Left Economy, Right Economy

Joe Dutra is feeling great about the Trump economy. The Reno-based owner of Kimmie Candy, maker of ChocoRocks and other treats, says that taxes are going down, growth is picking up, and the rising tide is lifting all boats. “The more jobs we can create, the better the economy is for everybody,” he told me. “It's a trickle-down effect: We hire people, then they’re buying gasoline and they're buying goods and getting money into local stores. As you keep hiring more people, there's more money available in the system.”

Sarah Mahler surveys the same economic landscape and sees an entirely different story. The Reno-based veterinarian said she was concerned about the country’s economic direction. “We're behind,” Mahler told me. “We're behind where we were before the recession in terms of earnings, and my state and my county are feeling a huge crunch right now in terms of affordable housing.” The continuing recovery was still not helping working families across the country, she added.

Both Mahler and Dutra are living in the same white-hot economy of deep-purple Washoe County, with its huge new Tesla gigafactory and sprawling Amazon logistics facility. Both are well-versed with national economic indicators, citing the country’s falling unemployment rate and strongish growth rate. But Mahler is the chair of her local Democratic Party, a supporter of Bernie Sanders and Hillary Clinton, whereas Dutra is a card-carrying conservative who served as a delegate for Donald Trump at the 2016 Republican convention. And the two had come to near-opposite conclusions about the direction of the economy.

Since the 2016 election, the partisan economic expectations gap—that is, the difference between Republicans’ and Democrats’ assessment of the economy’s direction—has widened to an unprecedented level, going from roughly 20 points during the presidencies of Ronald Reagan, George W. Bush, and Barack Obama to 56 points today. Democrats now expect an imminent recession, whereas Republicans anticipate a robust spell of growth to just keep going. “The gap is just huge,” Richard Curtin of the Institute for Social Research at the University of Michigan told me.

What is more, it has proven remarkably persistent. Political scientists and economists expected it to widen around the feverish time of the election and then to revert back towards its mean. “No surge in economic expectations can long be sustained without actual improvements in economic conditions,” wrote Curtin just after Trump’s election. “Presidential honeymoons represent a period in which the promise of gains holds sway over actual economic conditions.” Yet this honeymoon—or nightmare, depending on who you are talking to—has lasted, with Curtain’s data showing the gap is as large 19 months after Trump’s victory as it when he won.

Republicans and Democrats are looking at the same economy and suddenly seeing very different things—a phenomenon as strange and postmodern, as real and surreal, as fundamental and endlessly interpretable, as a sinkhole on the White House lawn. Behind it are a number of long-term economic and political trends, nuclearized by the singularly divisive figure of Donald Trump himself. And the gap stands to have powerful consequences in this midterm election year, and beyond.

The gap is so big and yawned so wide, and so suddenly, that social scientists doubt that economic conditions are the primary force behind it. Trump inherited a strong, long, diversified expansion, after all, and there is only so much any president can do to shape an economy one way or another. “It’s very hard to see how it could be grounded in real economic differences between Republicans and Democrats,” said Frances Lee of the University of Maryland, College Park. “The shift is just too great.” That said, it does seem to have its roots in real economic conditions. The issue is not just how Americans are interpreting the trajectory of economic growth, but what they are interpreting.

Take the economy in Washoe County, which contains Reno, Sparks, and part of Lake Tahoe. The jobless rate has fallen from a recession-era high of 13.9 percent to just 3.9 percent in and around Reno. “Our economy is on fire, and we're growing at an unprecedented pace,” said Mike Kazmierski, the president of the Economic Development Authority of Western Nevada. “The average wage of the jobs we are brought in so far this year are about 40 percent higher than they were two years ago.” Yet it is not all good news for Reno, he added. “The wage growth numbers are lagging,” he said. Moreover, local residents were struggling with soaring housing prices and gas prices.

Much the same is true for the United States as a whole. The unemployment rate is down, but most families’ earnings have only just started to pick up, if they are picking up at all. Rising inequality has siphoned money away from the bottom four-fifths of the income distribution, while the top one percent has accumulated robber-baron-level earnings in the post-recession years. Corporate profits are soaring, while the cost-of-living is burdening millions of middle-income and low-income families.

