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VOTERS WERE RIGHT ABOUT THE ECONOMY. THE DATA WAS WRONG  
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Eugene Ludwig
February 11, 2025
Politico
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_ Many in Washington bristled at the public’s failure to register
how strong the economy was during the Biden Administration but were
they relying on flawed statistics? Unemployment was higher, wages
lower, growth less robust than was claimed. _

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Before the presidential election, many Democrats were puzzled by the
seeming disconnect between “economic reality” as reflected in
various government statistics and the public’s perceptions of the
economy on the ground. Many in Washington bristled at the public’s
failure to register how strong the economy _really_ was. They
charged that right-wing echo chambers were conning voters into
believing entirely preposterous narratives about America’s decline.

What they rarely considered was whether something else might be
responsible for the disconnect — whether, for instance, government
statistics were fundamentally flawed. What if the numbers supporting
the case for broad-based prosperity were themselves
misrepresentations? What if, in fact, darker assessments of the
economy were more authentically tethered to reality?

On some level, I relate to the underlying frustrations. Having served
as comptroller of the currency during the 1990s, I‘ve spent
substantial chunks of my career exploring the gaps between public
perception and economic reality, particularly in the realm of finance.
Many of the officials I’ve befriended and advised over the last
quarter-century — members of the Federal Reserve, those running
regulatory agencies, many leaders in Congress — have told me they
consider it their responsibility to set public opinion aside and deal
with the economy as it exists by the hard numbers. For them,
government statistics are thought to be as reliable as solid facts.

In recent years, however, as my focus has broadened beyond finance to
the economy as a whole, the disconnect between “hard” government
numbers and popular perception has spurred me to question that faith.
I’ve had the benefit of living in two realms that seem rarely to
intersect — one as a Washington insider, the other as an adviser to
lenders and investors across the country. Toggling between the two has
led me to be increasingly skeptical that the government’s
measurements properly capture the realities defining unemployment,
wage growth and the strength of the economy as a whole.

These numbers have time and again suggested to many in Washington that
unemployment is low, that wages are growing for middle America and
that, to a greater or lesser degree, economic growth is lifting all
boats year upon year. But when traveling the country, I’ve
encountered something very different. Cities that appeared
increasingly seedy. Regions that seemed derelict. Driving into the
office each day in Washington, I noted a homeless encampment fixed
outside the Federal Reserve itself. And then I began to detect a
second pattern inside and outside D.C. alike. Democrats, on the whole,
seemed much more inclined to believe what the economic indicators
reported. Republicans, by contrast, seemed more inclined to believe
what they were seeing with their own two eyes.

Within the nation’s capital, this gap in perception has had profound
implications. For decades, a small cohort of federal agencies have
reported many of the same economic statistics, using fundamentally the
same methodology or relying on the same sources, at the same appointed
times. Rarely has anyone ever asked whether the figures they release
hew to reality. Given my newfound skepticism, I decided several years
ago to gather a team of researchers under the rubric of the Ludwig
Institute for Shared Economic Prosperity to delve deeply into some of
the most frequently cited headline statistics.

What we uncovered shocked us. The bottom line is that, for 20 years or
more, _including the months prior to the election,_ voter perception
was more reflective of reality than the incumbent statistics. Our
research revealed that the data collected by the various agencies is
largely accurate. Moreover, the people staffing those agencies are
talented and well-intentioned. But the filters used to compute the
headline statistics are flawed. As a result, they paint a much rosier
picture of reality than bears out on the ground.

Take, as a particularly egregious example, what is perhaps the most
widely reported economic indicator: unemployment. Known to experts as
the U-3, the number misleads in several ways. First, it counts as
employed the millions of people who are unwillingly under-employed —
that is, people who, for example, work only a few hours each week
while searching for a full-time job. Second, it does not take into
account many Americans who have been so discouraged that they are no
longer trying to get a job. Finally, the prevailing statistic does not
account for the meagerness of any individual’s income. Thus you
could be homeless on the streets, making an intermittent income and
functionally incapable of keeping your family fed, and the government
would still count you as “employed.”

I don’t believe those who went into this past election taking pride
in the unemployment numbers understood that the near-record low
unemployment figures — the figure was a mere 4.2 percent in November
— counted homeless people doing occasional work as “employed.”
But the implications are powerful. If you filter the statistic to
include as unemployed people who can’t find anything but part-time
work or who make a poverty wage (roughly $25,000), the percentage is
actually 23.7 percent. In other words, nearly one of every four
workers is _functionally_ unemployed in America today — hardly
something to celebrate.

[People wait in line at a career center.]

People wait in line for help with unemployment benefits at the
One-Stop Career Center in Las Vegas on March 17, 2020. The effect of a
rising cost of living was particularly intense in the wake of the
COVID-19 pandemic. | John Locher/AP

The picture is similarly misleading when examining the methodology
used to track how much Americans are earning. The prevailing
government indicator, known colloquially as “weekly earnings,”
tracks full-time wages to the exclusion of both the unemployed and
those engaged in (typically lower-paid) part-time work. Today, as a
result, those keeping track are led to believe that the median wage in
the U.S. stands at roughly $61,900. But if you track _everyone_ in
the workforce — that is, if you include part-time workers and
unemployed job seekers — the results are remarkably different. Our
research reveals that the median wage is _actually_ little more than
$52,300 per year. Think of that: American workers on the median are
making 16 percent less than the prevailing statistics would indicate.

