How Democrats Fell for the Belief That the Economy Was Robust
Explore the reasons behind the higher unemployment rates, lower wages, and less robust growth than what government statistics indicate.
TroibNews 
Before the presidential election, many Democrats expressed confusion over the apparent disconnect between “economic reality” as indicated by various government statistics and the public's perceptions of the economy. Officials in Washington felt frustrated with the public's inability to recognize the strength of the economy, attributing this to right-wing echo chambers misleading voters into believing in completely unrealistic narratives about America's decline.
However, they seldom examined whether the disconnect could be attributed to flawed government statistics. What if the numbers portraying broad-based prosperity were deceptive? What if more pessimistic views of the economy were, in reality, closer to the truth?
I understand these frustrations on some level. Having served as comptroller of the currency in the 1990s, I've spent considerable time investigating the gaps between public sentiment and economic conditions, particularly regarding finance. Over the years, many officials I’ve worked with—members of the Federal Reserve, regulatory agency heads, and congressional leaders—have insisted on the accuracy of government statistics, regarding them as solid facts.
In recent years, however, as my focus has expanded beyond finance to the broader economy, I've started to question this trust in government statistics. My dual experiences as a Washington insider and an adviser to lenders and investors throughout the country have led me to become increasingly skeptical about whether government measurements accurately reflect the realities of unemployment, wage growth, and overall economic strength.
Despite government numbers suggesting low unemployment and wage growth for middle America—ideas that many in D.C. embraced—my travels revealed a starkly different situation. I observed deteriorating urban landscapes and areas struggling with neglect. For instance, I noticed a homeless encampment located right outside the Federal Reserve. Additionally, I recognized a broader trend: Democrats, in general, seemed more inclined to trust economic indicators, while Republicans appeared to trust their own observations.
This disconnect in perception has significant implications. For many years, a small group of federal agencies has consistently reported similar economic statistics, using comparable methodologies and timeframes. Rarely has there been scrutiny about whether these reports align with reality. Motivated by my growing skepticism, I assembled a team of researchers at the Ludwig Institute for Shared Economic Prosperity to investigate commonly cited headline statistics more thoroughly.
What we discovered was startling. For over two decades, including the months leading up to the election, voter perceptions were more aligned with reality than the existing statistics suggested. Our research confirmed that while the data gathered by various agencies is generally accurate and the staff working there is capable and well-intentioned, the methods used to generate the headline statistics are flawed. Consequently, they present a far more optimistic view of the economy than what is actually experienced.
One of the most glaring examples of this issue can be seen in the widely reported unemployment figure known as U-3. It misrepresents reality in several ways. It includes millions of underemployed individuals—those who may work only a few hours weekly while seeking full-time jobs—and neglects many discouraged workers no longer actively looking for jobs. Furthermore, it fails to account for the low incomes of some who may just scrape by. Therefore, a person living on the streets, with sporadic income, can still be counted as "employed."
It's possible that those who championed the unemployment figures in the recent election were unaware that the near-record low unemployment rate—4.2 percent in November—included homeless individuals working occasional jobs in that count. The implications are significant. If we adjust the statistic to encompass those only able to find part-time work or earning poverty wages, the figure actually rises to 23.7 percent. This indicates that nearly one in four American workers is functionally unemployed—hardly a cause for celebration.
The picture of Americans' earnings also presents a misleading perspective. The commonly referenced “weekly earnings” indicator focuses solely on full-time wages, excluding both the unemployed and part-time workers. Presently, this leads to the perception that the median wage in the U.S. is about $61,900. However, when accounting for all members of the workforce—including part-timers and job seekers—the true median wage appears to be slightly over $52,300 per year, revealing a 16 percent discrepancy.
Meanwhile, the prominent issue of inflation in the 2024 campaign similarly illustrates this discrepancy. Democrats pointed out that inflation had decreased by Election Day, even if prices remained high compared to pre-pandemic levels, and they highlighted wage increases. These conclusions were largely derived from the Consumer Price Index (CPI), which tracks prices of 80,000 goods and services.
However, the CPI itself tends to see things through a overly optimistic lens. Individuals with limited income typically purchase a small fraction of those goods, allocating a greater portion of their budgets to essentials like groceries, healthcare, and rent. Consequently, if prices for basic necessities increase faster than those for luxury goods, the CPI may underreport inflation's real impact on lower-income individuals. Indeed, this has been the case.
My colleagues and I have developed an alternative indicator, which eliminates many items that affluent consumers buy—items with relatively stable prices—and instead focuses on the prices of basic necessities that lower- and middle-income families cannot ignore. Our research indicates that since 2001, the cost of living for modest-income Americans has risen 35 percent faster than the CPI. Essentially, maintaining a working-class lifestyle has become progressively more expensive than commonly reported.
