Krugman on the American Malaise

Paul Krugman has another excellent op-ed piece in the NY Times that pinpoints the current malaise in the United States:

... a recent Pew report found that the percentage of Americans saying that they’re better off than they were five years ago is at its lowest level in 44 years of polling.

What’s striking about this bleak mood is that by the usual measures the economy isn’t doing that badly — at least not yet. In particular, the official unemployment rate of 5.1 percent, though rising, is still fairly low by historical standards. Yet economic attitudes are worse now than they were in 1992, when the average unemployment rate was 7.5 percent.

Why are we feeling so down?

Our bleakness partly reflects the fact that most Americans are doing considerably worse than the usual economic measures let on. The official unemployment rate may be relatively low — but the percentage of prime-working-age Americans without jobs, which isn’t the same thing, is historically high. Gross domestic product is up, but the inflation-adjusted income of the median family is probably lower than it was in 2000.

Beyond that, perceptions of the current economy are strongly influenced by the public’s sense of the larger pattern.

When Ronald Reagan famously asked, “Are you better off than you were four years ago?,” the correct answer was “Yes.” Median household income, adjusted for inflation, was higher in 1980 than it had been in 1976. But gas lines and double-digit inflation made people feel that things were falling apart.

Conversely, unemployment was still historically high when Reagan proclaimed “Morning in America.” But people were ready to hear an upbeat message, because the economic storm seemed to have passed.

More recently, economic confidence held up relatively well during the 2001 recession, maybe because people were willing to see it as no more than a temporary interruption of the great 1990s boom.

A major reason we’re feeling so down now is that for working Americans the boom never did come back. Job creation in the post-2001 recovery was pathetic by Clinton-era standards; wages barely kept up with inflation. Instead, corporate profits and the incomes of a tiny elite surged — sucking up so much of the economy’s growth that only crumbs were left for everyone else.

Now the boom that wasn’t has gone bust — and Americans, understandably, have lost confidence in the prospects for a return to real prosperity.

They have also, I’d suggest, lost confidence in the integrity of our economic institutions.