When people say their perception of the economy doesn’t match the numbers, are they just ill-informed?
It’s a familiar refrain: stock markets soar, GDP rises, unemployment falls, yet many Americans feel left behind, struggling to make ends meet.
So what’s causing this disconnect between the rosy numbers and people’s lived experiences?
Joining me for this week’s WhoWhatWhy podcast are two leading thinkers on reimagining how we measure economic health and well-being: Jacob Hacker, professor of political science at Yale, and Jonathan Cohen from the American Academy of Arts and Sciences.
Hacker and Cohen argue that the purpose of an economy is to benefit the well-being of the populace, and what gets measured should be a function of that purpose, including: individual lifespan, economic security, economic opportunity, political voice, and civic engagement.
They propose a new method of measuring the real economy that does not prioritize growth for its own sake, but rather the needs of citizens, and they explain in detail why political leaders, journalists, and Wall Street magnates should keep this human-centric approach as the North Star of their work.
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(As a service to our readers, we provide transcripts with our podcasts. We try to ensure that these transcripts do not include errors. However, due to a constraint of resources, we are not always able to proofread them as closely as we would like and hope that you will excuse any errors that slipped through.)
Jeff Schechtman: Welcome to the WhoWhatWhy podcast. I’m your host, Jeff Schechtman. It’s become a familiar refrain. The stock market is soaring, GDP is up, inflation is down, and unemployment numbers hit new lows, but many Americans feel left behind, struggling to make ends meet. The economy looks great on paper, but it doesn’t necessarily reflect the reality on the ground. So what’s going on? Why the disconnect between the numbers and people’s lived experience, and what can we do about it? Joining me today are two leading thinkers on re-imagining how we measure economic health and well-being: Jacob Hacker and Jonathan Cohen.
Jacob and Jonathan are part of a groundbreaking initiative called the Commission on Reimagining Our Economy, or CORE, which is developing new tools and metrics to better capture the economic realities of Americans. One of these tools is the CORE Score, a multi-dimensional measure that looks beyond GDP and the Dow to factors, like economic security, opportunity, health, and political voice, all broken down by geography, race, and income. The data they’ve compiled so far tells a very different story from the rosy picture painted by traditional indicators, and it has profound implications for how we think about, talk about, and make policy around the economy.
It may still very well be that James Carville was right that “It’s the economy, stupid,” but now, perhaps, we’ll be better able to determine which economy. Jacob Hacker is a professor of political science at Yale, where he is also the co-director of the Ludwig Program in Public Sector Leadership at Yale Law School and a resident fellow at the Institution for Social and Policy Studies. He is also the author of numerous books and articles. Jonathan Cohen is the senior program officer for American Institutions, Society, and the Public Good at the American Academy of Arts and Sciences, where he is the lead staffer for the Commission on Reimagining Our Economy.
He is the author of For a Dollar and a Dream: State Lotteries in Modern America, as well as many other books and articles. He served as a financial writer and editor at Tiger Capital Group and received his Ph.D. in history from the University of Virginia. It is my pleasure to welcome Jacob Hacker and Jonathan Cohen here to the program. Jacob, Jonathan, thanks so much for joining us here on the WhoWhatWhy podcast.
Jacob Hacker: Thank you so much for having us on, Jeff.
Jeff: A pleasure to have you here. Jacob, I want to start with you. To what extent is this idea of re-imagining how we measure the economy because something is fundamentally wrong with the way we have been doing it, or are we trying to better align the measurements with essentially what has become and often referred to as the vibe out there or people’s feelings? Is it the chicken or the egg, really? Let’s begin there.
Jacob: I think it’s really the chicken. That is we have known for many, many years that the common indicators that we use for assessing the economy, notably the gross domestic product but also the Dow Jones Industrial Average and other aggregate indicators of how hot the economy is, that those measures are very disconnected from the lived experience of Americans.
And I think it’s important to start out by saying that we began the work of the CORE and in particular, the effort to develop new indicators both building on a large amount of prior research and very much focused, not on trying to match these numbers up with some kind of national opinion data, but really capture what scholarship and common sense tells us that Americans care about in their lives. And so we focus on economic security and opportunity, on the health of Americans, and on their political representation and participation because we think the last set of indicators that concern people’s civic lives are also really fundamental to how they experience economy.
