I was reading in The Week about a piece by Ruchir Sharma in the FT which asks why the US economy is flying and yet Trump's lot look set to get hammered in the midterms next month. Growth hit nearly 4% in the third quarter, which by UK standards is the stuff of fantasy, and yet the Republicans are widely expected to lose both houses of Congress. Apparently that would be the first time since the 1950s that the party in power has taken a beating when the economic numbers look this good.
Sharma treats this as a bit of a puzzle. TBH I don't think it's a puzzle at all.
Growth for who exactly?
The answer is sitting right there in the article. This is an AI boom. Wages in AI-related industries are growing at around 25%, and everywhere else by less than 1%. The investment is AI, the stock market gains are AI, and if you don't own a chunk of Nvidia or work for one of the tech giants then the boom has basically passed you by.
Sharma himself has been warning for a while that America is now standing on one leg, and that leg is AI, and if it doesn't deliver the whole thing topples over. Well, it seems most American voters have worked out that they aren't the leg.
Then the petrol bill arrives
Meanwhile ordinary Americans have got the Iran war to pay for. Petrol up around 40%, mortgage rates above 7%, and in plenty of places a giant data centre going up down the road, guzzling power and water and employing hardly anyone.
Petrol is the one price everyone sees, every week, in big numbers on a sign by the side of the road. Axios pointed out back in March that the pump is probably the most visible scoreboard for how the war is going, and that the hit lands hardest on lower-income households. Even then, a majority of Americans disapproved of how Trump was handling Iran.
And Trump's answer to all this? Put up with it, because higher prices are the cost of staying ahead of China on AI. So the deal on offer is: you pay more to fill up and more on the mortgage, and in return a handful of tech firms get to win the race and get even richer. Not much of a sales pitch is it?
A sociology lesson in four percent
This is relative deprivation 101. People don't judge their lives by GDP, they judge them against the people around them and against how things were a couple of years ago. If you're watching people at the top pocket 25% pay rises while your wages flatline and your fuel bill jumps, a headline growth figure isn't reassuring, it's insulting.
It's also a reminder that GDP is a pretty rubbish measure of how a country is actually doing. Building a data centre adds to growth. So does a war, come to think of it, at least in the short term. Neither does much for the bloke filling up his pickup in Ohio.
Final thoughts
Economists and commentators still seem genuinely surprised when voters don't thank them for a good set of numbers. They shouldn't be. A boom that hands the gains to the few and the bills to everyone else isn't much of a boom for most people, and the 'beat China' line is a pretty desperate attempt to dress that up as patriotism.
Whether the Republicans actually lose both houses remains to be seen. But if they do, the real surprise won't be the result... it'll be that anyone thought 4% growth on paper was going to save them!
