Economy Disconnect

Currently with the run up to the 2024 election rapidly approaching, the news media outlets are full of stories about the state of the economy. The Democrat Party, who currently controls the Senate and the White House, are singing the praises of how well the current economy is performing. Yet, the public is not feeling the economy is in such a great state as is being hailed by the Democrats. Why the economy disconnect? How can there be such a huge divide on the condition of current economy?

One reason for the economy disconnect could be because of the presentation of the economic data and the perspective of those presenting it. Administrations often highlight positive aspects of the economy, such as job growth or stock market performance, while critics may focus on negative indicators like income inequality or inflation. This difference in emphasis can lead to conflicting narratives. The Democrats are struggling to hang on to the power they currently have and are attempting to sell the economy to the public. The public is buying their story.

A second reason for the economy disconnect is that economic conditions can vary widely across different regions and demographics. While some segments of the population may benefit from certain policies, others may not see similar improvements. This diversity in economic experiences can lead to varying perceptions of the overall state of the economy. President Biden has been claiming that his policies have “built the economy out from the middle class out”. Yet it is that very middle class that is finding itself struggling the most economically. The inflation that spiked due to the Democrat spending policies, has diminished the buying power of the middle class, in spite of wage gains. And the largest middle class hits have occurred in the most critical part of middle class spending, food, utilities, transportation costs, housing costs, higher education costs and debt repayments.

The social media landscape includes a wide range of outlets with varying editorial perspectives. This can result in different narratives and interpretations of economic data being presented to the public. People’s choice of information sources can influence their perceptions. Over the last couple decades, the mainstream media has moved left in the way it presents the news. This move leftward has alienated a huge segment of the population, leading to this economy disconnect.

A quick look at the middle class today, shows that our recent spike in inflation has eroded the purchasing power of money. When prices rise, the same amount of money buys fewer goods and services. This can make it more challenging for the middle class to maintain their standard of living, especially if wage growth does not keep pace with inflation.

The recent rise in the cost of living has hit the middle-class families typically where they allocate a significant portion of their income, such as essentials like housing, healthcare, education, and groceries. When these costs rise due to inflation, it can strain household budgets and reduce disposable income.

Middle class savings and investments have been affected by inflation. Inflation can erode the value of savings and investments. Middle-class individuals who have saved money or invested in assets like stocks and bonds may see their real returns diminish as the purchasing power of their assets decreases. The money they were hoping to fund their future lifestyle, no longer is able to produce the income they were planning for their future.

Some middle-class individuals rely on fixed incomes, such as pensions or Social Security. When inflation occurs, the real value of these fixed payments decline, making it more difficult for retirees to cover their expenses. The recent increases in the cost of living adjustments for the people living on fixed income has not kept pace with the real cost increases of the products and services they spend their money on the most.

The recent rise in interest rates has made a huge impact on people’s buying power. In response to inflation, our central bank has raised interest rates to control inflation driven price increases. This impacts middle-class individuals seeking loans for homes, cars, or education, as higher interest rates increase borrowing costs. Today, it has become common for buyers of new cars and trucks to have payments in excess of a thousand dollars a month for terms as long as six or seven years. These kinds of payments will have a huge drag on the spending power of middle class people for a long time. This has a huge impact on their economy disconnect.

And while there have been wage adjustments, the increases have not been evenly distributed leading to many being left behind.  In some cases, employers may have increased wages trying to keep up with inflation, benefiting their middle-class workers. However, the pace of wage growth may not always match the rate of inflation, leading to a decrease in real income. Think of how the people who have received salary increases and now find themselves falling behind paying the bills they once had no problem with.

So what the average American is experiencing is huge economic uncertainty.  Just like businesses, economic uncertainty, is forcing people be wary of the future and look to the government to correct the imbalance that is currently part of our economy. So as President Biden and the Democrat party keep telling the public just how great of a job they have done with the economy, the public isn’t buying it.