Most Americans have emerged economically winners from the pandemic, despite inflation

The strong demand for labor means that low-income workers can demand wage increases that exceed the price increase. The same is true for middle-income workers who change jobs.

Relief checks approved by lawmakers on both sides and sent by Presidents Donald Trump and Joe Biden have given a cushion to the majority of households. Those higher up the income ladder have seen nice increases in the value of their homes and investment assets.

“For most people,” concludes Michael Strain, who directs economic policy studies at the right-wing American Enterprise Institute, “the current economic situation is good.”

You couldn’t tell that of public opinion, though. A CNN poll last week showed that only 37% of Americans approve of President Joe Biden’s handling of the economy – fewer than they approve of his handling of crime, his relationship with Russia or the protection of democracy .
The highest inflation rate in four decades – 7.5% on an annual basis in last week’s government data – partly explains the bad mood. Yet this worrying step is directly linked to another, more reassuring one: the highest annual economic growth in four decades, with an unemployment rate of just 4%.

Different economists use different measures of economic gains. Inflation looks more threatening when looking at 2021 alone, but less so when also factoring in 2020, when the initial Covid-19 shutdowns drove down the prices of major expenses such as gasoline.

On, economists at the University of California at Berkeley estimate that the disposable income of Americans as a whole increased by 5.3% after inflation from December 2019 to December 2021. Using this measure, which includes the effects of both work income and Covid relief payments, the bottom 50% saw their disposable income increase by 10.9%, compared to 3.8% for the middle 40% and 4.4 % for the top 10%.

Looking only at wage developments, Arin Dube of the University of Massachusetts-Amherst estimates that two-thirds of American workers have seen their wages rise after adjusting for inflation over the past two years. In the last year alone — when inflation picked up dramatically — about a third of workers came out on top, Dube says.

Disproportionate gains at the bottom of the income scale reduce inequality and create opportunities for young workers who take up many lower-skilled and lower-paying jobs. The job market is hot enough that millions of Americans continue to quit their jobs for better-paying new ones in what White House economist Bharat Ramamurti calls “The Great Upgrade.”
Wealthier older Americans have benefited from booming housing and financial markets. Since February 2020, the Dow Jones Industrial Average is up about 19%.

Admittedly, the overall averages mask the large share of Americans, neither rich nor poor, who have lost ground to inflation in recent months. “There is a missing middle,” Dube says.

This includes small business owners squeezed by higher labor costs, if they can find workers. This includes workers who have not changed jobs, settling for the modest wage increases to which they have long been accustomed. It includes tenants whose landlords want more when leases expire.

A recent Wells Fargo analysis showed that middle-income consumers were the hardest hit by rising gas and used-car prices. This is most painful for those who, without the benefit of work-from-home options, have continued to commute to work.

According to economists at Cal-Berkeley, the middle 40% of earners have seen their disposable income erode by 1.1% after inflation over the past year. This group occupies a particularly important place in American politics.

Public discontent incorporates anxiety over the pandemic’s continued ability to disrupt economic activity. The fact that most Americans have won financially does not mean that they will continue to do so.

“I would make a distinction between ‘benefited’ and ‘will benefit’,” observes Strain. He worries that attempts by the Federal Reserve to temper inflation with higher interest rates could trigger a recession.

Strain was among the relatively few economists who warned a year ago that Biden’s $1.9 trillion U.S. bailout was too big and risked triggering excessive inflation by overstimulating demand. Many others have belatedly accepted the foreknowledge of these warnings.

“It was bigger than what would have been ideal,” says liberal economist Dean Baker of the Center for Economic and Policy Research.

Of course, the part of Biden’s bailout that economists lament most for needlessly fueling inflation was also the most politically irresistible. These were the $1,400 Covid relief checks for single taxpayers earning $75,000 or less and couples earning $150,000 or less.

The Biden administration has worked for months to ease choke points in the supply chain for scarce goods such as automobiles. But the primary inflation-fighting power lies with the Fed, and Americans unhappy with inflation today might not like higher borrowing costs tomorrow much more.
“People who are crying out for Biden to do something don’t want the Fed to raise interest rates,” says Betsey Stevenson, a former Obama administration economist now at the University of Michigan. “They want more fucking cars.”


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