Coping with High Anxiety in 2024

I’m pretty sure all of you reading this have seen or least heard the exclamation uttered by Dorothy in the Wizard of Oz when she and her dog find themselves in Oz after living through that awful tornado, “Toto, I have a feeling we’re not in Kansas anymore!” Well, my wife and I live in Kansas, but I’ll bet like the rest of you who do not, both feel that we’ve been living through a tornado of events in recent years, and find the country in unchartered territory, and heading into more of it in 2024.

Like facing a Presidential rematch between Biden and Trump that the vast majority of Americans do not want, https://www.pbs.org/newshour/politics/few-u-s-adults-want-a-biden-trump-rematch-in-2024-ap-norc-poll-shows, and fearing that the future of democracy itself is on the ballot, but sharply disagreeing who poses the biggest threat. https://www.pbs.org/newshour/politics/americans-agree-that-the-future-of-democracy-is-on-the-line-in-the-2024-election-but-disagree-about-who-poses-the-biggest-threat. What happens in November 2024, and perhaps even more important, in the two and a half months after the election, is anyone’s guess, and I suspect just about everyone’s fear.

Some more unchartered territory: If we were using the conventional measures of the health of the economy – the inflation rate and the unemployment, or the combination of the two, which the late, great economist and my early life mentor, Arthur Okun, coined it as the “misery index” – the polls shouldn’t even be close. Biden should be thumping Trump. That’s because “core” inflation (minus volatile food and energy components) over the past six months has been close to the Fed’s 2% target, (https://apps.bea.gov/iTable/?reqid=19&step=3&isuri=1&1921=survey&1903=84, line 25, while the unemployment rate has been below 4% for months, yielding a misery index of just 6%. That’s about as healthy as an economy can be, and certainly not where virtually all economists (including me) expected us to be a year ago. The conventional economic wisdom then was that it was going to take at least a mild recession to get wage and price inflation back down to the Fed’s 2% inflation target. Quite clearly, the conventional wisdom, based on decades of historical experience and data I should add, was WRONG.

Why then have most Americans been so upset about the economy? In my view, and I believe in others’ as well, it’s because of two related measures not captured by the misery index.  Those measures are the levels of price and mortgage interest rates.

Notice I didn’t say higher inflation, or rate of growth in prices, which for the 2021 and much of 2023, was a major problem, but is no longer the case thanks to the unwinding of pandemic-induced kinks in the supply chain and an ease in oil prices, combined with data-driven Federal Reserve policies that will go down in this history books as the Fed’s finest hour. To be sure, the Fed’s easy money policies during the pandemic contributed somewhat to the rise in inflation in the first place, but the sharp fall in inflation over the past year without a rise in unemployment makes it clear, at least to me, that pandemic supply chain difficulties clearly were the largest reasons for the inflation spike in 2021. Also, far more important than the much-maligned 2021 stimulus package urged by President Biden, but also championed by former President Trump before he (unwillingly) left office. https://www.vox.com/2020/12/23/22197037/trump-2000-stimulus-checks.

Now that those pandemic-related supply disruptions are largely over, however, price levels  for most things we buy will not return to pre-pandemic levels. That is because, apart from commodities like oil and gas, and much of our food, whose prices are traded every day, the prices for manufactured goods and services will remain high because the costs of their inputs — materials and wages — have already risen and won’t be coming down. Unless the Fed engineered a massive recession, which clearly no one should want.  

Knowing all this, and admittedly with the benefit of hindsight, one wonders why the Biden Administration didn’t at least try to tell people this simple truth at the beginning of its term, which might have influenced how people viewed the economy later on. But that’s water over the dam, and any attempt to say this now would look like a weak excuse, even for outcomes that truly were inevitable.

The second, related reason many people are upset about the economy, especially younger people wanting to buy their first home, is that mortgage rates are at 20-year highs, largely because the Fed had to hike short-term interest rates to keep supply-chain induced inflation from getting worse. Higher short-term rates pushed up longer-term mortgage interest rates. As a result, for 89% of Americans it is now cheaper to rent a two-bedroom place than buying a comparable home, up from just 16% three years ago! https://www.economist.com/united-states/2023/11/30/is-it-cheaper-to-rent-or-buy-property. No wonder so many don’t feel like the economy today is better than it was in 2020.

Mortgage rates should come down a bit this year as inflation eases, provided hostilities in the Mideast don’t spread and trigger another oil price spike, which could force both short and long rates back up. But don’t expect mortgage rates, in the best of circumstances, to return to the 3.5-4% range of the pre—pandemic years. That’s because unprecedented high peace-time full-employment federal deficits will sustain high interest rates, as the government competes with private sector borrowers for savers’ funds. This almost surely will not change if either Biden or Trump is elected in 2024, because neither supports trimming of entitlement benefits which, along with rising interest costs, are the main drivers of federal deficits, not the money required to fund the operations of the federal government (so-called domestic discretionary spending), which accounts for only about 15% of overall government spending (Biden could campaign on higher taxes for the wealthy, which Trump surely will not do, but Democrats are likely to commit most or all of the extra revenue to funding more government spending, not to reduce the deficit).

All of this leads me to assert that another bit of conventional wisdom – James Carville’s “it’s the economy stupid” that drives presidential election outcomes – may no longer pack the punch it once did, though I concede that in a very close election, the state of the economy could play some role. For one thing, most of the electorate already is so politically polarized that nothing about the economy could change their votes or likelihood of voting. As for the rest – maybe 10%, 20% tops – my intuition is that the likelihood of their voting, as well as the votes themselves, will be decided by the trends between now and election day on a number of non-economic matters. Prime examples: whether the essentially uncontrolled caravan of migrants continues to flow across the Southern border (both a human tragedy and a political nightmare for the Biden administration, which I may address in a future post); crime trends, especially the mind-numbing “normalization” of mass shootings and the wave of “smash and grab” retail store thefts whose consequences don’t compare with mass shooting deaths, but nonetheless give me, and I suspect most voters, a sense that our society is falling apart; and the outcomes of the wars overseas, in Ukraine and the Middle East, which could break either against or for the Administration, and which contribute to unease that the world is coming apart.

