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Economy

Paul Krugman Is Right About the Economy, and the Polls Are Wrong – New York Magazine

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5 months ago

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One of the most uncomfortable arguments to make in America is that the people are wrong. It’s especially uncomfortable when the subject is something you experience in a more comfortable, privileged way than most people. And so when liberal economic elites insist the economy, which opinion polls consistently find the public considers terrible, is actually very good, it makes liberal economic elites come off badly.

Paul Krugman is one of those dreaded liberal elitists who believes the economy is actually good. So (at a much lower level of confidence and frequency) am I. We have developed a number of explanations for why people believe an economy that The Wall Street Journal recently called “the envy of the world” is so awful.

The most generous of these accounts is that people consider higher wages something they earned and higher inflation something that happened to them. But all the explanations involve conceding some level of basic irrationality on the part of the public. And the attempts to make sense of public assessments of the economy seem deeply unconvincing.

Biden’s low economic ratings are “not hard to grasp,” argues Robert Kuttner in the left-wing American Prospect, “None of the recent improvements have altered the basic situation of most Americans, in which reliable careers are scarce, college requires the burden of debt, health coverage is more expensive and less reliable, and housing is unaffordable.” The solution, Kuttner argues, is for Biden to implement “radical” economic reforms along the lines of those promised by Bernie Sanders in 2016.

Kuttner’s hypothesis fails to explain why Americans were thrilled by economic conditions as recently as 2019, when the same basic features of the economy remained in place. Indeed, it fails to explain why Americans have ever considered the economy to be healthy, given that Bernie-style social democracy has, famously, never been tried in the United States.

Michael Powell, writing in the Atlantic, flays liberals in general, and Paul Krugman in particular, along lines similar to Kuttner’s:

The modern Democratic Party, and liberalism itself, is to a substantial extent a bastion of college-educated, upper-middle-class professionals, people for whom Biden-era inflation is unpleasant but rarely calamitous. Poor, working-class, and lower-middle-class people experience a different reality. They carry the searing memories of the Great Recession and its foreclosure crisis, when millions of American households lost their home. A large number of these Americans worked in person during the dolorous early days of the pandemic, and saw its toll up close. And since 2019, they’ve weathered 20 percent inflation and now rising interest rates—which means they’ve lost more than a fifth of their purchasing power. Tell these Americans that the economy is humming, that median wage growth has nudged ahead of the core inflation rate, and that everything’s grand, and you’re likely to see a roll of the eyes.

Powell makes several claims here, all of them deeply flawed.

He argues the working class considers the economy terrible because of “searing memories” of the Great Recession and then the pandemic. Yet, like Kuttner, he fails to explain why these same voters considered Trump’s economy to be so splendid. Memories of the Great Recession and its aftermath were fresher under Trump than they are now. And the worst and deadliest period of the pandemic actually occurred under Trump, which makes the current nostalgia for Trump’s economy all the more incompatible with Powell’s hypothesis.

It is true, as he writes, that prices have risen 20 percent since 2019. But that doesn’t mean people have “lost more than a fifth of their purchasing power.” Purchasing power is a function of the relationship between what things cost and how much you have to spend. Wages have been rising faster than inflation since last year, and the average American is better off than before the pandemic.

What’s more, contrary to Powell’s argument that the working class has suffered under Biden’s inflationary economy, wages have grown much faster at the bottom than at the top.

Powell reasons that public opinion is essentially dispositive. If the people feel the economy is bad, then it’s bad, regardless of what economists like Krugman tell them. “Working- and middle-class Americans,” he argues, “are wiser to trust their feelings and checking accounts than to rely on liberal economists.”

The trouble here is that polling finds plenty of public optimism about the economy in contexts other than asking people how the American economy is doing. An Axios poll earlier this year found 63 percent of Americans rate their personal financial situation as “good,” a figure in line with historical levels. That is also reflected in people’s spending practices — they are behaving as though the economy were booming, even if they don’t think it is.