So we’ll get into all of that, but we really start with the idea that we are mismeasuring what Americans are actually experiencing. And if that also allows us to better understand the discontent that we see, even when unemployment is low and the Dow Jones Industrial Average is high, then I think we’ve made another great contribution to debate too. But I think the fundamental thing is to make sure that we’re measuring how well the economy is doing for Americans, not how well the economy is producing growth or higher stock market values.
Jeff: And Jonathan, have we been doing this incorrectly, measuring this wrong for quite some time, or is there something about the complexities of the modern economy that makes this more wrong now than it has been in the past?
Jonathan Cohen: That’s interesting. And I’ll add to what Jacob said, which is I don’t think we mean to imply that GDP is incorrectly calculated, per se, or that the Dow Jones, as arbitrary as it is once you dig into how it actually works, that it’s in some ways incorrect. It’s just a matter of the… For decades, in GDP’s case since around 1944, these measures have been treated as standalone indicators, proxies, weather veins for the entire economy. As if whatever way the GDP is blowing, that’s how the economy is doing. And that’s, to answer your question, been around since the mid-1940s. And that is, I think, what we’re taking issue with.
Not with how GDP is calculated and what it says but the way it is treated by, let’s say, political elites or journalists or other types as encapsulating the economy, and we think it’s treated as encapsulating a lot more than it actually does.
Jacob: And let me just add to what Jonathan’s saying there because there is one really big change in the economy that is worth noticing. And that is the massive rise in inequality. So, Simon Kuznets, the inventor of GDP, wrote early in its development and use that the welfare of a nation can scarcely be inferred from a measurement of national income. But at the time he was writing, at least most votes were rising with the tide of the overall economy. Since the 1960s and especially 1970s, we’ve seen enormous increase in inequality so that middle-class Americans and, indeed, the vast bulk of Americans are not experiencing the same growth that those at the very top are.
That’s even, of course, more true of the Dow Jones Industrial Average because most Americans hold very little in stock or nothing at all. But with regard to the growth of the overall economy, it’s really important to see that rising inequality is one reason why we might expect that the overall growth of the economy is not reflected in the lives of Americans, but there are others as well, right? Health isn’t naturally going to rise with growing incomes. We know that some countries have experienced much higher longevity gains over the last 30 years than the United States has, even though our economy has grown well overall.
Economic insecurity is on the rise, even though our economy is growing. And there’s no guarantee that a rich country will also have a well-functioning polity. So those are all things that can create a wedge. And I do think the wedge is greater than it used to be, and that’s why it’s so important that we look at these more nuanced metrics of well-being.
Jeff: The other aspect of it is the way in which feelings about democracy and democratic institutions also plays a role in this, Jonathan.
Jonathan: And I’ll defer to my esteemed colleague here, but to build on something Jacob said at the beginning, what we think something that sets us apart in that we were able, or really, Jacob was able to quantify political voice or political representation, which, in a constitutional democracy, we feel is reflective and a central component of well-being and how Americans are doing. And to your point of the recent changes, yes, it seems like American democracy is doing less well today than maybe it was 30, 40, 50 years ago, which makes capturing it in our measurement of well-being that much more important.
Jacob: Yes. And let me just add very quickly because this is close to my own area of research in political science that the crucial, I think, reality today is that people’s assessment of the economy are both very partisan and very much influenced by their assessments of how well the government is addressing the economic problems in their lives. So we’ve gotten a lot more partisan, and there’s lots of evidence that Republicans and Democrats see very different economies. Now, that can explain just how sour people are on the economy because even Democrats are not saying things are that great, even though a Democrat is in the White House.
But it helps us understand why there’s been a decline in the overall assessment of the economy over time as people have become more polarized. But even, I think, more notable because it’s so much less well understood is that there’s something about how Americans think the political system is doing, and they don’t think it’s doing very well, that is shaping how they assess the economy. And you just see that again and again. The closest analog to people’s overall consumer sentiments right now is their assessment of how well the state of the country is right now, how good the state of the country is.
