Current issues related to economy, (responsible) investing, pensions and income: every week, an APG expert gives a clear answer to the question of the week. This time: head economist Thijs Knaap on the question of whether the Netherlands is in a silent depression. His answer: “Exactly the opposite is true.”
All is doom and gloom in America; the country is in economic decline. At least, if you go by what the young people are saying on TikTok. Life “today” is compared to how it was in the 1930s. Back then, America was in a prolonged economic crisis during which many banks failed, people lost their homes and the stock market plummeted. Things are threatening to go that way now, too. Just about everything has deteriorated, according to young people: income, fuel prices, groceries, cars, homes. Online, there is even talk of a silent depression. Are they actually right? And what about in the Netherlands?
Lowest level ever
How are the Americans feeling? Knaap turns to the University of Michigan’s Consumer Sentiment Index. “Everything points to decline,” the APG chief economist instantly concludes. The index, which has been in use since the 1970s, assesses how consumers as a collective think about the economy at a given time. “The index was at its lowest level ever last June. That does indicate that something is going on, and that sentiment among Americans is very negative. Side note: Republicans are much less satisfied than Democrats. That has everything to do with the sitting president, Joe Biden. He is a Democrat, but I’m also seeing that Democrats are a lot less satisfied now than they were under the previous Democratic president, Obama.”
But does that mean that America is in a depression? “No,” Knaap says firmly. “In a depression, the economy is stagnant, unemployment is high and there is a lot of poverty. And that is not the case now. Roughly one in four Americans was unemployed in the 1930s; currently it's four out of a hundred. And yes, prices have gone up, but so have incomes.” He also points to poverty rates. “38 million Americans fall below the poverty line. That’s a lot, but proportionally half as many as in the 1950s, when they started using this index.”
So, why are the Americans so worried? Knaap thinks they are overestimating the situation. “People overestimate how bad things are now. They look at movies and series from earlier times, and see happy families living in big houses and driving beautiful Chevrolets. But that’s only half the truth. Rural poverty is hardly visible, if at all, in those movies and series, but there certainly was a lot of poverty in the country back then.”
Another possibility, Knaap thinks, is that today’s figures paint too rosy a picture. “But I don't really think so. This index was accurate then and still is now.” So, is it about inflation? “That could well be a reason for the somber mood. After all, we are not really used to inflation anymore in the Western world. Plus, the rising cost of housing is making young people insecure and makes them feel bad.”