Why do people feel bad about the economy?

By Greg Mankiw.

"A question that many pundits have been asking is: Why does the general public seem to feel bad about the current economy, when many traditional indictors suggest it is doing okay? Here is a hypothesis: People are comparing things to 2021, the first year of the Biden administration, when things looked much better for them.

Consider real disposable income per capita. In the latest reading, for May 2024, it was $50,491. For the year 2021, the figure was $51,567. That is, average income is down about 2 percent over this period. By contrast, average income grew by more than 3 percent per year from 2017 to 2021.

Similarly, consider credit card debt. From 2017 to 2021, it was up a mere 4 percent (in nominal terms). From its trough in April 2021 until now, it is up 44 percent.

To be sure, one might say that 2021 was an unusual year. Disposable income was goosed by numerous, temporary fiscal policies aimed to ease the pain of the pandemic. Covid also reduced consumers' ability to spend, so they used more of their incomes to pay off their debts. No economist expected these unusual conditions to persist. 

That is all true. But do most people take this fact into account? Maybe they think, "A few years ago, my income was higher, and my debts were lower. So, yes, I am glad the pandemic is over, but my finances are worse.""