- by New Deal democrat
There is no significant economic news until Thursday. In the meantime, today and tomorrow let me discuss a couple of issues at the intersection of economics and politics.
The 2024 Presidential election was one of the closest popular vote margin for the winning candidate, at 1.5%, since Richard Nixon’s 0.7% margin in 1968. (Note: I’m leaving aside 2000 and 2016, where the winning candidate actually lost the popular vote). In such a case, the reasons one can assign for the victory of one candidate over another are myriad. My analysis below is of the economic issues. That is by no means saying that issues in other dimensions, such as the situation in the Gaza Strip, or racism or sexism did not play a role, or misinformation and disinformation flooding the zone via various tradition and social media controlled by right wing billionaires.
First, I have read a number of analyses lamenting the rightward shift in the vote by people under 30, and in particular men under 30. For the past year, when I have weighed in on the topic, I have insistently harped on the issue of housing costs.
Young people in their 20s move out of their childhood homes, rent apartments, and usually are saving for or buying their first home. And at no time in the past 40 years was the situation facing such young renters and buyers more unfavorable.
Since the beginning of 2021, house prices rose 37.5% according to the FHFA. Meanwhile mortgage rates rose from 3% to 7%. Here is what those prices and mortgage payments look like graphically:
Not only did potential buyers have to come up with a 35% bigger down payment, but their monthly mortgage payment on average rose from about $1000 to $2300.
As a result, the index of Housing Affordability fell to lows it had not seen since the early 1980s:
Needless to say, these prices rose much more than median family income:
Renters did not escape unscathed either. Measured from January 2021, average rents increased about 3% more than wages:
Had I measured from the expiration of COVID rent increase moratoriums, the shortfall would be more than 6%.
Given the sharp deterioration in their housing prospects, is it any wonder that more young people might have turned away from the party in power?
Secondly and more broadly, a trope on progressive sites has been that in addition to an excellent job market, wages did in fact go up faster than inflation. But that’s not nearly as dispositive as those writers thought it was.
To begin with, I suspect there was an important behavioral econ aspect to why so many people felt that the economy was doing poorly during Biden’s term. I don’t have graphs, but consider the following two scenarios:
1. Over 4 years, prices rise 8% (2% per year), while wages rise 10%
2. Over 4 years, prices rise 28% (7% per year), while wages rise 30%.
In both cases real wages have risen 2%.
I have little doubt that a majority of people would feel that their well being is much worse under scenario #2 than scenario #1. Because in scenario #1, their perception would probably be that their wages increased, while prices remained basically stable. But in scenario #2 their perception would be that inflation was very bad, and their wages barely kept up.
But even that doesn’t completely explain the poor feeling many people had about their economic situation. Because wage increases aren’t uniform. Obviously some people make out better than average, and others worse than average.
A good way to show that is via the Atlanta Fed’s wage tracker, which contrasts wage increases obtained by job stayers vs. job switchers. Here’s what that looks like over the past 25 years:
The divergence between the wages earned by job switchers vs. stayers was at its all time high in 2022-23. Job stayers made out much better that inflation in real terms, while job stayers did not keep up. Cumulatively through December 2024, during Biden’s term the wages of job stayers rose on average 20.2%, while CPI rose 21.0%. And remember, many of those job stayers made out worse than that average.
Another way to look at this is to compare real average wages vs. the employment cost index for wages. The big difference between the two is that the latter norms for the type of job. In other words, if there was a switch from being employed in food and drink services to construction during the time period, that change in job mix would show up in average wages. But the employment cost index would compare food and drink servers at the beginning and end of the peiod, and contruction workers at the beginning and end of the period.
Here’s what those two measures look like for Biden’s term:
Real average nonsupervisory wages were up close to 1% at the end of last year vs. the beginning of 2021, while wages normed by the type of industry were *down* by almost 2%. And job stayers are all in that second category.
To reiterate, I am not saying that economics was the sole, or necessarily even the primary reason why the Democrats lost the Presidential election. But there were solid economic reasons why a substantial share of potential voters might decide to vote against the incumbent party.
