Last year, the former White House economist Claudia Sahm set out to answer a question: why did Americans think their economy was doing badly? A narrative had taken hold that the world’s largest economy had returned to the 1970s. For all of the past two years, Americans’ expectations for the future path of the economy have been lower than they were during the economic crisis of 2020. This time last year, almost three quarters of Americans expected a recession in the next 12 months; most still do.
Sahm, whose expertise in forecasting recessions is so well established that a key recession indicator (the Sahm Rule) is named after her, disagreed. Every survey and dataset she looked at – income, wealth, real wages, jobs, household surveys – told the same story, that most Americans are considerably better off than they were in 2019. The Federal Reserve’s survey of consumer finances showed “historic gains in inflation-adjusted wealth from across these three years. And it was everywhere… every age group, every income group, every wealth group, racial group”. The wealth of the median American household jumped by 37 per cent in three years.
In November 2023, Sahm published her analysis. It was innocuous and upbeat, a discussion of policy that seems to have worked well. But it contradicted what large numbers of people on both the right and left of American politics have decided to believe. The reaction was as if she had taken an extreme position in a culture war.
In the weekend before we spoke, she had blocked around 200 social media accounts. One person had found out her address, and written to her at home. “I’m tired of deleting death threats out of my DMs [direct messages]”, Sahm told me. “I really have better things to do.”
This argument, she told me, is not about whether the American economy really is in good shape: “It’s about, is Biden good or bad”. Most Americans (63 per cent) have decided that Biden is managing the economy poorly, despite overwhelming evidence to the contrary.
America is the glaring outlier in a chart of economic growth among the G7, and there are signs of productivity growth, too (Sahm puts it succinctly as “we’re just making more stuff, for the same amount”), which allows GDP to grow without inflation. Debt-to-income ratios have fallen dramatically. Swathes of the American lower middle class – who have historically lived “money in, money out” – now have a savings buffer. The US economy is famously precarious, with relatively low employment rights and a private healthcare system that makes unemployment a dangerous prospect, but these risks have been driven back by the huge fiscal stimulus enacted under Trump and Biden.
Whatever they tell surveys about the economy as a political issue, Americans recognise this at the cash register. There is, said Sahm, “a very virtuous cycle going in the US between a strong labour market and a strong consumer. The American consumer beats every country hands down, in terms of their willingness to spend.”
This is an economy that cannot believe its luck. “Inflation came down without a recession… that is not in the historical precedent.”
Why were so many people furious at Sahm for pointing this out? On the right, Trump supporters have a clear interest in talking the US economy down. “It works against Trump, if the economy’s good”, because it robs the Republicans of a problem to solve. Trump supporters would probably also draw their own conclusions about Sahm, who worked for Obama’s council of economic advisors and the Federal Reserve. They would be wrong, she told me: “I hate politics. I don’t play for a team… I’m not in the business to cheerlead for Biden.”
But it was not only the MAGA crowd that began sending Sahm abusive emails and messages. “I got it from all sides, but frankly, I got it the most from the left”.
Despite the years she has spent working on economic policy targeted at people on low incomes, Sahm found that expressing a positive view of the economy was taboo among people who would consider themselves to be on the progressive left, who are angry at the concessions the Biden administration has made on environmental and social policies. “I’ve had people telling me, I do not care about others. I have been reminded probably hundreds of times that there are homeless people in the United States.”
This doesn’t change the fact that economic policy has made America’s recovery from the pandemic recession radically different to the period after 2008, or that their country is now in a different league to the rest of the G7. The US had not one programme of fiscal stimulus, but two: the $2.2 trillion spent through the CARES Act under Trump, and the $1.9 trillion spent under the American Rescue Plan under Biden. This is the primary difference between the US and the rest of the world. Do voters recognise this?
“Nobody cares”, said Sahm. “They don’t care that this is better than the Great Recession. And they certainly don’t care, sadly, about what’s happening in any other country. All people care about – and it makes a lot of sense – is, how am I doing?”
But the Democrats have “a very bad habit”, she said, of allowing “wonky economists” to quote numbers at the public. Having grown up in the Midwest, in what she describes as “not an elite background”, Sahm, 48, says she is often “baffled” by the remote numbers the Biden administration talks about its economic success: “that it not the way to message this… this is not going to convince my mom and dad of anything”.
Some of Biden’s most effective policy is hardly mentioned at all. After the Ukraine invasion, for example, petrol in the US hit $5 per gallon, to universal dismay. Sahm remembers speaking to a Democrat conference and telling the assembled representatives: “you’ve got to move heaven and earth to get gas prices down… you cannot expect people to adjust that quickly to that much of a change.”
The administration did just that, opening the Strategic Petroleum Reserve and structuring deals with energy companies to bring prices back down. America is now producing more oil and natural gas than at any point in its history – the gas, exported as LNG has allowed Europe to turn off Russian imports. It should be easy to make the case that this is a necessary short-term measure, and that good policy can also deliver a future in which foreign dictators are not able to precipitate energy crises in the West, but the Democrats seem unwilling to take credit for some of their most successful policy. “Trump”, she observed, “would be tweeting this every single day”.
This is already happening: Donald Trump has already claimed that financial markets are rising “because they think I’m going to be elected”. While Democrats scoff at this kind of nonsense, Trump understands that people will accept it if it helps them confirm their political choice. “There’s a lot of claiming the narrative”, said Sahm, “that is devoid of actual data.”
[See also: Alpa Shah: India is not a safe place any more]
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