A Wall Street Journal poll last month of seven swing states found a gigantic disconnect between the public’s view of economic conditions in their own state and in the country as a whole. Fifty-four percent of respondents believe economic conditions in their state are excellent or good. But only 36 percent of respondents said the same of economic conditions in the country.

Now this was a poll of seven swing states, not the entire country. I suppose you could imagine the swing states are in dramatically better economic shape than the rest of America, though if that were true, you’d expect Biden to be polling a little better.

What this suggests to me is that public assessment of the economy reflects something other than an objective assessment of economic conditions. People think they are doing well and their state is doing well but the country is doing horribly. Must we assume some deep wisdom underlies these seemingly irreconcilable beliefs? Sometimes people, even with the benefit of close personal experience, just believe things that aren’t true.


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Economy

S&P/TSX composite tops 24,000 points for first time, U.S. markets also rise Thursday

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13 hours ago

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September 26, 2024

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TORONTO – Canada’s main stock index closed above 24,000 for the first time Thursday as strength in base metals and other sectors outweighed losses in energy, while U.S. markets also rose and the S&P 500 notched another record as well.

“Another day, another record,” said Angelo Kourkafas, senior investment strategist at Edward Jones.

“The path of least resistance continues to be higher.”

The S&P/TSX composite index closed up 127.95 points at 24,033.83.

In New York, the Dow Jones industrial average was up 260.36 points at 42,175.11. The S&P 500 index was up 23.11 points at 5,745.37, while the Nasdaq composite was up 108.09 points at 18,190.29.

Markets continue to be optimistic about an economic soft landing, said Kourkafas, after the U.S. Federal Reserve last week announced an outsized cut to its key interest rate following months of speculation about when it would start easing policy.

Economic data Thursday added to the story that the U.S. economy remains resilient despite higher rates, said Kourkafas.

The U.S. economy grew at a three-per-cent annual rate in the second quarter, one report said, picking up from the first quarter of the year. Another report showed fewer U.S. workers applied for unemployment benefits last week.

The data shows “the economy remains on strong footing while the Fed is pivoting now in a decisive way towards an easier policy,” said Kourkafas.

The Fed’s decisive move gave investors more reason to believe that a soft landing is still the “base case scenario,” he said, “and likely reduces the downside risks for a recession by having the Fed moving too late or falling behind the curve.”

North of the border, the TSX usually gets a boost from Wall St. strength, said Kourkafas, but on Thursday the index also reflected some optimism of its own as the Bank of Canada has already cut rates three times to address weakening in the economy.

“The Bank of Canada likely now will be emboldened by the Fed,” he said.

“They didn’t want to move too far ahead of the Fed, and now that the Fed moved in a bigger-than-expected way, that provides more room for the Bank of Canada to cut as aggressively as needed to support the economy, given that inflation is within the target range.”

The TSX has also been benefiting from strength in materials after China’s central bank announced several measures meant to support the company’s economy, said Kourkafas.

However, energy stocks dragged on the Canadian index as oil prices fell Thursday following a report that Saudi Arabia was preparing to abandon its unofficial US$100-per-barrel price target for crude as it prepares to increase its output.

The Canadian dollar traded for 74.22 cents US compared with 74.28 cents US on Wednesday.

The November crude oil contract was down US$2.02 at US$67.67 per barrel and the November natural gas contract was down seven cents at US$2.75 per mmBTU.

The December gold contract was up US$10.20 at US$2,694.90 an ounce and the December copper contract was up 15 cents at US$4.64 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 26, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 100 points, U.S. stocks also higher

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1 day ago

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September 26, 2024

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in the base metal sector, while U.S. stock markets were also higher.

The S&P/TSX composite index was 143.00 points at 24,048.88.

In New York, the Dow Jones industrial average was up 174.22 points at 42,088.97. The S&P 500 index was up 10.23 points at 5,732.49, while the Nasdaq composite was up 30.02 points at 18,112.23.

