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Good Data leads Paul Krugman down the wrong path

Paul Krugman at the New York Times asked last week “Why are Americans Still Down on the Economy?” Surely the macroeconomic indicators of job creation, inflation, and GDP and the stock market would lead one to believe that the economy is great. Mr. Krugman goes on to say that Democrats “need to overcome . . . the false narrative that the economy is doing badly.” If only the Democrats could message better.


This is a classic case of expert blindness. An economy can be robust and generating a lot of wealth while at the same time being unhealthy. Macroeconomic indicators, while immensely relevant to investors and economists, often have nothing to do with whether an economy is good for the rural worker. They simply set the stage for participation in the economy and overall wealth generation. Let’s take a look at this.


The creation of jobs and unemployment


The metric of job creation and unemployment simply indicates whether or not people are able to participate in the economy. It does not determine whether or not the economy is healthy. To illustrate this point, let’s look at a couple of full employment economies.


The economies I’m thinking of are communist Russia and the family farm. With respect to Russia, the whole point of a communist economy is that everyone will have a job. Russia in the 1970s had full employment and GDP was increasing faster than that of the United States. Yet no one would argue that Russia’s economy in the 1970s was healthy, or good, for the worker. Russians often couldn’t buy bread, eggs, or milk. It so many ways it was a terrible economy for the individual worker. Of course, 20% of GDP was going to defense, not butter.


The family farm, which is my reality, is another example. We also had full employment. There is no one on a family farm who doesn’t work and there is always room for another worker. In fact it is the perfect communist closed system. Everyone works based on ability and then divides up the fruits of their labor based on need. It works not only because the entire unit is related, but because everyone can accurately and precisely determine ability and need. Yet full employment does not determine whether or not the farm will be successful. It just sets the stage. Some farms were very successful and others weren’t. And life on the farm was good for some farmers and bad for others. Yet they all had full employment.


For the investor and billionaire, however, employment is a key metric. You want as many of the worker bees working as possible. That increases production and hence profits to you, even if none of the additional output goes to the worker or society at large. And that’s what you see more and more today. Not only are we currently at essentially full employment, but we have dramatically increased the labor participation rate since the 1950s. In the early 1950s the labor participation rate was somewhere around 50%. Today it is around 65%. That means we can produce more. But that does not mean that life is better for everyone. It depends where those additional profits go. They go more and more to the billionaire and investor class. And rural voters know this.


GDP is not a metric of a good economy for the worker


GDP is a slippery metric. Russia in the 1970s had full employment and a high and increasing GDP. Yet it spent 20% of that GDP on defense. At the same time it was unable to provide the goods that citizens needed. Ancient Egypt is another terrific example. It also had full employment and had a very high GDP. It was able to produce incredible architecture, science, technology and wealth yet its economy was terrible for the peasant and slave. No matter how much the peasant or slave works or increases productivity, their subsistence level of living did not change.


To be sure, a high GDP is necessary if you want to lift all boats. Whether it does so is a matter of policy. The question is really what you do with that GDP and whether you use it to lift everyone. We have been on track to divert more and more of our GDP to the top echelons of business owners and investors. While in the late 1800s 95% of Americans were in families that were business owners and entrepreneurs (family farmers and shopkeepers), today that number is 9%. That means that a significant portion of the profits we are making today go to the top. Those profits are no longer invested in the local community like what used to happen when we were a nation of shopkeepers and farmers. Rural voters intuitively recognize this. Investors are now even buying up our housing and farmland stock. This is all turning us into a nation of serfs and renters.


Look at it this way - U.S. GDP is expected to be $30 trillion this year. If you divide the US population into households of four people, that would imply an income to each household of $351.000. Yet actual median household income is less than $100,000 for a family of four. The disconnect is that we are now funneling an enormous portion of GDP to the top tier of society.


Inflation and wages mislead


The press also often implies that because inflation has now cooled, the problem is over. It isn’t. Because while the rate of inflation has cooled, those prior cost increases in rural America have not come down. In fact they continue to go up. And what exactly are those costs?


My largest yearly expenses are automobile insurance, gasoline, electricity, propane, and property taxes. These items comprise 90% of what I spend because I do not have a mortgage or car payment. These expenses, which are relatively fixed, went up by the following amounts since President Biden was elected:


• automobile insurance 35%

• gasoline 51%

• electricity 25%

• propane 46%

• property taxes 20%


These are enormous increases and wages did not keep up with those costs. The press routinely reports that wages have kept up with inflation since 2020. That simply isn’t true in rural America. And look at the test that economists use -- the CPI. The Bureau of Labor Statistics defines CPI as the change in prices of goods and services purchased by urban households. It doesn’t even attempt to measure what is happening in rural America.