The implications of these disparities became particularly pronounced following the pandemic. In 2023 alone, the CPI indicated prices increased by 4.11 percent; however, our research found that the actual cost of living rose over twice that amount—9.4 percent. This challenges the narrative that wage increases outpaced inflation in the aftermath of COVID-19. When examining our more accurate earnings and inflation metrics together, it became clear that median purchasing power fell by 4.3 percent in 2023. Regardless of claims derived from prevailing statistics during the lead-up to the 2024 election, the reality was substantially more disheartening for most Americans.
This brings us to gross domestic product (GDP), often regarded as the most crucial economic indicator and seen as a proxy for overall prosperity. While there is value in examining the total volume of domestic production, GDP is an imperfect gauge, particularly in terms of how wealth is distributed. If a small portion of the population receives the majority of the benefits from economic growth while the rest sees no gain, GDP can still rise, which is precisely what has transpired.
The aggregate GDP figures obscure the widening economic divide. Since 2013, Americans with bachelor’s degrees or higher have generally experienced improvements in their material well-being, while those without high school diplomas have not seen any real progress. Similarly, geographical income and prosperity disparities have widened, with affluent areas like San Francisco and Boston experiencing significant growth while places like Youngstown, Ohio, and Port Arthur, Texas, fall further behind. The essential takeaway is clear: while America's GDP has increased, we remain largely unaware of these disparities.
In summary, we are confronted with a collection of economic indicators that all convey a misleading narrative, obscuring the realities faced by middle- and lower-income households. The issue isn't that some Americans haven't benefited from four years of Bidenomics; indeed, some have. However, for many living in more modest circumstances, the challenges have persisted for at least two decades, and recent years have not significantly improved conditions for the lower 60 percent of American income earners.
To be fair, these prevailing indicators have their uses. For example, it's useful to know how wages for full-time employees have evolved. The challenge lies not in faulting the dedicated people who work to report these economic narratives, but in providing policymakers with a comprehensive picture of the realities facing the majority of the population. We need to explore new ways to deliver a more truthful representation of the nation’s economic conditions regularly. The indicators my colleagues and I have created could serve as a foundation for government-sponsored alternatives. It is imperative that change occurs.
This should be a nonpartisan issue—policymakers from both sides would profit from a clearer understanding of the economic landscape. In truth, both Democrats and Republicans faced the risk of being misled in the 2024 election cycle; the dissatisfaction manifested in this instance undermined the incumbent party.
In a time when trust in institutions is rapidly declining, Americans are frequently reminded of a classic assertion by former Senator Daniel Patrick Moynihan: while we are entitled to our opinions, we are not entitled to our own facts. This principle should hold true in economics. However, if the prevailing indicators are misleading, those facts cease to apply. We have an opportunity to pierce the illusion that misdirected Democrats in 2024 fell victim to. The question now is whether we will take corrective action.
Aarav Patel for TROIB News
However, they seldom examined whether the disconnect could be attributed to flawed government statistics. What if the numbers portraying broad-based prosperity were deceptive? What if more pessimistic views of the economy were, in reality, closer to the truth?
I understand these frustrations on some level. Having served as comptroller of the currency in the 1990s, I've spent considerable time investigating the gaps between public sentiment and economic conditions, particularly regarding finance. Over the years, many officials I’ve worked with—members of the Federal Reserve, regulatory agency heads, and congressional leaders—have insisted on the accuracy of government statistics, regarding them as solid facts.
In recent years, however, as my focus has expanded beyond finance to the broader economy, I've started to question this trust in government statistics. My dual experiences as a Washington insider and an adviser to lenders and investors throughout the country have led me to become increasingly skeptical about whether government measurements accurately reflect the realities of unemployment, wage growth, and overall economic strength.
Despite government numbers suggesting low unemployment and wage growth for middle America—ideas that many in D.C. embraced—my travels revealed a starkly different situation. I observed deteriorating urban landscapes and areas struggling with neglect. For instance, I noticed a homeless encampment located right outside the Federal Reserve. Additionally, I recognized a broader trend: Democrats, in general, seemed more inclined to trust economic indicators, while Republicans appeared to trust their own observations.
This disconnect in perception has significant implications. For many years, a small group of federal agencies has consistently reported similar economic statistics, using comparable methodologies and timeframes. Rarely has there been scrutiny about whether these reports align with reality. Motivated by my growing skepticism, I assembled a team of researchers at the Ludwig Institute for Shared Economic Prosperity to investigate commonly cited headline statistics more thoroughly.
What we discovered was startling. For over two decades, including the months leading up to the election, voter perceptions were more aligned with reality than the existing statistics suggested. Our research confirmed that while the data gathered by various agencies is generally accurate and the staff working there is capable and well-intentioned, the methods used to generate the headline statistics are flawed. Consequently, they present a far more optimistic view of the economy than what is actually experienced.
One of the most glaring examples of this issue can be seen in the widely reported unemployment figure known as U-3. It misrepresents reality in several ways. It includes millions of underemployed individuals—those who may work only a few hours weekly while seeking full-time jobs—and neglects many discouraged workers no longer actively looking for jobs. Furthermore, it fails to account for the low incomes of some who may just scrape by. Therefore, a person living on the streets, with sporadic income, can still be counted as "employed."
