In decades of tracking such sentiments, I've never seen people so pessimistic about the economy. And remember, we haven't even had a quarter of contracting GDP yet.
Of course, rising gas prices, the deteriorating job market, and paychecks that are barely making it past gas and groceries are the major drivers of these poll results. But they're not the whole story. Well before gas prices spiked, majorities were telling pollsters that something fundamental was wrong in the economy, and that it had to do with the fact that most of the folks who were baking the economic pie were ending up with thinner slices.
These latest economic stressors have simply served to turn this underlying feeling that the game was rigged into a much more urgent sense that something's got to change.
First, what's so unique about where the polls are pointing right now? It's this: it actually doesn't take all that much for people to feel lousy about the economy, but it takes a lot of hurt for them to feel that way about their own situations. Folks will often say, "the economy's doing badly, but my personal circumstances are OK." It's their way of saying they recognize something is off out there, but it's not really affecting them so much.
Well, it's affecting them now. For the first time in the 32 years over which they've been asking the question, Gallup reports that a majority of respondents believe they're losing ground. Both of the main consumer (lack of) confidence surveys show the same equally rare finding, i.e., people expect their income to fall in coming months.
One of the most precise questions in this regard comes from a CNBC poll that asks people about their expectations regarding both wages and prices. Last month respondents reported that they expected their wages to grow by 2%, on average, compared to 11% for inflation. Inflation's been growing at a much lower rate than that, about 4%, but their estimate reflects the cost of energy, which is up 17% over the past year.
Last Thursday, we learned that they weren't too far off on the wage side either. Weekly earnings for most workers were up 2.8% over the past year, well behind overall inflation, and miles behind energy costs.
So, you're thinking...what fun. The economy's in the tank, people know it, and here's just what we need: another dismal scientist to fill us in on all the gory details.
Not so. There's no denying the downbeat news. Even the Bushies have stopped intoning their monotonous meaningless mantra: "the fundamentals are sound." But there is hope embedded in this current state of affairs.
First, the structural fissures in the US economy -- the bubble and bust macroeconomy, over-leveraged households consuming beyond their means, inequality levels not seen since the late 1920s -- had to come to light at some point. We're fortunate that they've done so a few months before a general election between the two candidates with starkly different economic visions. More on that in a moment.
Second, on the energy side, despite all the talk about what somebody else can do to bring gas prices down -- poke more holes, beat up on oil execs, enact feckless tax holidays -- the only person who can make a difference in the short run is you. And, in fact, to be deeply wonky about it, the price elasticity of demand has finally kicked in, which is a fancy way of saying people are driving less in response to higher prices at the pump. The evidence is really quite eye-popping (see chart of page 9 here). It's been a long time coming, but people are doing exacting what the price signals are telling them too: conserve energy.
It's not without pain. People are driving less because they can't afford to drive as much as they used to, and that can be costly in terms of family well-being. But good things may well come as a result of this change, assuming it persists, including much higher mpg standards, more public transit, and a whole set of greener outcomes, from home insulation to city planning.
Then there's this bit of good news: these economic developments, from the current downturn, to the sharp growth in inequality, to the energy price spike, are amenable to policy, assuming we can muster the wisdom to make the right choices. Here again, recent history is extremely useful.
If supply-side economics/market fundamentalism worked, the economic landscape would look quite different than it does now. The last eight years have served as something quite rare in economics: a natural experiment of the effectiveness of market forces, goosed liberally (wrong word, but you know what I mean) with high-end tax cuts, to address the challenges we face. Health care would be on a sustainable trajectory, energy policy would exist (subsidies to big oil don't count), tax policy would help to offset inequality, not exacerbate it, financial markets would speculate less, price risk more accurately, and be much less bubbly, and the benefits of productivity growth would be more broadly shared with the working men and women responsible for creating them.
Which brings us to politics. McCain can run from Bush, but as long as he doubles down on both Bushonomics and the war, he can't hide. His tax cuts tread even further into supply-side fantasy land than Bush's, transferring another $300 billion to the wealthiest households. His health care plan is designed not to tap the power of pooled risk sharing and single payer, but to incentivize individuals to go out and shop for coverage in the non-group market. His chief economic policy architect is Phil Gramm, that cowboy deregulator who brought us the Enron loophole and sponsored banking legislation that put us solidly on the path to where we are today, bailing out investment banks that failed partly from lack of oversight.
Obama's economic agenda is very different. He recognizes the failures noted above and, as I've written before, seeks to reset the balance between market forces and effective government intervention in all of these areas.
I think his agenda will make a positive difference, but I don't know that. Moreover, if he wins, none of us can foresee what will come of that agenda, once Congress gets involved. But I do know this: our current economic system is broken. I've known it for awhile. I've written numerous books about it. I like them okay, but they're not important. What's important is that everybody else knows it now too.
And so it is a time of uniquely deep economic pessimism. Forgive me if I'm uniquely optimistic about our chances to do something to change that.