Bad Vibes and Broken Promises

More thoughts on the roots of Americans’ anger about the economy

Cut in half, you say?

Americans hate, I mean really hate, the Trump II economy. A new Reuters/Ipsos poll puts Donald Trump’s net approval on the economy at -33 points, significantly worse than Joe Biden’s nadir in the aftermath of the 2021-22 supply-chain-driven inflation spike. A Verasight poll reported by G. Elliott Morris puts Trump’s net approval on prices and inflation at -46 points, which is just astonishingly bad. The venerable University of Michigan index of consumer sentiment has hit a record low. And the widely cited Conference Board index is well below its 2022-23 levels.

Yet standard measures of the economic situation don’t look that bad. Inflation is running at around 3 percent – above the Fed’s target rate of 2 percent, but relatively low by historical standards. Unemployment is a bit above 4 percent, also relatively low. These are, if anything, good numbers in historical perspective. So why are Americans so angry?

In a post last week I began a discussion of this phenomenon and pointed to new analyses by Jared Bernstein, a serious macroeconomics guru, and G. Elliott Morris, who is my go-to guy on polling. Both argue, with extensive statistical backing, that Americans are upset about the level of prices. That is, they’re not satisfied with inflation that’s down to 2 or 3 percent. Having been accustomed over the past several decades to low inflation, Americans want to see prices fall to the levels they were at before the supply chain shock. And because that isn’t happening (and basically can’t happen, but the public doesn’t know that), Americans are angry.

I have considerable sympathy for Berstein and Morris’s view and great respect for their economic and statistical work. And I believe they offer a plausible explanation for why Americans were angry with the Biden administration. Yet I believe that the price-level story is inadequate to explain the much higher levels of anger and pessimism that are present now under Trump II. To make sense of where we are, I’d argue, we need to take account of people’s anger over not just the price level but also what they perceive as Trump’s broken promises.

Let me explain why.

There are, as I noted last week, two big empirical problems with the story that Americans just want their old prices back.

First is the sharp decline in consumer sentiment under Trump II, and his catastrophic polling on economic issues. This decline is hard to understand as a reaction to the fact that consumer prices haven’t fallen back to where they were in 2020. Indeed, if nostalgia for past prices was the whole story, we would expect consumer sentiment to gradually improve as the “good old days” of low prices recede further into memory. But we don’t see that happening. In fact, Americans are getting angrier and more depressed about the economy over time.

So what explains the public’s anger? My hypothesis is that it has a lot to do with the fabulist promises Trump made during the 2024 campaign, when he asserted that grocery prices would come down “on Day One” and that he would cut energy prices in half.

Did people actually believe those promises? Yes, many did – Trump voters in particular. Expected inflation among self-identified Republicans dropped sharply to zero after Trump won the election:

Source

Notably, expected inflation among self-identified Democrats went up substantially after Trump’s victory, which was closer to accurate.

It wasn’t just partisan affiliation. Expectations of inflation plunged after the election among voters without higher education, which suggests that many low-education voters believed Trump’s promise to reduce prices, as shown by the blue line below:

As you can also see, these voters’ expectations of inflation soared a few months into Trump’s term.

Morris has shown that low-information voters — defined as voters who don’t know which party controls Congress, but that is surely closely correlated with low education levels — pushed Trump over the top in 2024, but have turned hard against him since then. This is consistent with the view that a significant number of Americans believed Trump’s impossible promises about the economic miracles he would conjure into being, but now realize that they were lied to. And, in my view, this explains why Americans are so intensely angry and pessimistic about the economy now — significantly more so than under Biden.

It also doesn’t help that Trump can’t bring himself to admit that inflation was fairly low before he took office — he’s claiming that it was running at 5 percent and he brought it way down.

True, under Biden sentiment was also remarkably bad, although not as bad as it is now. Many economists, myself included, have argued, like Bernstein and Morris, that Americans were angry about the higher level of prices even after the rate of inflation came down. But as I noted last week, prices rose by almost exactly the same amount under Biden and during Ronald Reagan’s first term:

Why, then, was Reagan able to triumphantly proclaim Morning in America while Biden was vilified? A large part of the answer, surely, is that Reagan took office after years of high inflation — inflation that the public expected to continue, while Biden took office after years of low inflation:

So higher prices under Reagan didn’t come as a surprise. In fact, prices rose less than most Americans expected before he took office. The rise in prices on Biden’s watch, by contrast, came as a shock after decades of low inflation. Thus I think that, adjusting for expectations, Bernstein and Morris’s arguments are a good fit for explaining the Biden years.

Let me hasten to say that there isn’t any moral equivalence between Biden and Trump. Biden and his team did not deliberately mislead American voters. They genuinely didn’t expect the 2021-2022 bout of high inflation, caused by snarled supply chains and Russia’s invasion of Ukraine. When Biden promised a “summer of joy” thanks to the new Covid vaccines, he and his staff truly believed that would happen. Contrast this with Trump’s promises of lower prices, which were cynical, dishonest bombast when he was down in the polls against Harris. He never had any plan, or even a concept of a plan, to bring prices down.

Many Americans were angered by what they perceived to be economic incompetence on the part of Biden. That is, they believed that he should have found a way to stop inflation from rising.

But Trump actively misled Americans in order to win the 2024 election. And to add insult to injury, a majority of Americans now believe that the economy under Biden was better than the current economy.

Thus I believe that what we are witnessing now is heightened rage about a president who lied to win office, and who, once in office, made the economy worse than it was.

And it’s reasonable to believe that Americans will only become angrier as Trump’s lies on other fronts, and the damage that they have done, become more and more apparent.

MUSICAL CODA

I feel BAD