Art Laffer, an economist known for his work during the Reagan administration, asserts that Americans have valid reasons to be pessimistic about the current state of the economy.
Despite a seemingly strong 2023, where inflation cooled and the US avoided a recession, Laffer points out critical areas of concern that resonate deeply with Americans.
Firstly, Laffer highlights the focus on employment quality rather than mere unemployment rates. He notes that the total job market remains unsatisfactory for many, emphasizing the gap between statistical employment figures and the actual job landscape experienced by Americans.
Secondly, Laffer addresses the disconnect between inflation rates and the real impact of prices on individuals. He acknowledges that while inflation may have slowed, the high cost of living continues to burden Americans, with prices remaining elevated, directly affecting their day-to-day lives.
Lastly, Laffer discusses the issue of GDP growth, acknowledging the recent 5% increase but underscoring its inadequacy compared to the economic growth trajectory following President Trump's term. This gap in GDP growth, he argues, is a critical indicator of the economy's underperformance.
Despite these challenges, the US economy did see some positive indicators last year. The unemployment rate stabilized below 4%, and the Federal Reserve's aggressive interest rate hikes played a role in tempering inflation from its peak. Additionally, the economy experienced its fastest growth in two years during the third quarter, with a 4.9% increase in GDP.
However, the White House's efforts to promote "Bidenomics" – aimed at job creation, reducing inflation, and stimulating growth – have yet to resonate with the public sentiment. Surveys, such as a November Gallup poll, reveal that 50% of Americans perceive the economy as "poor," and only a marginal 2% view it as being in excellent health.
This dissatisfaction is further compounded by the lingering high costs of essentials like gas and food. Moreover, a Bankrate survey indicates that around 60% of workers feel their wages have not kept pace with inflation over the past year.
As a member of Reagan's Economic Policy Board and the architect of the Laffer curve, which demonstrates the relationship between tax rates and government tax revenue, Laffer's insights are particularly relevant for wealth advisors and RIAs. His analysis provides a nuanced understanding of the current economic climate, crucial for advising clients in these uncertain economic times.
