EDITOR’S NOTE: Paul Krugman is a New York Times columnist and a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography.
By normal standards, the U.S. economy continues to look very good. Unemployment has now been below 4% for 27 months, and inflation remains fairly low, albeit somewhat higher than the Federal Reserve’s target of 2%. But if you say that, you get a lot of pushback; some get angry.
Much of that pushback is partisan. Donald Trump described Friday’s jobs report, in which the unemployment rate rose — wait for it! — to 3.87% from 3.83%, as “horrible,” and I’m sure that many Americans believed him.
But it’s not all partisan. Some of the pushback comes from readers who are, if anything, to the left, and say something like this: “Well, maybe the economy is strong, but all the gains have gone to people at the top.” Or “official inflation may be low, but prices of essentials like food and energy have hugely outpaced wage gains.”
So I thought it might be worth putting together some data to show that these assertions aren’t actually true — and describing some new research that may help explain why many people think they’re true.
Let’s start with the claim that recent growth has benefited only the affluent. Not many people seem to know this, but the truth has been nearly the opposite. Since the pandemic, wages for lower-paid workers have risen substantially faster than wages for the highly paid, a phenomenon David Autor, Arindrajit Dube and Annie McGrew call “The Unexpected Compression.”
But, you may say, maybe wages are rising faster at the bottom, but inflation also hits low-wage workers harder. That’s a reasonable objection. But how big an issue is it? It turns out that the Bureau of Labor Statistics has experimental measures of inflation at different income levels.
Fully mapping these measures onto wage data would be a project for economists more experienced in such things than I am, but I’ve done a quick-and-dirty version. The BLS regularly publishes estimates of typical weekly earnings at the 10th, 50th and 90th percentiles of the wage distribution, and it also publishes estimates of consumer prices for the bottom, middle and top quintiles of the income distribution (only up through December 2023 so far), which roughly correspond.
Yes, inflation has run somewhat higher for lower-income Americans, probably because they spend a higher proportion of their income on food and energy. But the difference in inflation has been swamped by the difference in wage growth.
So the claim that lower-income Americans have been hurt worse by inflation isn’t supported by the facts. Yes, America has a huge problem with inequality, and I’m a big supporter of efforts to make our society less unequal. But while the problem isn’t fixing itself, it also hasn’t gotten worse in recent years.
Still, haven’t the prices of essentials like food and energy risen much faster than wages? While it’s true, as I just said, that these types of goods might have a relatively high influence on how inflation affects lower earners, the full answer may surprise you.
First, let’s look at how the prices of food at home — groceries — compare with the usual weekly earnings of the median worker. Food prices were low relative to wages during the worst of the pandemic, then shot up as the economy recovered and, especially, after Russia invaded Ukraine.
At this point, however, the typical worker’s purchasing power in terms of food is about what it was in early 2019, when, as I seem to recall, a guy named Trump was boasting about how great the economy was.
What about energy? The price of a gallon of gasoline as a percentage of usual weekly earnings fluctuates a lot — it, too, spiked when Russia invaded Ukraine — but at this point it’s more or less in the same range it was in for much of the late 2010s.
So tales of Americans struggling to cope with sky-high prices, both of goods in general and of essentials, don’t seem to match the data. Of course, some people may believe that the data are all being faked by the deep state; if you do, it’s hard to have a discussion, although I might note that private measures like that provided by Truflation — a crypto-based project that I suspect was intended to show that, um, true inflation was higher than official reports — look a lot like the government data.
Why, then, do so many people believe otherwise? One answer may lie in a new report by Ryan Cummings, Giacomo Fraccaroli and Neale Mahoney, writing for Briefing Book, a website I’ve been finding incredibly valuable. Their report, titled “Bad news bias in gasoline price coverage,” shows that there are far more TV news reports about gas prices when they’re high than when they are low.
As I said, gas prices fluctuate a lot. If people hear about them only when they’re high, we shouldn’t be surprised if the public perceives gas prices as unusually high compared with wages, even if they aren’t.
The authors don’t do the same exercise for food prices, but I have no doubt that the same phenomenon is true there as well. Everybody heard about soaring egg prices in 2022 (mainly caused by an outbreak of bird flu); I know for a fact that many people weren’t aware that prices plunged even more rapidly in 2023.
This bad-news bias needn’t reflect partisanship (although Fox News, according to the Briefing Book paper, does stand out for its negativity). Much of it probably reflects the old adage “If it bleeds, it leads.”
But why should this bias be worse now than in the past? I haven’t tried to quantify this, but it seems clear that we’ve had a lot more wild price swings than usual in the aftermath of the COVID-19 pandemic. And given bad-news bias, this could lead to a perception that inflation is worse than it is.
Anyway, food for thought — food that’s probably more affordable than you imagine.