Biden Economy Is Failing The "Big Mac" Test
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IN THIS ISSUE:
1. Overview – The “Big Mac Index” Revisited
2. President Biden Celebrates First Year In Office
3. The Question Is: Do Most Americans Agree? No
4. Record Number of Americans Say They’re Unhappy
Overview – The “Big Mac Index” Revisited
I recently ran across a couple of references to an old economic indicator called the “Big Mac Index.” The Big Mac Index simply compares the price of the famous McDonald’s hamburger in one country to the price in another – and whether you could buy more or less of it if you had the same money you had last year.
It’s been a long time since I have seen a reference to the Big Mac Index, and I wondered if many of my readers had even heard of this index. So, I thought it might make for an interesting discussion today. It needs a little set-up, though, so bear with me.
President Biden Celebrates First Year In Office
Last month on January 20, President Biden celebrated his first year in office. He and some of his administration spokespeople made some claims about his accomplishments in his first year which were questionable at best and in several cases were outright false.
It is not my intent today to refute the questionable claims made recently by the president and members of his staff. In fact, just the opposite. There are a lot of good things going on in America today (not that there aren’t some bad things going on as well), and the economy is quite strong. I’ll point out some of these good things as we go along.
What sparked today’s topic is the fact that at least a couple of economic/financial writers referred recently to the so-called “Big Mac Index” which as noted above compares the price of McDonald’s famous hamburger in one country versus another – and whether the same amount of money you had last year would buy you more or less Big Macs today.
In his latest speeches, President Biden has repeatedly claimed he has compiled “the strongest first-year economic track record of any president in the last 50 years.” And he claims his economic juggernaut will continue. The basis for both claims is unknown to me.
While the US economy has rebounded strongly from the coronavirus recession, as I will discuss below, saying it’s the strongest economy in the last 50 years is a definite stretch, in my opinion and that of most economists.
The Treasury Secretary, Janet Yellen, said last month, “By most traditional metrics, the pace of our current recovery has exceeded even the most optimistic expectations.” At least she has a defendable point: a year ago, few if any economists predicted the US economy would surge by a 6.9% annual rate, as it did in the 4Q of 2021.
The Question Is: Do Most Americans Agree? No
Most Americans don’t share the administration’s sunny view of its economic record, and for good reason: The average worker’s paycheck doesn’t buy as many hamburgers as it did last year. Using hamburgers to measure inflation is a twist on The Economist magazine’s Big Mac Index, which tracks the price of the classic hamburger in different currencies.
The government’s Consumer Price Index rose by 7% in 2021, the biggest jump since 1982. Yet Mr. Biden’s approval rating remains low, and poll after poll finds that Americans are not pleased with his handling of the economy. Nearly two-thirds say the administration is insufficiently focused on inflation, according to a recent CBS News poll. There are similar numbers in other recent polls.
The nation’s mood has soured even as the economy has added more than six million jobs over the last year. For the core of the labor force, workers ages 25 to 54, employment recovered more quickly than in the prior three recessions, dating back to 1990. That’s a big deal: Even when paychecks are losing value to inflation, it’s always better to get one.
Measured by the value of the wages workers take home, which most economists regard as the most important metric for assessing the health of the American economy, President Biden’s first year in office was not a very good year even though the economy looks solid overall.
The dollar figures on workers’ paychecks rose handsomely over the past 12 months. But for most workers, that wasn’t enough to keep pace with the highest inflation in several decades, which eroded the value of each of those dollars.
The purchasing power of the average worker’s weekly pay declined by 2.3% from December 2020 to December 2021. On the other hand, lower-wage workers have seen particularly strong wage growth. For workers in the bottom third of the wage distribution, average wage gains have exceeded inflation over the last year. (If inflation remains strong, however, the number of workers in that fortunate category is likely to shrink.)
The bottom line is, Mr. Biden inherited an economic crisis precipitated by the coronavirus pandemic, and his administration responded by orchestrating a fiscal response on a scale commensurate with the nation’s need. Arguably, the best accomplishment of Mr. Biden’s first year in office was the passage of an economic aid package in March that shielded many Americans from the economic effects of the pandemic and helped to deliver a faster recovery than in other developed nations. In simple terms, things could be a lot worse.
Record Number of Americans Say They’re Unhappy
Every three years since 1972, the University of Chicago has conducted a General Social Survey, which is considered the authoritative national study on American happiness.
For the past five decades, only around 1 in 10 Americans said they’re not happy in their day-to-day lives. However, in 2021, the number skyrocketed, with 1 in 4 Americans now saying they’re unhappy. That’s a gigantic, unprecedented shift!
Here’s another disturbing stat: The number of Americans describing themselves as “very happy” also plunged from 31% in 2018 to 19% in 2021, which is ten points lower than at any point on record.
Every demographic and age group saw a decline in happiness. From 2018 to 2021, the number of young people saying they’re unhappy almost doubled, from 16% to 30%, while the number calling themselves very happy fell from 25% to 14%. Those are the worst numbers for any age group by a noticeable margin.
Here's another interesting tidbit (on the positive side): People who were married were three times more likely to report feeling “very happy” than those who weren’t.
Republicans were almost twice as likely to report feeling very happy than Democrats, while Democrats were about 30% more likely to report feeling unhappy compared to Republicans. This gap became larger during the coronavirus pandemic.
Since COVID lockdowns began, sociologists have been warning that forced isolation would have profound and long-lasting societal impacts, and it appears they’re starting to be felt.
The big question is: Why this record unhappiness at a time when the pandemic appears to be winding down, the economy is surging and over six million new jobs were added in the last year? There are a lot of theories, and I have some of my own. But that is a complicated subject which requires more space than I have today. I’ll revisit this issue at more length soon.
Political Implications of All This Unhappiness
In closing, I have the following political observation: The polls for the mid-term elections are looking worse and worse for the Democrats.
Polls today show two-thirds of Americans feel the country is on the “wrong track.” In a recent Axios poll, 66% of Republicans, 41% of Democrats and 46% of Independents said they are more fearful than hopeful about what’s in store for the country in 2022.
A recent Politico/Morning Consult poll shows Democrats’ approval numbers dropping by 12 points since March and President Biden’s sinking even lower than that. This is really bad!
Writing in The Wall Street Journal in late January, popular historian and Senior Fellow at the Hudson Institute Arthur Herman warned (emphasis added, GDH):
“We may be on the verge of the most consequential U.S. political realignment in almost a century. The cause is Covid—or to be precise, the mishandling of the pandemic response by government, media and the scientific establishment.
As the Great Depression destroyed the American electorate’s faith in Wall Street and big business, sweeping in a Democrat-dominated political order, so too has the “Great Confinement”—in the form of [Covid] lockdowns, shutdowns and mandates—wrecked faith in the basic competence of American government.
… The models of governance used during the pandemic fly in the face of our own self-perception. This is a sure formula for sowing distrust, resentment and ultimately resistance. That resistance has already spilled out into the streets in Europe’s cities and the highways in Canada.
What people will remember from this extraordinary episode isn’t the experience of Covid itself, terrible though that’s been. It will be the ineptitude and incompetence of governing institutions that are supposed to protect citizens—and the indifference, as this was happening, of the media and scientific establishment.
In 1932 [Great Depression], Democrats used national disillusion with big business to create a powerful new political coalition that gave them control of the White House for 20 years and a virtual stranglehold on Congress that lasted more than half a century.
Today the Republican Party has a similar opportunity.”
Best personal regards,
Gary D. Halbert
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