Introduction to Economic Pessimism
The current state of the economy has led to a growing sense of pessimism among Americans. A recent Wall Street Journal-NORC poll found that only 25% of people believe they have a good chance of improving their standard of living, a record low in surveys dating back to 1987. Furthermore, over three-quarters of respondents lack confidence that the next generation will have a better life than their own.
The Disconnect Between Economists and the Public
Economists are puzzled by the disconnect between the nation’s sour economic outlook and traditional measures that show the economy to be robust. They see a disconnect because they do not fully understand the real world or inflation. Food prices are inadequately measured in the Consumer Price Index (CPI), and shelter is much worse. Few can afford a home, and prices have gone out of sight. Economists do not count home prices in the CPI, nor do they count property taxes or properly count homeowner’s insurance.
Concerns About the Economy
The WSJ poll highlights concerns about the economy, with interest rates being largely housing-related and food prices being a significant issue. The poll also shows that only 17% of respondents believe the US economy stands above all others in the world, while nearly 40% say other nations have better economies. This represents a 15-point rise from 2021, indicating a decline in America’s sense of exceptionalism.
The Housing Mess
The housing mess is entirely of the Fed’s making, resulting from the Fed’s failure to count home prices as inflation. Home prices are not directly included in the CPI or the Personal Consumption Expenditures (PCE), the Fed’s preferred measure of inflation. Economists consider home prices a capital expense, not a consumer expense. However, inflation is not just a consumer price concern. The Fed ignored obvious inflation in the Great Recession and again in the Covid recession, leading to the current housing crisis.
The Future of the Economy
Looking ahead, the future of the economy appears uncertain. The Fed does not know how to address the housing mess, and there is no good answer. For homes to become affordable again, mortgage rates need to decline, and home prices need to fall dramatically. However, this is unlikely to happen soon, and the economy is likely to continue struggling.
Conclusion
In conclusion, the current state of the economy has led to a growing sense of pessimism among Americans. The disconnect between economists and the public is due to the failure of economists to fully understand the real world or inflation. The housing mess is a significant issue, and the Fed’s failure to count home prices as inflation has contributed to the crisis. As the economy continues to struggle, it is essential to consider the concerns of the public and work towards finding solutions to address the housing mess and improve the overall economy. The future of the economy is uncertain, and it is crucial to take a comprehensive approach to address the issues facing the country.