The Canadian dollar traded for 74.23 cents US compared with 74.28 cents US on Wednesday.

The November crude oil contract was down US$1.68 at US$68.01 per barrel and the November natural gas contract was down six cents at US$2.75 per mmBTU.

The December gold contract was up US$4.40 at US$2,689.10 an ounce and the December copper contract was up 13 cents at US$4.62 a pound.

This report by The Canadian Press was first published Sept. 26, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy to grow moderately, rates to fall below three per cent next year: Deloitte

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1 day ago

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September 26, 2024

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Deloitte Canada expects economic growth to pick up next year as it forecasts the Bank of Canada to cut its key interest rate below three per cent by mid-2025.

In the company’s fall economic outlook released Thursday, it forecasts the central bank’s interest rate will fall to 3.75 per cent by the end of this year and a neutral rate of 2.75 per cent by mid next year.

Meanwhile, it expects the economy to grow moderately as softer labour market conditions persist, especially as many homeowners have yet to face higher rates when they refinance their loans.

“We do think that we’re going to be in for a decent year next year,” said Dawn Desjardins, chief economist at Deloitte Canada.

It appears Canada will successfully skirt a recession despite the impact of higher borrowing costs on the economy, said Desjardins.

“It’s hard to argue that the economy is just skating through this period of higher interest rates. But having said that, the overall numbers themselves continue to show the economy is expanding,” she said.

“Yes, the labour market has softened, but I don’t think we’re in any kind of crisis in the labour market at this time.”

The Bank of Canada has cut its benchmark rate three times so far this year as inflation has eased, and signalled more cuts are coming.

Inflation in Canada hit the central bank’s two per cent target in August, falling from 2.5 in July to reach its lowest level since February 2021.

However, higher rates have weighed on economic growth and the labour market.

Deloitte’s predicted 2.75 per cent neutral rate — the rate at which the central bank’s monetary policy is neither stimulating nor holding back the economy — is higher than where interest rates were hovering in the years before the COVID-19 pandemic.

Desjardins said the forecast aligns with the central bank’s own projections. There are a number of factors on the horizon that may pose increased risk to inflation, she said, such as climate change.

“These are costly things that we’re going to have to deal with and will be embedded in prices. So that’s sort of how we get to this 2.75 (per cent).”

The report says the global backdrop continues to be challenging, with no clear ends to the wars in Ukraine and the Middle East, growing trade frictions and an uncertain impact of the U.S. election on policy.

Consumers and businesses alike are still facing a lot of uncertainty, said Desjardins.

The heightened uncertainty, including from the looming U.S. election in November, makes businesses reticent to invest, she said, but added more clarity should come in the new year.

“We’ll see inflation coming down and interest rates coming down. So those are two powerful factors that will support an improvement in confidence both from the consumer side as well as the business side as we go through next year,” she said.

In its report, Deloitte said it’s still optimistic about Canada’s economy next year.

“Lower rates will ease the burden on the highly indebted household sector sufficiently to support a pickup in spending and a housing market recovery,” it said in the report. “After two years of subpar growth, we look for the economy to hit its stride in 2025.”

Deloitte said despite the easing of overall inflation, shelter prices — especially rent — “remain too high for comfort.” However, it also said interest rate cuts are expected to “rejuvenate construction activity,” with home-building activity set to rise throughout 2025.

While rate cuts should help stimulate the housing market, Deloitte said it expects the recovery to be modest amid poor affordability.

Desjardins said without a significant boost to housing supply, the affordability issue is unlikely to subside.

“We know that Canada has a pretty significant supply deficit on the housing side,” she said.

“The housing cannot be created overnight.”

However, she also doesn’t see house prices significantly increasing.

“I think we’re going to see some easing up on demand from new Canadians as we move forward. So that might give a little bit of a relief,” she said.

This report by The Canadian Press was first published Sept. 26, 2024.

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