And that’s, I think, an important new development that there’s more influence, I believe, that the research has yet to really dig into this. There’s more influence of your assessment of just how the direction of the country is going in your assessments of specific economic circumstances. And so that’s part of the reason why there is a disconnect between people’s assessment of their own personal financial circumstances and the overall economy, though we’ve done a lot, I think, to show that people’s financial circumstances aren’t that great either.
Jeff: And what we create is a situation where representatives or the White House find themselves in a position of telling people that essentially their perceptions are wrong, that the economy is doing better, and that therefore their perceptions are not correct: not a good look in any situation.
Jacob: Yes, it’s a lose-lose situation right now because on the one hand, if you’re a Democratic leader, say, President Biden, you really do want to talk about the investments that have been made in the economy and the fact that compared with other rich democracies, the United States has emerged from the pandemic with a much stronger economy. But at the same time, you have to acknowledge that for most Americans, they’re just not feeling it. And I think that our research and the CORE commission work overall has really helped us understand why this disconnect exists and in that respect is helping us think about the kinds of policies that could change to bring people’s perceptions in closer line with the overall state of the economy.
And I think the most fundamental is understanding that there is so much insecurity beneath the surface of the low unemployment rate: insecurity from health care, insecurity from retirement savings, insecurity from the challenges of balancing work and family in the contemporary era, the kind of insecurity that people have been writing about for a long time but which I think hasn’t really been incorporated into our assessments of economic well-being very well.
Jeff: Is there a situation, Jonathan, that a lot of the economic indicators, the traditional ones that we’ve gotten used to — GDP, et cetera — that they reflect a lag time in what’s really happening in the economy simply because things move at a much more rapid pace today and that the way in which those things are measured has not really kept up?
Jonathan: Yes. And, to that point, the polling can be up to the minute and is often treated as a snapshot in time, though I think are the polling that Jacob just referred to on Americans’ consumer sentiments and their sentiments about the economy have been somewhat consistent now for two, maybe three, years. So, yes, I’m willing to accept there’s a lag in the GDP data, but again, I think, the recent polling or data that I saw recently was just asking Americans if they thought the United States was in a recession, and some significant percentage thought we were, and some significant percentage thought that the Dow Jones had tumbled since President Biden took office.
So, yes, I’m willing to accept that there’s a time lag problem, but I think a lot of it comes down to whether it’s partisanship or just an information gap or some other factor or as Jacob referred to, genuine economic distress or insecurity as explaining the disconnect that we’ve been talking around between the traditional indicators and American sentiment about the economy.
Jeff: And talk about the dashboard that is part of ascertaining this CORE Score, the four elements that enter into that, either one of you.
Jonathan: Well, I’ll just start. I’ll just say this is born out of a project from the American Academy of Arts and Sciences — the CORE project that we’ve discussed — and the project as a whole takes as its mission to refocus attention from how the economy is doing in the abstract and focus instead on how Americans are doing.
And this project, the CORE Score, our data dashboard, is, I think, the really clear distillation and really clear example of building that people-first focus on the economy in that rather than, as we’ve already been discussing, measure GDP or the Dow Jones, we have people-focused metrics, metrics that are built off of measurements of actual Americans and American households in this special blend of herbs and spices, this special index of measurements that we think taken together offer a better encapsulation of American well-being than traditional measures that seek to measure the economy.
We’ve already referred to the categories that make up the index, which are economic security, economic opportunity, health, and political voice. And I’ll just call attention maybe within that to two specific standout items, and I’ll invite Jacob to elaborate on the latter. The first being you hear all the time the percentage of Americans who could or could not withstand a $400-shock-if-they-get-the-flat-tire data. That data, it’s a federal survey. It’s national. There’s no way to distill it or disaggregate it. And we included it in our index is a massive trove of credit bureau data that captures with much more granularity and much more specificity how Americans’ finances are faring: their credits, their income, their obligations, their discretionary spending.
So again, it’s just a more nuanced story about financial security. And then the second piece, the standout piece that I’ll call attention to, is what I referred to previously of our measure of political voice and our quantification of, I guess, democratic citizenship, in a way. And, Jeff, if you want to just keep going on that, I’ll invite Jacob to elaborate.
