Thursday, November 14

How the gap between good macroeconomic figures and the family economy helps explain Trump's victory

One of the causes of Donald Trump’s victory in the United States elections was voters’ concern about the state of the economy.

And it may seem paradoxical if the global state of the world’s main economy is analyzed.

“The economy, stupid,” is the motto that reflects in American politics that finances are what decide the elections in the country.

And if we go by that, we might have thought it would triumph Kamala Harris as heir to the economy of the government of Joe Biden.

After all, the level of growth, unemployment at historic lows, having avoided the recession that many feared and inflation of just 2.4% could seem like very positive indicators. And they are.

But these elections reflected almost like no other the gap between the good macroeconomic figures and the family economy of people, concerned about the inflation that grew during the pandemic and that in recent years has caused a rise in prices that is maintained, although its increase has already been mitigated.

The Biden administration had to deal with the economic effects of the 2020 pandemic and the energy crisis unleashed by Russia’s invasion of Ukraine in February 2022, and according to economic data, it did well.

But the numbers show a reality that people do not see reflected in their daily lives.

“Here you pay $5 for a dozen eggs. Before it cost $1”, says Samuel Negrón, a Puerto Rican from the city of Allentown, Pennsylvania.

In that state, one of the most decisive in the electoral contest, the Democrats won in 2020, but lost in the last elections.

“It’s simple really. “We liked the way things were four years ago,” Negron tells the BBC.

Trump knew how to capitalize on that gap between the numbers and the personal perception of the economy that many Americans felt when paying at the supermarket checkout or renting their home.

What do the figures say?

The United States had the strongest post-pandemic recovery within the Group of Seven (made up of Germany, Canada, the United States, France, Italy, Japan and the United Kingdom), according to growth data. Gross Domestic Product (GDP).

In the four years of the Biden government, real GDP grew at an average annual rate of 3.2%, a result considered by economists of different political stripes as an important achievement amid the vicissitudes imposed by the international context.

One of the main flags of the Democrats during the election campaign was the record of job creation in this term: almost 16 million new jobs.

And continuing with the labor market, unemployment – which was around 7% when Trump left the presidency – today is at 4.1%, considered a very good level for the US economy.

In 2023 unemployment even reached its lowest level in 54 years.

Consumer spending grew at an annual rate of 3.7%, the highest level in almost two years. That means that despite the discomfort with the cost of living, people continue to buy. And although household debt increased starting in 2021, its pace slowed this year.

Regarding interannual inflation, with the figures available until September, it increased by 2.4% in the last 12 months, very close to the optimal level of 2% that the country has set.

For comparison, the European Union has an annual inflation of 2.1%.

And in the same period, American wages grew almost twice as fast as inflation, rising 4.6%

But then, how do you explain the disconnection between good macroeconomic figures and people’s unrest?

Getty Images:

Despite the good figures, a Many Americans are disappointed. And the discomfort has its origin, in most cases, in the increase in prices during the last four years.

Part of the explanation can be seen in this graph that shows how inflation rose nearly 20% under Biden.

And although 2.4% inflation is a low or moderate level, Prices continue to be more expensive since the pandemic began in February 2020.

Only 6% of the 400 products tracked by the Bureau of Labor Statistics are cheaper today than they were then.

And although salaries increased in almost the same proportion (without losing purchasing power), what remained in the minds of consumers was the gigantic increase in prices in the last four years.

In contrast, things were comparatively pretty good for Americans’ pocketbooks under Trump.

Accumulated inflation in his four years in office was 7.8% (compared to 20% during Biden’s years), while salaries rose almost twice as much.

Getty Images: In October, year-on-year inflation continued to fall to 2.4%.

Don Leonard, an academic at the University of Ohio, suggests in an interview with BBC Mundo that Americans’ concerns about the economy are not a mere problem of perception.

Their argument is that at least 20 million American households have good reason to be disappointed.

“These households have suffered real economic pain that is not so easy to detect in official economic data,” he maintains. “It’s not just an unjustified pessimistic feeling.”

Leonard says that working with averages creates “a bias” that doesn’t show how difficult daily life is for lower-income Americans, who spend much more (as a percentage of their income) on housing, food or health.

The salary segment in which Trump achieved the greatest advantage over Kamala (53% compared to 45%) was the one between $30,000 and $49,000

And many Democrats, meanwhile, insist that people’s frustration is not justified.

However, there is a large portion of the population, Leonard says, who do not qualify for government assistance but are struggling financially in their daily lives. “It’s not that they are hypnotized, they are having a hard time.”

Some analysts believe that the narrative was fundamental in the Democratic defeat, that is, that The campaign did not know how to communicate well the economic achievements of the Biden government and propose, from there, a promising path.

Getty Images: American consumer spending has continued to grow.

and interest rates

The discomfort with the economy has also been influenced by the high cost of credit.

Faced with the inflation maximum of 9.1% in June 2022, the highest in 40 years, the Federal Reserve (equivalent to a central bank) began an aggressive policy of increasing interest rates that helped reduce inflation, but affected finances personal.

Americans, accustomed to living with credit, suffered the impact of rising interest rates when buying a car, paying off credit cards or getting a mortgage.

Many felt cornered between inflation and interest ratesfinally voting for the change. Rates only began to fall shortly before the election without giving it time to be reflected in voters’ pockets.

And that is another element to take into account, say some political analysts.

The crisis generated by the pandemic and the war in Ukraine took its toll on several governments seeking re-election and lost to an electorate tired of the economic problems that have affected their personal finances.

“Are you better off now or 4 years ago?”Trump asked voters in the campaign seeking their support. Many perceived that they are now worse off despite what the macroeconomic figures say.

And they voted for a change in the hope that it will also be reflected in the prices they see in supermarkets, the gas station or when paying rent.

BBC:

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