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When It Comes to the State of the American Economy, Let’s Keep It Real


January 12, 2024

Here we go again. An oft-repeated economic claim on social media is that most Americans lack the means to cover a $400 emergency expense. More evidence that most of us in “late capitalist” America live paycheck to paycheck. Indeed, another common claim on social media is that nearly 80 percent of US workers live paycheck to paycheck. (This comes from a CareerBuilder survey finding 78 percent of workers making under $100k struggle financially.)

But Federal Reserve data paints a less-dire picture. The Fed’s annual household well-being report found 37 percent said they wouldn’t cover a $400 emergency expense in cash, while 63 percent could. Yet, paradoxically, the Fed’s own research shows 68 percent have at least $500 in liquid assets, much higher than the 63 percent in the survey. Ultimately, only 13 percent couldn’t cover a $400 expense by any means. The notion that nearly 80 percent of workers are financially insolvent is likely an overstatement. But I expect to see such negative claims persist, even from people who should know better:

Of course, if your goal is merely to spread misinformation—kind of common social media—you’re probably not too concerned about getting the facts wrong over and over and over. Such a person is also probably not too interested in info suggesting American poverty is way lower than many people think. As a group of economists write in the new study “Evaluating the Success of the War on Poverty since 1963 Using an Absolute Full-Income Poverty Measure”: “While the official poverty rate fell from 19.5% in 1963 to 10.5% in 2019, our absolute full-income poverty measure—which uses a fuller income measure and updates thresholds only for inflation—fell from 19.5% to 1.6%.” 

Or how about a recent study by Gerald Auten and David Splinter that found that income inequality has changed little over time, challenging the widespread notion that it has substantially increased. Specifically, they discovered that the top one percent of income earners received nine percent of after-tax income in 2019, only a slight increase from eight percent in 1960. Then there’s research by my AEI colleague Michael Strain that found income inequality across all households—after accounting for taxes and government transfers and estimated with a Gini coefficient—fell by more than five percent between 2007 and 2019.

The impulse to push doom and gloom is alluring, I know. So on it goes, another day, another questionable stat overstating economic troubles. As such the good work countering such presenting economic reality also continues.