105 Comments

In Germany, our public TV 8 pm news show always ends with reading out the German equivalent to the Dow Jones, and sometimes gives one or two "explanations" on why it changed, like "the DAX closed 0,6% down today. Experts consider this a consequence of tumultuous oil prices". It does this more than 2 hours after the stock market has closed, so this procedure has only one purpose: send grandpa Joe to bed with a good vibe. "Hmm, the DAX is up, that's probably good (for me)".

This is precisely how I feel about the GDP. I am not gross, I am barely domestic and I don't make products. This has nothing do with me. My wage hasn't increased in 6 years, and wages have uncoupled from productivity 50 years ago.

Real wages are a much better attempt at trying to approximate how I am actually affected by the economy, but it irks me to see that even top economists consider it appropriate to use line graphs here. Why are you lacking the ambition to work with distributions here? The real problems are always in the top and bottom percentiles. To put it vulgarly, starving single mothers don't average out.

I am sick and tired of these line graphs, it's like trying to figure out how a football match went by listening to the noise-levels from outside the stadium. Yeah, you will probably notice all the goals and maybe even figure out which team won, but coaching a team solely based in this information? Good luck.

Give distributions or nothing please. We have the data, and economists are both smart enough to work with them, and to properly explain them to their audience. Well, maybe not to the bottom 10%, but those guys will average out.

Expand full comment

Well, knock me over with the feather! Real wages are what really matter?! I'll be damned!

You mean when my social security check Remains the Same or grows only a few percentage points and the price of gas goes up like it suddenly did and at the same time I go to the grocery store and broccoli and apples are way up and landlords are jumping on the opportunity to raise rents and blame it on bidenomics that I get negative about the economy? A 15% drop in real wages has the same effect on my mood as if prices stay the same in the boss cut my wages by 15%.

Meanwhile we have a party that refuses to lay any plans on the table because Mitch is afraid that people will pick them apart but they have a lot to say about what actually happened under a democratic Administration. Mitch, the purpose of laying those plans on the table is so that we can take advantage of the first amendments provisions and talk about it. Talk about what's happening talk about how it feels talk about what we might be able to do about it.

I'm sure it's a lot more fun to talk at the top of our lungs about hunter's laptop and culture wars than to calmly and rationally discuss real issues, like immigration policies, climate change, preparing for another pandemic, social justice and equal opportunities for women and minorities.

Hopefully a time will come when we can realize that a culture is only as useful as the environment it is trying to adapt to and Nostalgia is not a policy and the fifties are over. Let's take advantage of our diversity and get as many perspectives as possible on all our problems, because that's the only way we're going to solve them. And the biggest problem of all right now is a threat of an authoritarian government taking over and sidelining all those voices and turning it all over to one person who's main Talent is marketing when we are a nation of immigrants with their new ideas and new energy and appear to love America more before they ever get here and some people who are born here and don't realize that democracy is how we got here.

Expand full comment
Jun 28, 2023Liked by Noah Smith

Really interesting piece. I don’t think the real wage decrease since 2020 is the full picture though. I believe that the economic pessimism is largely driven by the realization of the state of affairs we find ourselves in regarding the cost of living far outpacing those real wages trending up over the past decades - take housing costs as a percentage of income. From 11.8% in 1980 to something like 45% in 2023. Healthcare in the US is unbelievably expensive compared to years gone by. Everything just costs more.

Hard to be optimistic when you wonder when the merry-go-round will stop.

Expand full comment

Here’s what I don’t get: Why weren’t real wages the first thing folks looked at for an explanation for economic pessimism??

Expand full comment
Jun 28, 2023Liked by Noah Smith

With social media, I don't think we'll ever really be happy until we evolve ourselves some sort of defense mechanisms against negativity, polarization, dunking, clickbait, etc.

Expand full comment

That's a very interesting point of view Noah!

I remember about the situation in Turkey in the recent 2 years: although the Turkish GDP and GDP per capita still grew quite rapidly: https://www.reuters.com/markets/turkeys-economy-grew-56-2022-pace-slow-after-earthquakes-2023-02-28/, the common people in Turkey was still grumpy about the economy due to rapid inflation (peaked in over 180% as in unofficial data). However, I think the Turkish GDP growth here is really unsustainable due to negative real interest rates, and the really surprised thing is that even though Turkish people are grumpy with falling real wages, they still elected Erdogan as President :)))

Expand full comment

The fact is, everyone and everything is running out of money. Businesses are collapsing, universities are going into a budget crisis, restaurant prices are going crazy, a room at a Motel 6 is $250, and no one's paycheck has gone up since 2019. It's that simple.