A sensible theory, one I heard a lot from Renoites, is that Republicans and Democrats are inhabiting different economic worlds, and thus have had understandably different reactions to Obama leaving the White House and to Trump entering it. The higher-income Americans who make up a chunk of the Republican base might be cheering for corporate-friendly tax cuts and deregulation, with Trump’s lower-income Rust Belt supporters applauding the introduction of more aggressive trade policy. Democrats’ working-class voters might be concerned about the potential clawback of health benefits, with inequality blunting their confidence in economic growth.

The Republican-Democratic divide in economic optimism, then, might reflect other divides: capital versus labor, business versus workers, high-income versus low-income. “For regular working folks, they've seen their incomes drop or be stagnant,” said Bob Fulkerson, the state director of the Reno-based Progressive Leadership Alliance of Nevada. “It’s a shame that we are so tribal that if we're Republican, we're going to think that's great; if we're Democrats, we are going to think it's horrible. But the data really shows that we’ve been giving away the store. It’s not working.”

For his part, Dutra cited the Republican president’s tax and trade policies as a source of hope for business owners—and everyone else, perhaps, if they would take their partisan goggles off. “We’ve seen some tax relief and that makes a difference to a small business owner, as we’re always struggling with cash flow and profitability,” Dutra told me. “As we look at the mentality of the government today, it's more pro-business. That makes a big difference for us.”

A second sensible theory highlights a different partisan economic divide. Over the past few decades, members of the two parties have sorted into different financial worlds—literally. Democrats have concentrated in the blue archipelago: dynamic, high-growth urban areas that tend to benefit from liberalized trade and immigration policies. Republicans at the same time have concentrated into what you might think of as the red swiss cheese: less-dynamic, lower-growth places, many of them exurban and rural. Just a handful of well-off coastal counties have “enjoyed 15 years of nearly uninterrupted growth and rapidly rising living standards,” a new report by the Economic Innovation Group, a Washington think tank, has found. “The bulk of American communities, by contrast, have seen only modest advances and still bear deep scars from the Great Recession.”

Perhaps that division caused the stark difference in economic optimism: Trump would help the places and businesses where Republicans clustered, while hurting the places where Democrats did. “When you look not just at economic data, but spatial economic data, you really do see layer after layer of information that points to these populations living in separate economies,” said Mark Muro of the Brookings Institution. He added that Republicans were more “agitated and fearful about a trade and robots and automation. Those are not metaphorical issues for them. I'm speaking up for literalism between the two worlds.”

Yet neither of those theories fits—at least, not exactly. A number of studies and polls have shown that voters tend to be able to disaggregate their personal and local economic fortunes from their assessment of the national economy. Before the last election, losing a job or losing income did not drive voters into Trump’s arms, nor did manufacturing density or changes in the local jobless rate. And though Democrats and Republicans are living in more different economies than they were three decades ago, that does not mean that one group is doing better than the other—certainly not in a way that translates into such suddenly different levels of consumer confidence. Republicans have somewhat higher incomes and lower unemployment rates than Democrats, and have for years.

Rather, social scientists think, it is that the economic picture is a Rorschach test, and partisans are reading what they want into the curves and dots of its inkblot. Republicans are now focusing in low unemployment and the sky-high stock market. Democrats are now focusing on wage stagnation and inequality. “When you have these ambiguous economic conditions, it leaves room for partisan bias and these kinds of economic rationalizations,” said John Sides, a political scientist at George Washington University. Sides noted that in the late 1990s, when the economy was unambiguously excellent, and in the late aughts, when it was unambiguously terrible, partisan gaps in economic expectations tended to collapse.

The tidal forces of inequality and stagnation are essential parts of that ambiguity, and driving forces in political polarization—even if it is not as simple as Republicans benefiting from our unequal growth pattern, and Democrats being damaged by it. Curtin argues that voters have become more obsessed with the size of the pieces of the pie and who is holding the knife as the growth of the pie has slowed down. “The prime economic issues responsible for the persistence of the partisan divide are wage stagnation and income inequality,” he wrote. “Lower and middle income households have faced stagnating or even declining market incomes. It is only natural that these households have sought the government’s help to secure greater financial support and to redress the distribution of income and wealth.”