In short, even if the economic news were more uniformly good, I fear there is enough chaos and uncertainty in the country and the world, and that this may not materially change between now and the election, to induce enough swing voters to vote for Donald Trump to legitimately make him the next President. Even though, and now here is where I put my cards on the table (for those who don’t already know!), Trump more than anyone else in our history, is the real threat to democracy.  I know I won’t convince Trump supporters who may be reading this column of this clear fact.  I understand the anger many of you (them) have about some or all of the issues or trends I summarized in the previous paragraph and why this would keep many voters from giving Biden another term. But I confess I don’t understand why anyone concerned about chaos in the country and the world would embrace Trump as the one to do something about it, given what his own former closest aides and cabinet members have since said about him (maybe some of you haven’t seen some of the following, so I’ve listed just a sample of some of them):

Trump is “dangerous,” “unfit,” has “no moral compass.” General James Mattis, Secretary of Defense. https://www.independent.co.uk/news/world/americas/us-politics/donald-trump-jim-mattis-daniel-coats-bob-woodward-rage-book-b421202.html.

“He puts himself before country.” “He is unfit for office.” Mark Esper, Secretary of Defense. https://nypost.com/2022/11/16/former-defense-secretary-mark-esper-says-donald-trump-is-unfit-for-office/.

“The depth of his dishonesty is just astonishing … he is the most flawed person I have ever met in my life.” General John Kelly, former DHS Secretary and Chief of Staff. https://thehill.com/homenews/news/521507-john-kelly-called-trump-the-most-flawed-person-hes-ever-met-report/.

“I have been in those rooms with him when he’s met with [foreign leaders – Xi Jinping, Putin, Kjm Jong Un]. I believe those leaders think he is a laughing fool.” John Bolton, National Security Adviser. https://www.politico.com/news/2023/05/16/donald-trump-fool-world-leaders-0009710.

I nonetheless appeal to those of you who count yourselves as swing voters – especially those leaning against Biden, leaning for Trump, but not yet decided –  not only to be aware of what those once closest to Trump now think of him, but at least to read some of the articles about the clear dangers that a second Trump administration would bring. Those dangers are spelled out in chilling detail in multiple articles in the latest issue of The Atlantic, many of them authored by Republicans or conservatives, or both: https://www.theatlantic.com/press-releases/archive/2023/12/atlantics-janfeb-issue-next-trump-presidency/676227/. If you have only limited time or patience, read this by the magazine’s editor, Jeff Goldberg (who, among other things, formerly served in the Israeli Defense Force), https://www.theatlantic.com/magazine/archive/2024/01/warning-second-trump-term/676117/, and this by David Frum (one of President George W. Bush’s speechwriters and one of the nation’s leading conservative journalists): https://www.theatlantic.com/magazine/archive/2024/01/donald-trump-reelection-second-term-agenda/676119/.

So, I approach the new year with a great deal of anxiety. And regardless of your political leanings, I suspect, as I kind of implied at the outset, you do too. At my age of 73 I never thought I would be witnessing so much of what has been happening, and I wish I knew what to do about it all. The fact that I don’t, coupled with my own heavy work schedule, are the reasons I haven’t been writing these Substack columns for some months now.

But having a lot of work to do and being fortunate that most of the time I like doing it, turns out to have been a really good way, at least for me, to deal with the anxieties of living in these uncertain and dangerous times. Hard and mostly enjoyable work keeps my mind off catastrophizing. One thing I hope for all you in the coming year is that each of you has work you like, or a passion you like pursuing, that produces a similar kind of distraction.

Furthermore, now that during this holiday season I’ve finally had the chance to write this piece, I can tell you that just writing things down eases anxiety. It’s like those who have thoughts in their head in the middle of the night – whether you’re a writer or just making a “to do” list for the next day -- and briefly wake up to write them down on a notepad. The act of writing cleans your mind so that you can go back to sleep.

But alas we can’t sleep through the next election, even though it feels the country is sleepwalking toward a very dangerous outcome. Those of you who are swing voters ultimately will decide whether our country continues to be a democracy. And so I say to you, or readers who know of swing voters but have trouble talking about politics, take a few minutes to read the above linked articles. Then take comfort in the fact that in America, our votes are secret. So even though all of us face peer pressure to vote with “our tribes,” no one other than you really will ever know how you voted. Remember that in November 2024, and I hope you put our constitution and the future of our democracy first above all else when you do vote.

Finally, I do have some thoughts on a few topics that readers of this column may find interesting, and so my new year’s resolution is that I will try, at some point, to write them up, and then hope at least some of you will read the results.

Best (and I really mean that) for the new year.

PS – I received a wonderful Christmas greeting from a good friend who told me he was enjoying a book I wrote ten years ago (I can’t believe it’s been that long) called Trillion Dollar Economists. It’s about how even though economists are often not very good forecasters (I was right then, and 2023 proves it again), their insights over time have had huge positive impacts, mostly unknown or unrecognized, on business and society. I haven’t read the book over the last decade, so I was prompted by my friend’s kind note to pick it up. I was shocked, mostly because I barely remember writing most of it. But also because the book is really good, easy to read, even if you’ve never taken an economics course (or did, but have forgotten it, like my writing this book), but want an easy way to learn while also reading some good stories about some amazing people who literally have changed the world for the better. A video version of the book, sort of, is here, also nearly a decade old (but it’s no substitute for the book itself!):

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