Jacob: Yes, and I just wanted to say that as part of the CORE, there were also a number of additional really revealing efforts to try to explore how Americans are actually experiencing economy. One was a set of listening sessions with Americans across the country where they really articulated a view that comports with this disconnect we’ve been talking about. They said again and again that they just didn’t think that the experience of their lives reflected the economic statistics that people used and that they didn’t really capture what one tribal service leader in Alaska called, “the wealth of how we live.”
And so I think it was very powerful to have that additional work. Also, there was photojournalistic efforts to take pictures of people of all walks of life across the country. And so the picture that emerges through these various sources, including the CORE Score, is of how different Americans’ experiences are both different across lines of class and race but also different across places in the country between urban and rural areas, between fast-growing metros and places that are falling behind. And so there is no single American economy in many ways.
And that’s one of the most important, I think, things that a dashboard like the one that Jonathan was talking about can do is it can really capture the difference. We look in the dashboard mostly at county-level measures, but we allow people to be able to disaggregate the CORE Score in various ways. So I really recommend that people go to the website for the CORE Score, which is core.score.us, right?
Jeff: corescore.us.
Jonathan: Yes.
Jacob: corescore.us. Thanks. So the website is corescore.us. And they can then look at these county-level measurements. They can look at the differences across lines of race and ethnicity, age, education, income, and gender within these counties. And we hope to be able to elaborate those opportunities over time so that people can do a lot more with the data and really try to understand better how different places in the country and different people in the country are really doing on these various linked but distinct measures: opportunity, security, health, and civic life.
Jeff: Given that these distinct measurements are so different from place to place that there is this fundamental difference between, as you say, Jacob, urban and rural, that we see differences in housing costs and health outcomes, et cetera. And that what gets measured, ideally, is to get it better managed. How much more difficult is it knowing this disparity and seeing how clearly this disparity is to manage a national economy with such fundamental differences seen from place to place?
Jonathan: Well, it’s certainly more difficult to take these differences seriously, but it’s also essential. And I think we should remember that historically, a lot of policies that have been pursued have been designed to bring Americans together economically to bring up the poorest parts of the nation. There was massive investments in the South, for example, in the 20th century to try to bring what was the poorest part of the country up to a national standard but also to reduce differences between black Americans and white Americans.
You can think about all the investments that were made, particularly in the wake of the Civil Rights Act of 1965 and more important in many ways or at least more consistent with our long tradition to try to build up the middle class. And so there are policies that can be pursued that are both pretty popular as we discussed in the report and that would help address some of these regional and class disparities, and that are not that complex. There’s a lot to be said for keeping policy ideas simple.
So we’re not going to have monetary policy or overall macro policy designed in a way that’s going to address all these differences. We’re going to have to make specific kinds of investments, whether it’s investments in distressed regions or whether it’s investments in those who we know have the greatest barriers to opportunity. And there is also a lot of effort and evidence that the kind of changes that have taken place with regard to infrastructure and investments in new businesses and in particularly high-tech businesses, but those kind of things designed correctly can boost the economy in ways that will, say, help people without a college degree get back into the workforce or gain a better opportunity.
And so it’s going to be a process of experimentation, but I think we can manage these challenges, if we can measure them properly, and most important and most difficult, if we can get our politics to work better. And that’s one of the reasons why we focus a lot on politics because people are not seeing the policies they want happen in Washington, and our measure shows that. In our measure of citizenship, we look at voting, we look at membership in civic groups, but we also ask, well, how often does a member of Congress vote in alignment with the people who are living in a particular county? And on average, it’s about 50% [chuckles], which is like a coin flip.
So we really could see, I think, a more responsive political system. And a lot of the policies we’re talking about are ones that have pretty broad support across the United States and across even the parties.
Jeff: One of the areas where we tend to paint with a particularly large brush with respect to the economy is in regard to tax policy, where it can’t be tailored quite as specifically. Jacob, talk about that.
Jacob: Yes. I have an op-ed in the New York Times that I encourage people to read that talks about the future of US tax policy. We are going to face, no matter who wins this election, the biggest debate over tax policy we’ve had since at least the debate over the Bush tax cuts in the early 2000s. And that’s because the Trump tax cuts, as they’re called, are set to expire in 2025. And there’s a real question of whether or not not only will those tax cuts be extended but also whether or not there will be changes to the permanent corporate tax cuts that were included in the Trump tax cuts in 2017.
