Of course it is true that some Americans are objectively poor, and that being poor in America is often more unpleasant than being poor in other rich countries. Moreover, without continuous government intervention in the form of tax credits and benefits the poorest 5 million Americans would suffer the same kind of absolute extreme poverty generally associated with poor countries like Sierra Leone (Angus Deaton).
America's poorest do deserve political attention, and indeed depend on it for their bare survival. However, most poor Americans are not as poor as that, and most Americans are not poor at all, by any reasonable standard. Most Americans are richer than ever, and richer than most people in the rest of the world. The evidence shows that they consume more than ever: they live in bigger homes, drive bigger cars, buy more expensive brands, eat out more frequently, and so on. The reality is that ordinary Americans are some of the luckiest people in world history.
What does it matter if most Americans sincerely believe something that is false? On the one hand all this self-pitying whining about the imaginary existential struggles of middle-class Americans is mildly annoying for the rest of the world to have to listen to. (It's like being stuck in a room with someone who won't stop loudly complaining about how expensive it is to run their yacht.) On the other hand, the whining is also bad for America. It reflects shared delusions about individual entitlements and America’s economic decline that are driving a toxic ‘doom politics’ of cynicism and resentment, while also neglecting the needs of actually poor Americans.
Two misunderstandings in particular seem to drive the mistake: that everything is more expensive these days, and that the rich took all the money. These have an unfortunate tendency to combine into a cynical conspiracy theory of the economy as rigged by the rich against the rest (as in the popularity of the 'greedflation' theory).
Misunderstanding 1: Americans are poor because everything is more expensive these days
It is true that prices for many things have increased in recent decades, and this reduces the amount of those things that people can buy. However, this does not necessarily mean that Americans are objectively poor, or poorer than they used to be.
Price changes are a normal part of economic development. In particular, as an economy gets richer, food and manufactured goods get cheaper in terms of the hours of work you have to put in to get them, while labour-intensive services like education and healthcare automatically get more expensive. Most of the price increases that Americans complain about are actually an inevitable consequence of their increased prosperity. (Although some, like the extreme cost of health-care compared to other rich countries, are attributable to America-specific peculiarly dysfunctional institutional arrangements.)
When prices for certain things increase, people have to make trade-offs they didn’t have to before, and this may feel unpleasant because they can’t have everything they thought they could have (or exactly the same set of things that their parents had). But they can still buy plenty of nice things, including functional substitutes as good or better than what their parents had, and more time ahead of them to enjoy those nice things. Altogether the bundle of valuable goods and services they can afford is much better than that available to previous generations.
It certainly seems that Americans are consuming significantly more than they used to. It may be that many Americans are consuming even more than they can really afford, but this seems like a problem of personal budgeting and psychological self-mastery rather than a problem with the economy itself. Americans may not be able to afford the lifestyle they feel they deserve (according to society's evolving norms, as seen on social media), but the lifestyle they can afford is nevertheless much better than that of previous generations and most non-Americans.
Misunderstanding 2: America is rich, but the top 1% took it all
A more relevant dimension of economic inequality concerns differences in expenses rather than income: the division between the majority who enjoy housing wealth and the minority without it (especially younger people).
Like every other rich country bar Singapore, America screwed up its housing market by making it too expensive to build housing where people wanted to live, and too easy for those who already lived there to block construction. It definitely needs to fix this! However, even this very real economic problem does not affect most Americans. (The OECD ranks the US no 1 for housing based on its scores on criteria like size, quality, and cost.) This is because most Americans are in the lucky position of having already bought their house (or they live in rent-controlled places) and so their housing costs are a quite affordable share of their income.
Why is Economic Pessimism so Entrenched Among Americans?
Typical bullshit meme statistic one can find everywhere because people seem to want to believe it |
However it happened, economic pessimism now dominates America (see e.g. this recent YouGov poll, in which pessimists outnumbered optimists by 2:1). And it will likely have major consequences for the 2024 election: for which politicians win office and what their policy priorities and ideas will be. And so this mistake will have real world consequences, in America and beyond.
Note: An earlier version of this essay appeared on 3 Quarks Daily