The Toxic Politics of Bad Economic News


Conservatives could barely contain their joy Thusday Morning when news broke that the US economy had contracted 1.4% on an annualized basis in the first quarter of 2022.

A declining gross domestic product may be a sign of an impending recession. But when combined with already high inflation, something worse becomes possible: stagflation. This combination of economic contraction and inflation hit the American economy in the 1970s and early 1980s and played a significant role in helping Ronald Reagan make Jimmy Carter a one-term president. These are most likely happy memories of that seminal moment in Republican Party history that made so many conservatives giddy.

They should be careful. On the one hand, there are three components to stagflation: inflation, falling GDP and high unemployment. The first is firmly in place, the second now rears its head, but the third is, for now at least, nowhere in sight. Unemployment currently sits at 3.6%, which is extraordinarily low by historical standards. It is certainly possible that the number will increase – in fact, it almost certainly will if GDP continues to contract in the second quarter, let alone beyond. But for now, the job market remains hot, which means 2022 so far looks nothing like 1979.

But beyond the technical definition of stagflation is the complicated way economic data interacts with ordinary Americans’ perceptions of reality. By dancing a jig about President Biden’s misfortune, Republicans run the risk of misinterpreting this interaction and appearing to actively encourage more bad news.

Consider inflation. When new rising price data comes out each month, it describes a reality that every American perceives. How painful this reality will be will depend on one’s income, savings and wealth. A wealthy person might notice that gasoline, food, and other consumer goods and services become more expensive, but this will not create a serious problem for their personal budget. Those in the middle class, on the other hand, will struggle, and the poor could be hit very hard. But the perception of rising prices is almost universal. This is what is happening. The official figure released by the government merely quantifies lived experience, giving people something to point to and wave at politicians, hoping they will respond.

Things work the same way with unemployment, although the negative effects are less widespread. If you have lost your job, you are suffering. But if not, stories from a fired friend or neighbor mainly serve to increase anxiety: I may be next. This anxiety will be greater if you know two or more people who have lost their jobs. When the official unemployment figure is released on the first Friday of the month, it quantifies this anxiety, giving people a numerical measure of the true extent of the suffering and the threat of layoffs. But again, lived experience comes first, with data adding relatively little.

GDP is different. If overall economic growth is too high, it can generate inflation, which is perceived. If the economy contracts, this will lead to job losses, which will also be felt. But growth or contraction himself is not experienced directly by most people.

We have apparently just experienced three months, from January to March, during which the US economy has shrunk overall. However, consumer spending increased by 0.7% during this quarter. On an individual level, most Americans did not behave as if they were in the early stages of a recession. This matches my own experience during those months, as well as the perception of my friends and family scattered across the country. Inflation was a real problem; wages were not rising fast enough to mitigate the effect; and supply chain disruptions and delays continued to be a nuisance. But otherwise, things seemed to be going pretty decently on the economic front.

The numbers that went into the fall in GDP help explain why: they were to a large extent the result of slowdown in export growth due to lower demand overseas. When this happens, the GDP growth rate decreases.

If that sounds abstract, that’s because it is — at least at the level of individual American consumers. If American companies had exported more of the goods produced in the country, the economy might have contracted less or even grown. If this trend over the last quarter continues, it could become a real problem that generates consequences (like layoffs) that American workers are starting to feel.

Either way, the numbers released Thursday morning simply don’t reflect or explain a lived experience of pain on the part of Americans, which makes right-wing good humor especially dumb. Of course, it’s not as bad as the members of the opposition party who rejoice in the real economic difficulties. Yet fist-pumping bad news, even when it’s mostly an abstraction, isn’t politically wise.

Yes, partisan Republican voters will agree to deal with the drop in GDP as the latest demonstration that Biden’s presidency has been an absolute, broad-spectrum disaster. But will that message resonate with less vocal party members, let alone independent voters? I doubt it, unless and until people’s everyday perceptions of economic reality begin to change for the worse.

But without those underlying bad experiences? Republicans may well end up looking like they’re nudging themselves ghosts — and hoping for greater pain to further their own political fortunes.

Previous White House attacks Rick Scott amid bad economic news
Next Important economic events in the market for the next week