Perhaps the most prominent issue of the 2024 campaign — inflation
— tracks much the same story. Democrats spent much of the campaign
pointing out that inflation had abated by Election Day, even if prices
remained elevated from pre-pandemic levels. Moreover, many noted that
wages (according to the prevailing statistic that takes only full-time
work into account) had risen at a faster clip. These claims were based
on observations drawn largely from the Consumer Price Index, an
indicator that tracks the prices charged for 80,000 goods and services
across the economy.

But the CPI also perceives reality through a very rosy looking glass.
Those with modest incomes purchase only a fraction of the 80,000 goods
the CPI tracks, spending a much greater share of their earnings on
basics like groceries, health care and rent. And that, of course,
affects the overall figure: If prices for eggs, insurance premiums and
studio apartment leases rise at a faster clip than those of luxury
goods and second homes, the CPI underestimates the impact of inflation
on the bulk of Americans. That, of course, is exactly what has
happened.

My colleagues and I have modeled an alternative indicator, one that
excludes many of the items that only the well-off tend to purchase —
and tend to have more stable prices over time — and focuses on the
measurements of prices charged for basic necessities, the goods and
services that lower- and middle-income families typically can’t
avoid. Here again, the results reveal how the challenges facing those
with more modest incomes are obscured by the numbers. Our alternative
indicator reveals that, since 2001, the cost of living for Americans
with modest incomes has risen 35 percent faster than the CPI. Put
another way: The resources required simply to maintain the same
working-class lifestyle over the last two decades have risen much more
dramatically than we’ve been led to believe.

The effect, of course, was particularly intense in the wake of the
pandemic. In 2023 alone, the CPI indicated that inflation had driven
prices up by 4.1 percent. But the true cost of living, as measured by
our research, rose more than _twice_ as much — a full 9.4 percent.
And that laid bare the oft-quoted riposte that wage gains outpaced
inflation during the crisis following COVID-19. When our more targeted
measure of inflation is set atop our more accurate measure of weekly
earnings, it immediately becomes clear that purchasing
power _fell_ at the median by 4.3 percent in 2023. Again, whatever
anyone may have claimed from the prevailing statistics during the
run-up to the 2024 election, reality was drastically more dire for the
great majority of Americans.

Which brings us to the question of gross domestic product, a figure
that stands perhaps as the most important single economic indicator
because it is commonly viewed as a proxy for prosperity writ large.
There is, to be sure, real value in tracking the sheer volume of
domestic production, though GDP is an imperfect measure even of that.
But as useful as the figure may be in the sense that it purports to
track generalized national wealth, it is hampered by a profound flaw:
It reveals almost nothing about how the attendant prosperity
is _shared. _That is, if a small slice of the population is awarded
the great bulk of the bounty from economic growth while everyone else
remains unenriched, GDP would rise nevertheless. And that, to a
crucial degree, is exactly what has happened.

Here, the aggregate measure of GDP has hidden the reality that a more
modest societal split has grown into an economic chasm. Since 2013,
Americans with bachelor’s or more advanced degrees have, in the
aggregate, seen their material well-being improve — by the Federal
Reserve’s estimate, an additional tenth of adults have risen to
comfort. Those without high school degrees, by contrast, have seen no
real improvement. And geographic disparities have widened along
similar lines, with places ranging from San Francisco to Boston seeing
big jumps in income and prosperity, but places ranging from
Youngstown, Ohio, to Port Arthur, Texas, falling further behind. The
crucial point, even before digging into the nuances, is clear:
America’s GDP has grown, and yet we remain largely blind to these
disparities.

Take all of these statistical discrepancies together. What we have
here is a collection of economic indicators that all point in the same
misleading direction. They all shroud the reality faced by middle- and
lower-income households. The problem isn’t that some Americans
didn’t come out ahead after four years of Bidenomics. Some did.
It’s that, for the most part, those living in more modest
circumstances have endured at least 20 years of setbacks, and the last
four years did not turn things around enough for the lower 60 percent
of American income earners.

To be fair, the prevailing indicators aren’t without merit. It is,
for example, useful to know how the wages of _full-time _employees
have evolved. The challenge, quite separate from any quibbling with
the talented people working to tell the nation’s economic story, is
to provide policymakers with a full picture of the reality faced by
the bulk of the population. What we need is to find new ways to
provide a more realistic picture of the nation’s underlying economic
conditions on a monthly basis. The indicators my colleagues and I have
constructed could serve as the basis for or inspiration for
government-sponsored alternatives. Regardless, something needs to
change.

This should not be a partisan issue — policymakers in both parties
would benefit from gleaning a more accurate sense of what’s
happening at the ground level of the American economy. In reality,
both Democrats _and _Republicans were vulnerable to being snowed in
the 2024 cycle — it just happened that the dissatisfaction during
this particular cycle undermined the incumbent party.

In an age where faith in institutions of all sorts is in free fall,
Americans are perpetually told, per a classic quote from former Sen.
Daniel Patrick Moynihan, that while we may be entitled to our own
opinions, we aren’t entitled to our own facts. That _should _be
right, at least in the realm of economics. But the reality is that, if
the prevailing indicators remain misleading, the facts don’t apply.
We have it in our grasp to cut through the mirage that led Democrats
astray in 2024. The question now is whether we will correct course.

_Eugene Ludwig is chair of the Ludwig Institute for Shared Economic
Prosperity and former U.S. Comptroller of the Currency. He is author
of The Vanishing American Dream: A Frank Look at the Economic
Realities Facing Low- and Middle-Income Americans
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_POLITICO is the global authority on the intersection of politics,
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* inflation
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* Employment
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* Bureau of Labor Statistics
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* Democratic Party
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* CPI
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