It's possible that those who championed the unemployment figures in the recent election were unaware that the near-record low unemployment rate—4.2 percent in November—included homeless individuals working occasional jobs in that count. The implications are significant. If we adjust the statistic to encompass those only able to find part-time work or earning poverty wages, the figure actually rises to 23.7 percent. This indicates that nearly one in four American workers is functionally unemployed—hardly a cause for celebration.
The picture of Americans' earnings also presents a misleading perspective. The commonly referenced “weekly earnings” indicator focuses solely on full-time wages, excluding both the unemployed and part-time workers. Presently, this leads to the perception that the median wage in the U.S. is about $61,900. However, when accounting for all members of the workforce—including part-timers and job seekers—the true median wage appears to be slightly over $52,300 per year, revealing a 16 percent discrepancy.
Meanwhile, the prominent issue of inflation in the 2024 campaign similarly illustrates this discrepancy. Democrats pointed out that inflation had decreased by Election Day, even if prices remained high compared to pre-pandemic levels, and they highlighted wage increases. These conclusions were largely derived from the Consumer Price Index (CPI), which tracks prices of 80,000 goods and services.
However, the CPI itself tends to see things through a overly optimistic lens. Individuals with limited income typically purchase a small fraction of those goods, allocating a greater portion of their budgets to essentials like groceries, healthcare, and rent. Consequently, if prices for basic necessities increase faster than those for luxury goods, the CPI may underreport inflation's real impact on lower-income individuals. Indeed, this has been the case.
My colleagues and I have developed an alternative indicator, which eliminates many items that affluent consumers buy—items with relatively stable prices—and instead focuses on the prices of basic necessities that lower- and middle-income families cannot ignore. Our research indicates that since 2001, the cost of living for modest-income Americans has risen 35 percent faster than the CPI. Essentially, maintaining a working-class lifestyle has become progressively more expensive than commonly reported.
The implications of these disparities became particularly pronounced following the pandemic. In 2023 alone, the CPI indicated prices increased by 4.11 percent; however, our research found that the actual cost of living rose over twice that amount—9.4 percent. This challenges the narrative that wage increases outpaced inflation in the aftermath of COVID-19. When examining our more accurate earnings and inflation metrics together, it became clear that median purchasing power fell by 4.3 percent in 2023. Regardless of claims derived from prevailing statistics during the lead-up to the 2024 election, the reality was substantially more disheartening for most Americans.
This brings us to gross domestic product (GDP), often regarded as the most crucial economic indicator and seen as a proxy for overall prosperity. While there is value in examining the total volume of domestic production, GDP is an imperfect gauge, particularly in terms of how wealth is distributed. If a small portion of the population receives the majority of the benefits from economic growth while the rest sees no gain, GDP can still rise, which is precisely what has transpired.
The aggregate GDP figures obscure the widening economic divide. Since 2013, Americans with bachelor’s degrees or higher have generally experienced improvements in their material well-being, while those without high school diplomas have not seen any real progress. Similarly, geographical income and prosperity disparities have widened, with affluent areas like San Francisco and Boston experiencing significant growth while places like Youngstown, Ohio, and Port Arthur, Texas, fall further behind. The essential takeaway is clear: while America's GDP has increased, we remain largely unaware of these disparities.
In summary, we are confronted with a collection of economic indicators that all convey a misleading narrative, obscuring the realities faced by middle- and lower-income households. The issue isn't that some Americans haven't benefited from four years of Bidenomics; indeed, some have. However, for many living in more modest circumstances, the challenges have persisted for at least two decades, and recent years have not significantly improved conditions for the lower 60 percent of American income earners.
To be fair, these prevailing indicators have their uses. For example, it's useful to know how wages for full-time employees have evolved. The challenge lies not in faulting the dedicated people who work to report these economic narratives, but in providing policymakers with a comprehensive picture of the realities facing the majority of the population. We need to explore new ways to deliver a more truthful representation of the nation’s economic conditions regularly. The indicators my colleagues and I have created could serve as a foundation for government-sponsored alternatives. It is imperative that change occurs.
This should be a nonpartisan issue—policymakers from both sides would profit from a clearer understanding of the economic landscape. In truth, both Democrats and Republicans faced the risk of being misled in the 2024 election cycle; the dissatisfaction manifested in this instance undermined the incumbent party.
In a time when trust in institutions is rapidly declining, Americans are frequently reminded of a classic assertion by former Senator Daniel Patrick Moynihan: while we are entitled to our opinions, we are not entitled to our own facts. This principle should hold true in economics. However, if the prevailing indicators are misleading, those facts cease to apply. We have an opportunity to pierce the illusion that misdirected Democrats in 2024 fell victim to. The question now is whether we will take corrective action.
Aarav Patel for TROIB News
