots are unsuccessfully imploring Donald Trump to forget about the Pope, ballrooms, triumphal arches and his image on coins and passports, and address the woes of the dwellers in the experienced economy. But that would not be easy. Jared Bernstein, President Biden’s top economic adviser, tried it in 2020 and failed. He warns: “Never try to tell the American people that they’re better off than they think they are.”
To improve where they think they are would require major policy changes. But we are in a period of policy paralysis. Were the Federal Reserve to raise interest rates, it would increase the cost of carrying the national debt, not to mention its effect on the presidential blood pressure. Were it to lower them, it risks creating non-transitory inflation.
Fiscal policy is already loose — deficits continue and show no signs of abating even as America’s debt exceeds its gross domestic product, and is headed towards 120 per cent of GDP in 2036. The markets are signalling concern about future inflation by taking interest rates on ten-year Treasury bonds from 3.97 per cent in February to 4.38 per cent now — a 10 per cent increase. Talk of a 5 per cent rate is heard on business channels.
Meanwhile, the war grinds on. It has already has cost $25 billion — not an enormous sum for a $32 trillion economy, or when compared to the $40 billion (unrealised) capital gain on the shares acquired by Trump for the government from Intel almost one year ago.
Irwin Stelzer is a business adviser