Our Township Deputy Clerk has made $10.50 per hour since 2020. That wage is expected to go to $12 per hour in 2024. That is an increase of about 20%, which you will note is exactly the increase in my property taxes. To their credit, the Township simply passed on the increase in taxes to their employee. That is not an unreasonable way to operate. Yet it is not a significant jump when gasoline went up 51% and car insurance went up 35%.


This is also a reflection of a dynamic that is at work in many rural communities. The jobs no one wants pay far more than the jobs people do want. Our Township clerk could have quit her job and taken a position at McDonald’s for $18 an hour. There are still a lot of dead-end jobs available where we live and they pay well. So when looking at data, but not out the window, economists conclude that not only are we are we creating a lot of new jobs, they are also well-paying. That is true on paper. It is false in reality - a job that you actually want that pays well is very difficult to find. Which explains Mr. Krugman’s confusion when he sees polls where an individual will report that there are plentiful jobs and that they have a hard time finding a job. Both things can be true in the real world.


What does make an economy ”Good”?



As Paul Krugman points out, many people are doing financially much better today than they were in 2020. Yet he is confused as to why those same people might opine that they think the economy is bad. It really isn’t that confusing once you discard the urban centric view that how much money one makes determines everything.

Rural voters seem to have a better grasp of what makes an economy good. The complaints I hear about the economy being poor from contractors, farmers, and people engaged in a trade, are not about wages. Rural voters complain about the following:


• The jobs the economy is creating aren’t the jobs people actually want. (My daughter’s experience)

• The economy isn’t producing the workers and service providers we need. (And why does Russia produce twice as many engineers per year as the U.S. with half the population?)

• The economy isn’t able to produce the goods we need. (Why can’t we produce sufficient medicine, lithium for electric cars, baby formula and ammunition?)

• The economy is becoming so overregulated that it is more and more difficult to make a living being self-employed.

• The economy is being reconfigured in a way that life will be possible and legal only in densely populated urban areas.

• The economy isn’t returning the profits of an expanding economy to the local environment.


To many rural voters, the U.S. economy is failing at all of these metrics and in large part that is a rational and accurate view.


The economy can be strong and unhealthy at the same time


So yes, I can be doing well financially and still think the economy is bad if the economy isn’t producing what it should be. There is no disconnect there. The press simply doesn’t understand that both things can be true. While Mr. Krugman is confused why people can say that jobs are plentiful and also that they are hard to get, my daughter experienced that real time when she moved here. There were lots of jobs that paid $18 an hour that were in fast food and other menial positions. But those were not the jobs she wanted. The jobs she wanted were few and far between, were hard to get, and didn’t pay well. Both things were true. The press has also argued in the past that people should simply move to where the jobs are good and do pay well. But I’m not sure that a forced migration is the right solution.


It is also no surprise that an individual can report that while they are financially doing very well the economy as a whole is not. In fact all of the contractors, farmers and people engage in trades I know are doing very well. Yet none of us can hire the people we need. Often at any cost. Our Township is required to obtain three quotes on work that it has done. For some recent electrical work, we could only get one electrician to come out. There simply aren’t electricians in the pipeline anymore. So rural voters ask why is it that there is a college graduate working at Starbucks yet we don’t have electricians, plumbers, engineers and mechanics? That reflects a bad economy – and it is due to bad policy decisions.


Talking Points for Democrats


Understand that rural voters have a different test for what a good economy is. This is not a matter of better messaging. Nor is it a matter of overcoming a false narrative, as Mr. Krugman argues. It is more about understanding how an economy can be producing a lot on the macro level but failing on the micro level.


And Democrats do have good things to say on the issues that concern rural voters. President Biden is bringing significant manufacturing back to the United States. We will be manufacturing the more computer chips in the United States. The Democratic Party is interested in breaking up large monopolies. The president is interested in bringing back more and more organic family farming. These are all very good yet long-term goals. Talk about them.


So yes, of course talk about job growth and GDP - they show that the US economy is very good at creating wealth. But also talk about supply chain issues, manufacturing in US, and similar issues. It messages to the voter how you plan to deploy that wealth.







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