And so without going into the details, I think it’s really important for people to understand that if you’re concerned about inequality, and if you’re concerned about insecurity, and if you’re thinking that it’d be nice if we could figure out how to improve well-being on the measures that we’re talking about and others, that we really need to get that tax debate right. And there really are two parts of it. One is that the tax cuts are pretty skewed toward the people who’ve done really well in the economy over the last generation. And that is a policy choice, and it’s one that has big implications for our long-term finances.
And the second is if you think about those implications, tax cuts aren’t free, and there are a lot of investments that we should be making. There are a lot of popular programs, like Medicare and Social Security, that are under strain and will face increasing strain. Do we want to spend what is now estimated to be about $4.5 trillion over the 2025-2034 period to extend the Trump tax cuts, or do we want to take that $3.5 trillion and shore up social security or extend health coverage more broadly or help with childcare or paid leave or use it to boost investment and growth in certain parts of the country?
That’s the choice. And I feel like one thing that CORE can do… The commission was a bipartisan cross-ideological group and one thing that really united us was the sense that, look, we have to change course on the economy. Whether we agree on the specific policies, the central imperative for our democracy is to figure out how to make the concrete economic lives of Americans more stable, more fulfilling, longer.[Chuckles] People are not living as long as they should be in our country, and they’re not living as healthfully as they should. And we should be making this all happen in a society that has a stronger civic life.
And I was really pleased to see that people at the American Enterprise Institute and people at universities and people who are in the arts could all agree on that fundamental goal.
Jeff: One of the things this seems to address and in a profound way is something we’ve heard for a long time: this “What’s the matter with Kansas?” argument that people often are perceived as voting against their own economic interest. In fact, one of the things that understanding the work that you’re doing does is explain that to a large extent because people have very different economic perceptions and what represents the economy is fundamentally different. Jonathan?
Jonathan: Yes. Well, I’ll say first of all, “What’s the matter with Kansas?” — according to the CORE score, not much. The upper Midwest, [Jeff chuckes] including Kansas, is one of the highest-scoring states in the country, including along the measures of economic security. So if you ask what’s the matter with Alabama, then I would be much more, I think, receptive. Again, this is the benefit of using a different set of metrics than the ones that we’re used to seeing.
And I think I’ll just speak specifically to something that Jacob raised, which is the value for us from the get-go of going out and talking with “regular Americans” or Americans in their lives, in their communities, about the economy as they experience it and the economy that they would like to see. On the assumption that the “What’s the matter with Kansas?” argument is rooted in certain people “voting against their own interests” as if people are purely economic actors and the economy is the only thing that they care about or vote on.
But I think actually talking to people is what allowed a august multidisciplinary cross-partisan group, such as ours, to root our recommendations and our proposals and our ideas in these specific roadblocks and barriers that Americans felt were standing in their way. Some of which are like tax policy or things that are already on the radar for politicians or for lawmakers or for podcasters or you name it. And there are others that are off the radar that, again, we’ve heard about in conversations that I think materially improve people’s either experience in the economy or at least their perception of it. And this perception of fairness that as we’ve been discussing is just as important these days, especially politically when we talk about the economy as a whole.
Jeff: Jacob?
Jacob: Yes, I’ll just say that I really don’t like this idea of talking about people voting against their interest. I think it’s really important to start with the idea that people often have a pretty good idea of what their interests are and that they vote on a basis of a lot of things as John was saying, but that there are some real failures of our political system to be responsive to those interests and to those votes. And some of that comes from the fact that people do have values that mean that they may want health insurance, but they not support a program because they think it’s too costly or inefficient.
But I think the main thing that we find from the information that we as political scientists and as members of this commission look at is that people, they’re very disillusioned about their democracy, which leads them to be less likely to be responsive to people who are calling for change that is rooted in concrete policy recommendations to address their problems, but also, that makes them really cynical and sometimes leads to misinformation about policies.
