The post-pandemic affordability crisis and the election of 2024

 

 - by New Deal democrat

There are times when there is little new economic data of import, and not too much else to say. At other times, the import of particularly striking data on even long term historical trends could justify entire book chapters almost overnight. Right now is one of the latter. Bear with me a little bit while I lay the groundwork.

This particular moment got started when Jamelle Bouie took Michelle Cottle to the woodshed over the issue of “wokeism” in a podcast I saw reported late last week. Here’s the essence of the exchange:

Cottle: My guess is that you then completely reject the idea that we wound up with this wretched administration in part because the backlash to the excesses of woke, especially alienating young men who were like based told they were the problem, just generally speaking.

Bouie: I completely reject that for like simple reasons of like linear time. That like this administration was elected in 2024 at peak woke when like Nancy Pelosi was wearing Kente cloth, Democrats won a trifecta, right? …. I think that if you look at the 2024 election and you ask yourself, why did Trump win? The very obvious answer is he won because inflation was high and people didn't like it. And people backfilled a lot of cultural reasons. [P]eople [we]re mad about inflation, and that directly tracks with President the President's declining approval.”

G. Elliott Morris amplified that in a substack article, which I excerpt below:

The reality of the 2024 election is that it was going to be hard for a Democrat to win, regardless of who they were or how they campaigned. The broader economic and political conditions were so favorable to Republicans that you would have expected Trump to win about 90% of the time, regardless of campaign or candidate effects.

Political scientists have been pointing out for decades that you can predict presidential elections reasonably well using just two pieces of information: how voters feel about the incumbent president, and how voters feel about the economy. There are many variants of this model — such as the “Bread and Peace” model (Douglas Hibbs), the “Time for Change” forecast (Abramowitz), Ray Fair’s “Fair” model, and Wlezien/Erikson’s work with “Leading Economic Indicators” — but all use a similar set of economic and political “fundamentals” to predict the result of the election.  

….

In 2024, Kamala Harris received about 49.3% of the two-party vote. The model — fit on data from 1956 through 2020, with 2024 held out — predicted she’d get about 48%, with an 80% prediction interval of 46.6% to 49.9%. Harris’s vote share lands on the upper end of this range, but still squarely inside of it.”

Here is the model that Morris is talking about:

He concludes: “[G]enerally speaking, ‘inflation was high, and Harris was going to lose anyway’ is a much better explanation for 2024 than anything else in isolation.”

That is a very unpopular opinion in many progressive quarters, especially when you look at the breakdown in the 2024 vote by race. It is very obvious that T—-p was popular with, and remains generally popular with, Whites, and in particular White men. But elections are decided at the margin. Rock solid bigots are going to vote bigot, no matter what. More broadly speaking, people tend to have unmovable opinions about what are generally called “social issues,” vs. more malleable opinions about the broad economy. And so generally it is the latter group of people who wind up deciding national elections. And incidentally, I tracked both the “bread and peace” and “leading economic indicators” models during 2016, and both - unlike the political pundity - forecast a very close election, with Clinton getting slightly more votes. She did, but lost in the Electoral College.

Even during 2024, that the economy was not actually doing all that well in terms of delivering goods to the people, broadly measurered, was something I argued many times.

What are the two most important purchases that average consumers ever make? Houses and cars. And younger people in particular were priced out of the market during most or all of Biden’s term.

Here is what happened to the average price of existing homes, as measured by the FHFA repeat sales index (blue) vs. average hourly nonsupervisory wages (red) normed to 100 as of just before the pandemic:

The average price of a house increased 38.2% by June 2022, while average wages were only up 14.5%. And that imbalance has never resovled. Even as of this past June, house prices were up 57.8% since February 2020, while wages were up 34.7%.

Here’s the same comparison applied to the average of new and used car prices:

At their peak difference, in February 2022, vehicle prices were up 28.4% compared with just before the pandemic, vs. 12.2% for wages. The difference did not finally resolve until May 2024, when both were up 24.8%.

And that’s not all, because the interest rate to finance mortgages (purple) and vehicle loans (orange) increased sharply as well [note: the latter are dots because the data is only reported once a quarter]:

Just before the pandemic, mortgage rates averaged 3.47%. At their peak in October 2023, they were 7.62%. Vehicle loans averaged 5.29% just before the pandemic, and peaked in February 2024 at 8.65%.

Finally, here is what the graph of monthly real median household income, compiled by Motio Research, looked like through December 2024:

Real median household income languished below its pre-pandemic 2019 peak all the way until the end of 2023. By Election Day 2024, it was only about 1% higher.

It’s true that job creation was red hot and even white hot throughout Biden’s term. And it is also true that real wages rose stoutly from their June 2022 trough linked to gas prices during the initial Ukraine invasion by Russia. But it is not true that average consumers, and in particular younger ones, prospered during Biden’s term - particularly as to the items they needed to be most affordable - at least not until 2024, by which time it was too late.

There is much more to say of a much broader issue that is led into by the above. For now, let me just give you a quick foretaste. The below is the updated graph through last Friday of corporate profits reported to Wall Street through last Friday:

At an index value of 110.26, they are almost 50% higher than they were even one year ago. And they are almost double their index value of 54.45 from only three years ago, in Q2 2023.