Democrats and liberal defenders of President Joe Biden have been at pains to tout the economic recovery the nation has enjoyed under his tenure. Nobody has been banging this drum more arduously than New York Times columnist Paul Krugman, who week in and week out has praised the Biden economy and bemoaned how people have not caught on to how good they have it. So common is this view that a new term was coined to capture the disconnect: the “vibecession.” There is no actual recession. It is just the vibe of the nation — dour despite all the good news.
Krugman and company have a decent case to make. The unemployment rate remains at historic lows. Likewise, the government has found month after month that employers are adding jobs, although these additions tend to be revised downward in subsequent months. Last month, for instance, the Bureau of Labor Statistics found that 303,000 new jobs were added to the economy, and the unemployment rate actually fell a tad. By all appearances, people who want work can find work.
But the solid employment numbers belie an underlying reality: Fewer and fewer people are actually interested in working. The employment-to-population ratio, the broadest measure of employment offered by the government, is at just 60.3%. Compare that to 61% prior to the 2020 recession and 62.7% just prior to the great financial crisis of 2007-08. Most of this decline has to do with an aging workforce, particularly baby boomers moving into retirement. But even among those in their peak working years, 25 to 54 years old, the employment-population ratio is off its historic highs from 2000. And it is notably down among men in this age cohort. Forty-five years ago, 90% of men were employed, while today, the number has fallen to about 86%.
Most of these problems are structural and demographic, not directly related to Biden’s handling of the economy. Nevertheless, they do suggest that joblessness is not the problem that it was in 2009 or 1990. People who wanted jobs could not find them. Today, if anything, employers are desperate to fill out a workforce that is less interested in working. This means, in turn, that strong job numbers are not as influential in people’s evaluation of the economy. Something else is bothering them.
Likewise, advocates of the president can point to robust growth in GDP, the broadest government metric of the size of the economy. The American growth rate is, as many have noted, much better than the other major developed economies in the world. Most economists are projecting that GDP rose by about 2.5% in the first quarter of 2024, above what they believe is its long-term trend. While this is true, it is easy to overstate its practical significance. GDP is an abstraction, not necessarily felt by the average person. Moreover, these economic growth rates have been financed in part by historically high deficit spending by the national government. And if one is not a recipient of federal dollars, targeted to certain groups but not others, one does not feel any benefit from this excessive spending.
The real problem with the Biden economy, and the reason why one cannot chalk up the sour mood of people to mere “vibes,” is purchasing power. It has unequivocally been flat during the Biden era, and despite nominal increases in wages, it has shown no signs of budging over the last year.
The underlying problem remains inflation. Wages may have gone up, no doubt, but inflation continues to take a substantial bite out of them. While the rate of inflation has decreased, it is important to remember that this is not the absolute level of prices, just the amount they have changed. Just last week, for instance, the BLS found that the inflation rate increased by 3.5% on a year-over-year basis. Back in March 2023, the annual change was 4.9%. In March 2022, it was 8.5%. This is a decline, but only in the growth rate of prices, not in prices themselves. Prices spiked in 2022 and have still risen well above the Federal Reserve’s goal of 2% since then.
That has substantially undercut the prosperity of the average worker. To appreciate this, consider real disposable personal income per capita, a statistic captured monthly by the Bureau of Economic Analysis. This measures the inflation-adjusted income of the average worker — a broader metric than wages because it includes investment income as well as government transfer payments such as Social Security. To be sure, the measure is far from perfect. After all, it is an arithmetic mean, and in a nation with large economic inequality, it would be preferable to use the median (or middle) value, to control for the 1% of the population now controlling a shockingly large amount of American wealth. But it still offers us some perspective.
Real disposable income per capita has been flat during the Biden administration. When the president came into office, it was at an inflated level due to government stimulus payments in 2020. But since those temporary bumps to income ended, the number has not moved. In December 2021, the average worker took in an annual $49,321 (in inflation-adjusted dollars). As of February 2024, the number had increased by about $1,000, to $50,346. This is historically a very weak rate of growth (just 2% over three years), weaker than any previous president since the 1970s. It suggests that, insofar as people have enjoyed wage gains or increases in government transfer payments, persistent inflation has eaten them up.
As a counterargument, one might respond that the stimulus payments are continuing to distort the overall picture. Yes, growth has been flat since late 2021, this logic goes, but people enjoyed a boost in their income from government transfer payments, which pulled a lot of their income forward. That might account for some of the disconnect but hardly all of it. If one takes the growth rate in real income under the Trump administration before the COVID-19 outbreak as the baseline, the average worker should be making an additional $2,500 per year.
One can slice and dice figures until the cows come home, but the reality is straightforward. Income gains have not kept up with inflation. Even though the rate of inflation has come down from its highs in 2022, it remains persistently above the 2% target set by the Federal Reserve. This continues to undermine the middle class’s economic prospects. While average workers are not poorer than they were after the last of the stimulus payments had been sent, they have only been treading water, which is not what they are used to. During the Trump years, and indeed during former President Barack Obama’s second term, growth in real disposable income per capita was much more robust than it is now.
This points to the political problem for the incumbent president. Far from being in the midst of a vibecession, people are suffering from persistent income stagnation, easily the worst of any administration since the 1970s. That suggests electoral trouble ahead. Strong income growth, as occurred in the first terms of Ronald Reagan and Bill Clinton, has historically led to blowout victories for the incumbent. Modest growth, as during the Obama and George W. Bush administrations, has brought solid victories. But when growth in income is especially weak, as with Jimmy Carter and George H.W. Bush, incumbent presidents have lost. Income growth under Biden is weaker than any of these previous presidents.
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Does this mean that Biden is doomed to be a one-term president? Of course not. The number of presidents to compare him to is too small to make any definitive judgments. What the data do help illuminate, however, is why people remain pessimistic about the economy and strongly disapprove of Biden’s handling of it. Yes, the rate of change in inflation is down. Yes, people can find jobs if they want them.
Still, the combination of high prices and modest wage growth has meant that the nation has, economically speaking, been stagnant for several years. That is hardly a “vibecession.” It is better to call it the “great stagnation.” It is a real problem, and it is being manifested in Biden’s weak polls. It remains to be seen whether it will show up again in voter anger in November’s election.
Jay Cost is the Gerald R. Ford senior nonresident fellow at the American Enterprise Institute.