Expand full comment

"it’s often very hard to figure out which economic numbers people actually care about"

Most people don't care that much about any economic numbers. That's just the declining marginal utility of wealth in action. Beyond level 1 and part of level 2 (security) the rest of Maslow's hierarchy of needs is unpurchaseable at any price and therefore outside the realm of economics. Economists struggle to accept that this sets a boundary to their field.

I hope you're correct about wages. However, blue collar wages have been largely flat for a very long time:

https://nces.ed.gov/programs/coe/indicator/cba

https://crsreports.congress.gov/product/pdf/R/R45090/13

Most ex-coal miners can't learn to code. The reality is that most Americans aren't part of (and will not become part of) the laptop / knowledge-worker class. So until we figure out how to bring up the wages of lower 50% of our population, I predict the wagecession (I like that term) will persist.

Expand full comment

There's something truly fantastic about wondering why people feel the economy's doing poorly - to the point where it causes actual frustration in the wonderer(s) - and then, after carefully investigating myriad possibilities, cautiously and unsteadily hypothesizing that "maybe, possibly, it might have something vaguely to do with the fact that they're getting paid less for more work, but we can't really say for sure".

Expand full comment

Isn’t the 15% inflation you mentioned over the last 30 months built into the GDP statistics? If so, then the quarterly numbers may be increasing (so no technical recession), but buying power keeps dropping - that’s exciting news!

The US is also north of $30 trillion in debt with no end to the increase in sight. The man on the street is smart enough to know that is not sustainable.

Might they also worry that the new jobs that exist are outside their skill set?

Throw in the fact that we sit on vast amounts of oil and gas but choose to shut down our production, idle more workers, send those jobs to other countries and pay higher prices for our energy - I can hardly contain my glee.

I’m not sure if the reality of AI has been digested by the man on the street, but many people will feel even more uneasy about their employment opportunities once it does.

When we look at the increase in the S&P 500 we are happy that it is increasing. But maybe we’re forgetting that the makeup of those 500 companies changes over time. The net profit of the biggest companies may be increasing, but it’s possible that increase is benefiting a smaller group of people.

Pfizer comes to mind.

Expand full comment

Excellent article.. thanks!

What is puzzling: many so called experts say real wages haven’t increased much since 1970s: yet year after year 16 million middle class vehicles and millions of middle class houses are bought.. how can that be?

Expand full comment

To quote Nabokov, "Actually he was a pessimist, and, like all pessimists, a ridiculously unobservant man."

Expand full comment

Ordinary people have never really recovered from the 2008 recession. Taking inflation into account we've lost money most years - It personally took me several moves and 8 years to get my hourly rate back to its pre "Once in a lifetime financial crisis" levels.

Expand full comment

I’m still paying more for milk. Remember what Truman said. “If you laid all the economists end to end they’d point in every direction.”

Expand full comment

My question is, do those real wages actually represent a wage index, comparing wage in a given job to the wage in the same job in the previous period unaffected by shifts in the composition of jobs? And to the extent it is about real wages properly measured, why would that produce the gap between reports of feelings about personal and national outcomes?

I put some weight on the constant harping on "inflation is STILL above the Fed's target," which is OK except where was that harping back in 2008-2020 when inflation was mostly _below_ target?

Plus for the vast majority of people with jobs, the fall in unemployment hardly registers, but inflation counts in full, not just the part that exceeds nominal wage increases.

As for the end of the vibecession, I am more worried about TIPS having fallen and remaining below the Fed's target. [Hey, as an economic "influencer," could you please get the Treasury to issue some intermediate tenor TIPS. The 5-and 10-year TIPS are nice but why not a 1-, 2-,and 3-year TIPS?. Thank you. :)]

Expand full comment
Jun 28, 2023·edited Jun 28, 2023

An exhaustive review of the subject and the current explanations about it, as usual. Together with that - real wages - central piece of evidence that would be the elephant in the room if missed. And it is lacking in the media so far.

What I am still missing is a more "financial" way to measure and value discontent, which after the continuous landslide of economy impacting events these years might have become more central to the population at large. More so with the increased divergence between what is public and what is published (by the way of saying of Spain's ex-president Felipe Gonzalez) and the grown importance of medias of all kinds in our lives (you accounted for this last possible causation).

Hence, if our projected income is on the verge of large and sequential collapses; be them catastrophes affecting agriculture, oil, etc prices. Or the quality of the air or our own sense of security if temperatures, climate suffer sudden changes or get to extremes and inundations, fires, etc. start to sprout not so far from our cities.

All factors that also effect present, relevant decisions like family planning and I am far from being thorough in this. Just the opposite; trying to be all encompassing. For instance, what are the economic perception effects of having a stuck real state market in this situation? The marginal prices reflect a small % of sellers and buyers, while the "not selling" and the "not buying" large majorities comprise both those postponing decisions... and the planning of those contemplating doing so in the next 5, 10 plus years.

Expand full comment