Years ago, I wrote an article called The Long Depression where I argued that instead of a bounce back from the 2008 crisis, we had never really recovered. If you say something like this on Twitter, 20 people will come out with charts and personal anecdotes as to why that is not the case. Unemployment is at historic lows, wages have started to grow coming out of the Pandemic, and median income is at the highest point in American history. Much of the increase in wages has come at the bottom of the market which gets into how people actually feel about the economy.
As in so many things, data only tells part of the story. The numbers can tell us that things are going along just fine but why aren’t people feeling this new wealth? Even before the Pandemic, when the economy was more healthy (in data terms) people were still feeling that the economy just wasn’t paying off for the average person. This is the great mystery of our time. It seems like the economy is doing well by the numbers but when you poll people or read their sentiment online, everyone seems to be grousing about the present economy.
Inflation, Deflation and You
Since the late 1970s, when Paul Volcker managed to break the price/wage inflation spiral that had plagued the economy since the end of Bretton Woods and a spike in energy prices, American’s enjoyed fairly low inflation, this was especially true after the 1980s and into the 1990s. Even in this century, inflation stayed at or below the Federal Reserve’s 2% target. However, the Pandemic changed everything and inflation spiked for the first time since the 1970s. The dollar made some interest moves as during the early part of the pandemic, as the economy was shutting down due to Covid, there was a brief period of deflation because so little money was moving through the economy (remember the coin shortage?). So in the last several years we’ve moved from normal inflation to deflation and then a big spike of inflation that has now begun to moderate. For American’s trying to manage their family expenses this has been a whip-shot. Despite rising wages, it seems like everything costs more. This has been especially true for the middle-class who has not enjoyed the wage gains of the upper class or the lowest working classes. The increased spending by the lower class has skewed the data to make it seem like…