At the close of his 1980 debate against President Jimmy Carter, Republican nominee Ronald Reagan asked the immortal question that still frames presidential election economic debates: “Are you better off than you were four years ago?”
It’s not really a fair question because the president does not control macroeconomic variables such as growth, inflation and unemployment. In this election, the deep pandemic-induced recession of 2020 and inflation during the subsequent, equally steep recovery make any comparison with four years ago especially questionable.
And yet, it’s on voters’ minds. So ABC News moderator David Muir opened Tuesday night’s presidential debate by directing a variant of Reagan’s query at the quasi-incumbent, Vice President Kamala Harris.
She dodged it — and no wonder. On Tuesday, the Census Bureau released an update on income, poverty and health insurance in the United States as of last year. And though there was much good news compared with previous years, particularly on health coverage, the data suggested that income-wise, as of 2023, many Americans were still not quite better off than they were in the last pre-pandemic year, 2019, nor necessarily even than they were in 2020.
Ms. Harris would be wise to acknowledge that reality, while also pointing out all the reasons for optimism. The United States weathered the pandemic and recovery period better than other countries did. And things aren’t as sluggish as they seem if you look only at inflation-adjusted household income. That indicator stood at $80,610 in 2023, meaning it had essentially returned to its 2019 level of $81,210. (The Census Bureau explained that the two numbers are not statistically different, given the way it collects them.)
That decline is starker, however, if you look at real income after taxes (and tax credits), which better reflects what households were actually able to spend. After-tax income continued increasing during the shutdowns thanks to substantial government pandemic relief, peaking in 2020. But when the relief ended, real income after taxes dropped significantly. This is one of the biggest reasons that Democrats have struggled to sell Americans on the merits of President Joe Biden’s economic stewardship. Ms. Harris should be honest about that decline, while also explaining why the 2020 and 2021 figures weren’t sustainable, and why there are still lots of reasons to think the economy is strong and capable of getting stronger. Though Americans might not feel quite as rich as they did when the government was shoveling money into everyone’s bank accounts, they’re still doing pretty well on a lot of measures, from unemployment to household wealth. More importantly, the economy is still headed in the right direction
Massive transfers to households were appropriate during a grave national emergency, but the government can’t keep borrowing more than 10 percent of gross domestic product every year, which would drive up interest rates and inflation, and risk a fiscal crisis. Nor can the government fund such spending on a permanent basis, unless the public is willing to tolerate 50 percent tax hikes.
But though Americans might not feel quite as rich as they did when the government was shoveling money into everyone’s bank accounts, they’re still doing pretty well on a lot of measures, from unemployment to household wealth. More importantly, the economy is still headed in the right direction.
Median pretax household incomes increased by 4 percent in 2023, the first statistically significant increase in four years, and with real weekly earnings now higher than they were before the pandemic, this year could bring that number to a new high. Inflation has fallen to 2.5 percent, and might have further to go, a feat the Federal Reserve managed not only without a full-blown recession but also while keeping the unemployment rate at a jaunty 4.2 percent. The aggregate net worth of American households has never been higher, and with interest rates finally beginning to fall, that number, too, has room to grow.
Things are steadily improving, and by many measures, 2024 could well be the best year on record. Ms. Harris also has some ideas to help the economy grow even faster, such as her promise to ease regulatory bottlenecks that keep developers from building enough housing to meet demand. Providing more specifics about how she would keep that pledge would assure voters that she can help them recover the remaining lost ground and then some.
The housing crunch isn’t just a painful burden on families, contributing to voter disgruntlement. It’s also a drag on the larger economy. Workers can’t move to opportunity unless they can find a place to live near desirable jobs, and employers can’t expand operations if all the workers are stuck in place elsewhere. Ms. Harris seems to grasp that housing affordability is a limiting factor for economic growth. Now she just needs to tell us persuasively how she’d fix it.
