We’re All Alright

Commentary by William Alan Reinsch

Published October 28, 2024

Apologies to Cheap Trick for borrowing a song lyric for my title (also, as all you geezers out there will remember, the theme song for That 70s Show) and to Ed Gresser of the Progressive Policy Institute for shamelessly borrowing his data, but the question he raises is important, particularly during election season.

That question is the quadrennial classic: Are you better off now than you were four years ago? Virtually every presidential challenger has posed that question and then proceeded to answer it with a resounding "no," thereby "proving" that they are better qualified to be president than the incumbent. Occasionally, incumbents have tried to preempt that debate by using the question themselves. My first boss at the Commerce Department, Ron Brown, used to say in the run-up to the 1996 presidential election before he tragically died in a plane crash that what is supposed to be up is up and what is supposed to be down is down, referring first to the economic growth rate and second to the unemployment rate. Bill Clinton ran on the economy in 1992, and he did so successfully again in 1996, so the correct answer to the question is not always "no."

This time around, the debate is not that different from past election years. The challenger is saying the country is in terrible shape, and the incumbent, in this case the vice president, is arguing that things are better than that. The one notable difference is that the challenger also held the office and can point to his own term for comparison. That hasn't happened since 1892 when Grover Cleveland defeated Benjamin Harrison after losing to him in 1888.

So, given that preamble, what's the answer-are we better off or not? As with many political questions, there is a difference between reality and perception. Let's start with reality, which depends a bit on what you measure and also requires taking the pandemic into account.

As Gresser points out, economic growth is up-gross domestic product (GDP) in 2024 will likely be 13.5 percent larger than it was in 2020 and 11 percent larger than it was in the pre-pandemic year of 2019. Employment is also up. Currently, there are 159 million Americans working, which is 17 million more than in January 2021 and 10 million more than in January 2020, right before the country shut down.

Income is also up, though more modestly. Median family income in 2023 was $1,050 higher than it was in 2020, and real wages are up about 2 percent from early 2020, with bigger gains in a number of blue-collar sectors.

It is also worth noting that by at least one measure U.S. competitiveness has also improved. Since January 2020, the country has had 190,000 net new research and development (R&D) scientists in the workforce. In addition, spending on R&D has increased from 3.0 percent of GDP in 2019 to 3.4 percent of GDP in 2022 (latest data available). The results of that growth may not show up for years, but it is a clear indication that the Biden administration has prioritized increasing the economy's global competitiveness in technology.

Turning to what is supposed to be down, the picture is more mixed, which also explains the reality-perception gap. As of October 2024, the annual inflation rate is 2.4 percent, according to the Department of Labor. This is down from 2.5 percent the previous month, and significantly down from the peak of 7.0 percent in 2021 and 6.5 percent in 2022 and is well within range of the Federal Reserve Board's target of 2 percent. However, the annual inflation rate is notably higher than the 1.4 percent rate in 2020 and a bit higher than the pre-pandemic rate of 2.3 percent in 2019. It shows significant progress in the past three years, but the rate is still higher than economists would like, and it leaves prices significantly higher than they were in 2019. Voters, of course, want them to go down-back to where they were before the pandemic-and that is not happening, particularly with respect to food and housing, which are the two sectors consumers notice the most.

The result is the gap between reality and perception. What's supposed to be up is up, and what's supposed to be down is going down, but people aren't feeling it. The wage gains are being offset by inflation, and the effects of the latter are lingering in the areas most visible to consumers.

Historically, perception usually catches up with reality eventually, but in an election cycle that may come too late for the incumbent. In 1992, Bill Clinton ran on the economy. The country was in a recession then, but it actually ended several months before election day, but nobody noticed. Clinton won, the economy recovered, and he took credit. This year, we may see the same thing. The country is recovering, but voters' realization of that may come too late for Kamala Harris.

So, as Cheap Trick sang, we're all alright-we just don't know it.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

Subscribe to William Reinsch's Weekly Column

Programs & Projects