America’s pandemic-era economic performance stands out. The U.S. had among the most aggressive fiscal and monetary responses to the pandemic, including providing the highest discretionary fiscal stimulus as a percentage of GDP of any country. America’s COVID-19 stimulus was targeted to lower income Americans and cut poverty rates by a record 67% in 2021. The U.S. also had one of the strongest and fastest economic recoveries among developed countries.
Despite this, the American public perceives the state of the U.S. economy as poor. Americans are particularly unhappy with the economy despite its performing better than the EU, the U.K., Japan, and, to varying degrees, China. Economic dissatisfaction is broad and correlated with inflation. However, inflation was a global phenomenon.
The paper explores multiple possibilities for the divergence between economic performance and happiness with the economy. One finding is that increasing political polarization played a significant role. Support for this thesis is that a disproportionate share of the economic dissatisfaction comes from members of the Republican party only after Biden’s election, only to revert back to a positive view when Trump won the White House back. A second is that the composition of inflation differs in America, with the cost of housing rising substantially more than in other countries. A third is that America’s existing economic unhappiness pre-pandemic, particularly among lower-income families and men, created an environment where dissatisfaction was more likely to occur despite stronger economic growth.
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Acknowledgements and disclosures
The authors thank Josh Gotbaum and Eli Schrag for very helpful comments on the paper. This paper draws from a working paper Klein presented at The Nomura Foundation Macroeconomic Policy Conference in Tokyo in October 2024 and the authors thank the foundation for their support.
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