My favorite example of this is that whenever there’s a referendum, there is a very strong support for expanding Medicaid in states that don’t have it, which suggests that people in those states would like to have the ability of themselves or their families or their friends to get health insurance through Medicaid. But at the same time, those same people often vote for candidates who do not expand Medicaid. And how do we understand that?
Well, I think we understand it because again and again, when you look, people have a really hard time figuring out who’s responsible for what in our complicated political system. And they’re really polarized, and they’re learning from different sources, and they’re motivated a lot by partisanship. And I don’t think of that as voting against your self-interest because when you ask people, “Do you want Medicaid?” they say, “Yes.” I think of it more about a political system that is not well set up and a dialogue and a discussion that’s not well-structured to allow people to basically connect the things they want to the kind of civic decisions they need to make as citizens.
And so that’s something that we feel really strongly about in the commission: that what we should be doing is taking what people think and say seriously, but not taking it as given, that our political system has to operate the way it does today or that our policies need to be stuck in place as they so often are. That’s why we put out a lot of ideas and why we have really tried to do this in a way that is accessible to a broad audience, including by making this score available so that it can appear in publications and be used by researchers but also by ordinary Americans if they want to figure out how their county is doing or how the people like them are doing on these core indicators.
Jeff: We’ve talked a lot about re-imagining the economy in better ways for the public to understand. Talk a little bit about what you would like to see in a change of understanding and a change of focus from people on Wall Street, people in Washington, people on the Ways and Means Committee. What do they have to begin to see to really embrace this re-imagination of the economy?
Jonathan: I’ll say I think those are the people, those that you mentioned, for whom we would hope that the 30,000-foot goal of the project would resonate the most, which is that the purpose of the economy should not be to grow the economy. The purpose of the economy should be to benefit Americans and to advance their well-being, including their lifespan as well as their economic security, economic opportunity, and their political voice and their civic engagement. I think, again, from a overarching perspective, that would be the goal, and the ambition is that we are not increasing the economy for the sake of the economy, but we recognize and remember the human stakes.
And the political leaders or journalists or folks on Wall Street keep that as the north star of their work. I’m not meaning to suggest that we’re going to wake up tomorrow morning, and that’s going to be the case, but that, I think, would be the goal. And we hope to make a slight bit of progress, if we can, towards that goal with a project like this.
Jeff: Jacob.
Jacob: Yes, I would say I think that’s really beautifully put. And the central goal is to essentially help people understand that as one person said to me when I was doing research on economic insecurity, some years ago, they said to me, “I’m tired of working for the economy. I want the economy to work for me.” That idea that the economy should work for ordinary Americans is sometimes not voiced clearly enough. And it’s, I think, the central idea of this project. But I think we’re also doing two things. One is we’re not alone in this, but we’re issuing a warning call that these trends are really worrisome, that we’ve seen really no improvement in our CORE Score measure over the last 15 years or so, which is very striking.
And that’s true even if you take the pandemic out of the picture. And lastly, I would say we’re trying to send the message that in a democratic capitalist system that how the economy treats Americans, treats citizens, is a choice. It’s a political choice. And that these are not matters that are beyond our control, like natural forces that we can’t even respond to. There are lots of things that are going to be difficult to do and there’s lots of trends and challenges that we have to respond to, but the reality is that we’ve seen the economy do better or worse for Americans.
In the past we’ve seen different economic outcomes across countries. We’ve seen different outcomes across states. We’ve seen policies that have really worked and policies that haven’t. We can learn from what’s worked well and try to do better in the future. And if the commission has any effect, I hope that it will be to move us away from the fatalistic view that the economy is somehow this machine beyond our control and to really see that we create the economy with our political choices and through our civic engagement. And that is why we need to really take seriously that the economy right now isn’t working as well as it could to improve the well-being of Americans.
Jeff: Jacob Hacker, Jonathan Cohen, I thank you both so much for spending time with us today here on the WhoWhatWhy podcast.
Jacob: Jeff, thank you so much.
Jonathan: Thanks very much
Jeff: And thank you for listening and joining us here on the WhoWhatWhy podcast. I hope you join us next week for another radio WhoWhatWhy podcast. I’m Jeff Schechtman. If you liked this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to whowhatwhy.org/donate
