Typically, an economic report that says the gross domestic product (GDP) grew by 6.9% in the fourth quarter of 2021, and the country’s GDP as a whole grew 5.5% over the entire year would be great news. That’s the highest economic growth number since the 1980s when Ronald Reagan led America out of inflation pressures and a double-dip recession.
But whereas Reagan and the 1980s growth kick-started an era of widespread economic growth, the Biden era GDP number reflects a rebound from the COVID-19 pandemic and an unsure future. 2020 represented an unprecedented decline in economic growth from a single cause, whereas 2021 represented the opposite: a world emerging warily from pandemic protocols.
And now we face an even more uncertain future with growth and inflation running red hot while the Federal Reserve is looking to reach into its policy handbook to raise interest rates to combat inflation. In the 1980s, when the Fed took the same actions to combat inflation, they triggered the double-dip recession that started Reagan’s presidency. That recession was then met by the Reagan economic boom.
With Biden, we’re running in reverse. We’ve experienced the boom of economic growth coming out of the global pandemic, and now we face the music on inflation. That reversal comes with many questions, few of which the Federal Reserve or the Biden administration can answer, either for you and I or themselves.
First, there’s the continuing issue of inflation. The high economic growth number is excellent, but it also suggests consumers’ continued increased demand for goods and services. That means little relief from the inflationary pressures pushing prices up. And if you’ve been in a grocery store for any length of time, you’ve no doubt seen the high costs and shortages first hand. A steady diet of snow and ice storms across the country exacerbates these issues.
Second, because this inflationary environment was triggered by a global pandemic and the various government controls put in place to combat the virus, we should ask when these contagion pressures will abate. The primary reason pandemic measures exist is to slow down the spread of a virus to prevent the healthcare system from being overrun. Between the widespread availability of vaccines and treatment options, most Americans have met this threshold and no longer encounter the virus as a daily problem.
Of course, if you live in one of the many cities or states run by Democrats, you might read that last statement with some incredulity. I recently spoke with a friend living in the Northeastern United States who told me more than 90% of the people in his local grocery stores and restaurants were masked up, regardless of vaccination status. Some places were near 100% mask rates. I was equally surprised because I’m vaccinated and live in Tennessee, where I don’t even recall the last time I wore a mask.
The more neurotic among us may never recover from a global pandemic. But it’s equally true that outside those blue states, most of America has moved on, which is why you see an enormous economic boom and demand for goods and services.
Third, and this is our last question: if the economic growth is as good as the Biden administration claims, why is consumer sentiment so low? The Michigan Consumer Sentiment survey goes back to 1978 and measures how consumers feel about the economy. When sentiment is high, things are good economically. When sentiment is bad, we’re usually in a recession.
With that knowledge in hand, it’s concerning then that the consumer sentiment score is currently at levels we haven’t seen since the United States emerged from the wreckage of the Great Recession. The Biden administration is selling Americans the idea that the economy is great. Americans respond with sentiment scores more indicative of a recession than a recovery. And it should be noted these sentiment scores have dropped despite recovering from the pandemic. These are new lows.
We’ve entered 2022 into choppy waters in the economy. In the 1980s, Ronald Reagan was able to channel the best instincts of Americans and get them to believe in better days ahead. Biden and his administration are getting great economic reports while using words like malaise to describe the country. These are not the words you want to get mixed up when selling an economic revival to Americans in a midterm year.
Where things head from here is anyone’s guess. A global recovery from a widespread pandemic leading us into inflation and other economic issues is impossible to chart when you’ve never dealt with it in the past. America is in a much different place than it was during the Spanish Flu pandemic, or anything similar. However we respond, there will be lessons learned for generations to come.
Golden economic reports sometimes tell you a complete story of what is happening globally. We’re in a bizarre situation in which those reports tell us preciously little. We’ll get to find out if the Biden administration has guessed the right direction to take fairly quickly.