He concluded: “It is highly improbable that either wage stagnation or income inequality in the U.S. will disappear anytime soon. As a result, consumer expectations are likely to continue to be influenced by partisan views based on distributional concerns.”

There is economic reality, and then there is how Americans are absorbing and interpreting that reality.

In his polls, Curtin has not just asked respondents about their sense of how the economy is doing and where the economy is going, but also about what kind of economic news they had been hearing. “We asked them to cite what they've heard, and what was most important to them,” he told me. “The gap is huge. It’s really tremendous,” with Democrats citing negative economic news almost exclusively, and Republicans pointing to positive news almost exclusively.

In part, the divergence sees to be due to the fact that Republicans and Democrats are hearing different things about the economy. Republicans are increasingly living around other Republicans. They are hearing news about the economy from other Republicans. They are reading stories on Twitter and Facebook promoted by other Republicans. They are tuning into cable-newscasts written for Republicans. And Democrats are doing the same on their side. Such bubbles have become filters and silos and echo chambers. “Obviously the Republicans are tuning in to Drudge and Hannity, with the Democrats vice versa,” said Shanto Iyengar, the director of the Political Communication Laboratory at Stanford University. “That’s amplifying it.” To wit, The Drudge Report has blasted out the good jobs numbers under Trump, whereas it tended to underplay them on the site during the Obama administration.

More informal news networks—those that form at the coffee shop, around the water cooler, and on social-media sites—are reinforcing those partisan understandings of the economy as well. “Word-of-mouth is probably as important, and our social networks are increasingly very homogeneous,” said Iyengar. “You know, your friends and neighbors all think like you and people like you tend to live near you.”

American voters have—and this is the most important, and most frightening, part—also become more doggedly and reflexively political, and thus worse judges of objective economic reality. The engine is polarization and the rise of tribal partisanship. Congress and party elites have moved further away from each other on a host of issues, with the rank-and-file across the country following them. As that has happened, political identity has become in many ways stronger than gender, class, and even race—with topsy-turvy effects on cognition. Voters might have become more apt to use “motivated reasoning,” seeking out and touting information that accords with their political beliefs. Academics have found even found evidence of partisanship bending reality, overriding voters’ memory and altering their sense of truth.

“The most concerning explanation for some of this data is that in addition to being filtered, that [people are] selectively remembering,” said Jay Van Bavel, a psychologist at New York University who studies politics and the brain. “This is happening in the unconscious. Memory is selectively latching onto pieces of information that fits their belief system and their party identity. They might be visually attending to different things, and listening to different things, even in the same environment.”

Studies and polls have shown that partisanship affects people’s estimates of the size of crowds, their ratings of politicians’ dogs, where their eyes flit to and where their gaze stays, their ability to answer simple math puzzles—and, yes, what they think of the economy. Whether the tax bill is working or not, whether the economy is going up or down, whether unemployment is increasing or falling: Answers to all those questions are now heavily influenced by party identification.

“There are two big factors here,” Van Bavel told me. “One is our basic biology and evolutionary heritage, which gives us the propensity to do something. The second is the current environment we're in, which is an environment that is adversarial and hyper-partisan, and is sending constant signals to us to act in this in this way.”

Since the 2016 election, some of the strongest of those signals have come from Trump himself, with the 45th president pitting in-groups against out-groups, fanning white voters’ fears about their place in the racial hierarchy, and making derogatory remarks about women. That adversarial and often offensive bluster has caused voters to become more tribal, more emotional, and more indignant.

“It was such a vicious election and the perceived threat for both Republicans and Democrats was so high—there was a sense that we are on a campaign against the literal embodiment of evil, on both sides,” said Liliana Mason, a political scientist at the University of Maryland, College Park. “No, just absolutely no. It’s completely unacceptable for the other side to be good. That was the scenario, which the culmination of this gradual process of sorting. We came to dehumanize our political outgroup.”

