« Fed Watch: Long Run Forecast vs. Short Run Reality | Main | Social Security and UFOs »

Monday, November 26, 2007

Paul Krugman: Winter of Our Discontent

Why are people so unhappy with the economy?

Winter of Our Discontent, by Paul Krugman, Commentary, NY Times: “Americans’ Economic Pessimism Reaches Record High.” That’s the headline on a recent Gallup report, which shows a nation deeply unhappy with the state of the economy. Right now, ... “an extraordinary 78% of Americans now say the economy is getting worse, while a scant 13% say it is getting better.”

What’s really remarkable about this dismal outlook is that the economy isn’t (yet?) in recession, and consumers haven’t yet felt the full effects of $98 oil (wait until they see this winter’s heating bills) or the plunging dollar, which will raise the prices of imported goods.

The response of those who support the Bush administration’s economic policies is to ... rattle off statistics... Many of these statistics are misleading or irrelevant, but it’s true that the official unemployment rate is fairly low... So why are people so unhappy?

The answer from Bush supporters — who are, on this and other matters, a strikingly whiny bunch — is to blame the “liberal media” for failing to report the good news. But the real explanation ... is that whatever good economic news there is hasn’t translated into gains for most working Americans.

One way to drive this point home is to compare the situation for workers today with that in the late 1990s, when the country’s economic optimism was almost as remarkable as its pessimism today. ...

The unemployment rate in 1998 was only slightly lower than ... today. But for working Americans, everything else was different. Wages were rising, yet inflation was low, so the purchasing power of workers’ take-home pay was steadily improving. So, too, were job benefits, including the availability of health insurance. And homeownership was rising steadily.

It was, in other words, a time when Americans felt they were sharing in the country’s prosperity.

Today, by contrast, wage gains for most workers are being swallowed by inflation. ... Meanwhile, the percentage of Americans receiving health insurance from their employers ... is continuing its downward trend. And homeownership... — well, you know how that’s going.

In short, working Americans have very good reason to feel unhappy about the state of the economy. But what will it take to make their situation better?

The leading Republican candidates for president don’t even seem to realize that there’s a problem. A few months ago Rudy Giuliani, denouncing Hillary Clinton’s economic proposals, declared that “she wants to go back to the 1990s” — as if that would be a bad thing. ...

But simply putting another Clinton, or any Democrat, in the White House won’t ensure that the good times will roll again. President Clinton was a good economic manager, but much of the good news during the 1990s reflected events that won’t be repeated, including low oil prices and ... the temporary leveling off of health care spending ...

And there are good reasons to think that the negative effects of globalization on the wages of some Americans are larger than they were in the ’90s. That’s a hugely contentious issue within the progressive movement, with no easy resolution. ...

Despite these caveats, Democrats have every right to make a political issue out of the failure of the Bush economy to deliver gains to working Americans — especially because conservatives continue to insist that tax cuts for the affluent are the answer to all problems.

But Democrats shouldn’t kid themselves into believing that this will be easy. The next president won’t be able to deliver another era of good times unless he or she manages to tackle the longer-term trends that underlie today’s economic disappointment: a collapsing health care system and inexorably rising inequality.

    Posted by on Monday, November 26, 2007 at 12:33 AM in Economics | Permalink  TrackBack (0)  Comments (83)


    TrackBack URL for this entry:

    Listed below are links to weblogs that reference Paul Krugman: Winter of Our Discontent:


    Feed You can follow this conversation by subscribing to the comment feed for this post.