That Trump has cast a strong partisan glow or pallor on economic views then seems perhaps not only unsurprising, but overdetermined. Democrats and Republicans are experiencing different economic conditions, hearing different economic messages, and responding to different economic data—and are called on to look at things differently, too. To borrow from Anais Nin: We have stopped seeing things as they are, and started seeing them as we are.

There’s a good argument that the partisan gap is little more than partisan cheerleading: That voters, deep down, know that Trump is not some kind of wizard who controls the economy, and that even if he did their political tendencies would have nothing to do with the direction he wanted to take it in. In social-science surveys, respondents want to signal whose side they are on—not just what they think. “People know they are cheerleading,” Matt Levendusky, a political scientist at the University of Pennsylvania, told me. “These surveys are not a true reflection of every thought in their head.” (He noted that in surveys where participants were paid to give a correct answer, partisan skews decrease.)

Still, pollsters ask Americans such dumb-simple questions—How is the national economy doing? Where’s it headed? How are you feeling about it?—because they are predictive of consumer spending, and thus the direction of the economy. There’s a recursiveness to the questions, a richness to them. Feeling like the economy is not doing well makes people pull back on their spending, which ensures that the economy does not do well. Feeling like the economy is doing well makes people confident enough to spend, which ensures that the economy grows.

That raises the question of whether the growing partisan gap might alter Republicans’ and Democrats’ consumer behavior—transforming the president’s co-partisans into a kind of softly procyclical force and his political opponents into a softly countercyclical one. “We collect this data and publish it regularly because it does have a strong relationship with actual behavior of consumers,” Curtin said. “If you think that the data is just social attitudes, and not really what people believe, you would have to assume that they have two sets of economic data that they are working with, that they would tell surveyors one and act on the other. I think it’s rather hard to believe that would occur, and would occur so consistently over the past year and a half.”

A study by researchers at the University of Chicago looked for such partisan changes in consumer spending after the last election, and found little effect. “After Obama’s 2008 election, voters in areas that generally opposed him said they planned to purchase less, but their actual spending didn’t change,” a summary of the work found. “After Trump’s election, the researchers looked again at the opinions and consumer habits of voters, analyzing optimism and spending patterns on a countywide level. They looked at data sources including surveys and polls of individual voters, as well as county-level data reflective of sales such as new-car registrations and credit-card spending. They find little evidence of a spending bump.” But the study has relatively few data points, given how few presidential elections there are; in weaker economic conditions, with households more constrained and less inclined to spend as a general point, there might be more of an impact.

Plus, there are other studies showing that partisanship does affect economic behavior. People are willing to work for less compensation if their boss shares their party affiliation. “This suggests a compensating differential—a psychic reward—for working for co-partisans,” the study concluded. It also found that workers might put in less effort if working for a boss who shares their politics, perhaps internalizing that there might be less scrutiny if everyone is on the same political team. The same researchers also found that buyers were less interested in cut-rate Amazon gift cards or Craigslist deals if sellers subtly implied their partisan tendencies—and those tendencies were not the ones that buyers shared. And in a broad survey, “fully three-quarters of respondents are willing to forego higher personal remuneration to avoid benefitting the party they oppose.”

The yawning gap also raises raises the possibility that the economy might become less predictive of presidential elections. Changes in the unemployment rate and real personal income, among other economic variables, are important factors in election modeling, showing how much of an advantage or disadvantage the incumbent party has. “Under conditions of more partisan polarization, the relationship between the economy and election outcomes might be weaker,” Sides said. “In an election year with an ambiguous economy, I think you would expect more uncertainty about how one percentage point of GDP growth translates into a political outcome—because the partisan biases in that context would be pretty large.”

For now, though, it just exists, warping consumer sentiment and changing how the parties play to their own sides. For Democrats, inequality stings, wage growth is stagnant, and the rich are rigging the game. “Historically, getting Democrats on the same page has been like herding cats,” Mahler told me. “Now that Trump is in the White House, we’re much more in sync. It’s the blue wave phenomenon, and I know this is the most critical midterm election of my lifetime.”

For Republicans, unemployment is down, the economy is growing, and things are good. “If Trump lasts politically, it would be great, but I don’t know because he’s got so much negative stuff going on around him,” Dutra said. “He’s good for the economy and what's good for the economy is good for the American people.”