Chapter 1: Why do Americans feel uneasy about the economy despite positive numbers?
A lot of the economic numbers look really good, so why do many Americans feel so bad about the economy? Plus, another terrible crime story out of Charlotte, North Carolina, and the Somali-American fraud scandal continues to percolate. First, this is it, the last day to get 50% off your new annual Daily Wire Plus membership. Let me repeat that, 50% off Daily Wire Plus annual memberships.
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Well, folks, it feels as though there is a gigantic disconnect between how the stock market is actually doing, how the economy is actually doing, and people's feelings about the economy. If you look at the statistics right now, the overall inflation rate in the United States is around 3%.
That's 50% higher than the Fed's target rate, but it is, in fact, a sort of moderate inflation rate for American history. It's higher than it has been for the course of the last couple of decades when we had unusually low inflation rates, but it is not. 8, 10%. If you look at the overall unemployment rate in the United States, it is currently 4.4%. That is a historically low rate.
If you look at the average across the last 50 years of American history, what you see is that the average unemployment rate in the United States is closer to 6%. And of course, if you looked this morning at the opening of the Dow Jones Industrial Average, the Dow Jones opened Nearly 48,000, which of course is historically high, very high. And in fact, the Dow Jones is up year on year about 8%.
Okay, so these are big booming numbers. These are good numbers for the economy just overall. And there's reason to believe that the stock market is actually going to increase from here, even if...
People like me say that there is a bubble and that that bubble will inevitably burst because whenever you have a major new technology like, say, AI, there's an enormous amount of spending that goes into that new tech, big build-out, more investment, many companies. And then... The expectations are not met by reality.
There's a bit of a bust, but the best companies survive and end up transforming the economy. That's the story with the automobile industry. That's the story with the internet. It's the story, I think, also with AI. Even with that said, we may be in for a ride before that bubble bursts at all.
As the Wall Street Journal points out, there are many factors that are currently leading to wild bull market optimism on Wall Street. According to the Wall Street Journal, there are five factors that suggest that Then investors are feeling pretty good about the stock market. One, stock valuations could be worse.
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Chapter 2: What factors contribute to the disconnect between economic performance and public perception?
Stocks currently look very expensive, like price-to-earnings ratios, which is what I talk about. The price-to-earnings ratios right now are totally out of whack for companies like, for example, Tesla. Tesla's earnings on an annualized basis represent a tiny fraction of its actual stock valuation. But... The stock valuation of Tesla is not based on how many cars it's selling.
It's based on its AI play. It's based on a robotics play. It's based on a wide variety of experimental plays people figure are going to pay off in the long run. And so looking at their car sales is not a good proxy, says Tesla, for what the company is actually worth.
Many Wall Street analysts think that the best way to value stocks is to compare their earnings yield, that's their earnings to price ratio expressed as a percentage, with yields on ultra-safe government bonds.
One popular version of that metric, known as the excess CAPE yield, uses S&P 500 companies' average earnings from the past 10 years and adjusts both those earnings and the 10-year treasury yield for inflation. As of November, it stood at 1.7%. That is low by historical standards, suggesting the high prices of stock have shrunk the reward for owning them over bonds, but it's not unprecedented.
It's actually up from 1.2% in January. Economic growth is also supporting earnings because while there is concern right now about job growth and while there is concern about layoffs at some major retail companies. The reality is that many people believe that job growth has slowed largely because of the sharply reduced illegal immigration happening in the United States.
And holiday spending has been pretty strong.
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Chapter 3: How is inflation affecting American households today?
Weekly unemployment claims have remained pretty low as well. Now, again, we're still missing some statistics from the Bureau of Labor Statistics, but... It shows that things remain relatively robust. It is not, by the way, just about the big tech stocks. Now, I've said before that the vast majority of gains accreting on Wall Street are happening at the top end of the market.
And statistically, that's true. But that doesn't mean everybody else is doing poorly. The Russell 2000 index of smaller company stocks reached a record high last week.
The S&P 500 equal weight index, which gives the same influence to each company regardless of size, is also near a record, providing a hope that the tech-censored sell-off would not be disastrous, that even if the MAG-7 take a hit, that the rest of the stock market won't collapse.
Inflation expectations are also anchored, meaning that nobody believes that the inflation rate is going to go down to zero at any point. but the Fed is looking at cutting interest rates anyway. And prospects for longer run economic growth have actually improved. Negative yields on 10-year TIPS showed investors expect rates to stay at rock bottom levels for the foreseeable future.
Chapter 4: What role does unemployment play in the current economic landscape?
Yields have stabilized at pre-crisis levels. So, says Thanos Bardas, senior portfolio manager, co-head of investment grade at Neuberger Berman, for a lot of investors, you have higher confidence to invest in general, whether it's equities or fixed income, when real yields are positive. It looks like the economy is operating at potential or above potential.
So, in other words, things look like they should be pretty good. And it does look as though there is now a solid move in the CalSheet markets. They're one of our sponsors. There's a move in the prediction markets. not just in favor of a federal decision to cut rates by 25 basis points come December, but a massive move.
If you recall, in November, for a little while, it looked as though the markets had moved in favor of the Federal Reserve maintaining its rates, that it would not, in fact, cut those interest rates, that there were worries about inflation, there were worries about affordability. And so the kind of going logic was that the Federal Reserve would keep rates steady.
Well, for some reason, since then, there's been a gigantic spike in investment in that prediction market in favor of the cut.
So either somebody's trading on inside information, which wouldn't be totally crazy, or it is quite possible that the Federal Reserve is looking at the kind of slowing employment numbers and the relatively mediocre inflation rate and saying that they are more worried about an unemployment increase than they are about an inflation increase. So, let's get started.
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Chapter 5: How does President Trump's messaging address economic concerns?
And what he says is jobs have gotten a little weaker. Wages have gotten a little weaker. And when you talk to businesses, they're going to be a little bit more cautious hiring. That's not because of AI. That's just because they want to do more with less. I don't think AI is going to dramatically reduce jobs, unbelievably, next year. Now, next year, of course, is not the entire concern.
There could be long-term job loss from AI in particular industries. But there is, in fact, a gigantic disconnect between how people are feeling about the economy, particularly young people, and what the economy is actually doing right now. And so we have to try and understand why that's happening.
According to a brand new poll from Harvard Kennedy School Institute of Politics, more than 40% of 18 to 29 year olds surveyed last month said they are struggling or just getting by. One quarter believe they'll be worse off financially than their parents. Now, again, to be fair, A lot of people struggle when they're 18 to 29 years old.
Now, I was a Harvard Law School graduate and I remember essentially living paycheck to paycheck with my wife for at least several years early on in our marriage. I remember there was a point where we were thinking of taking out a second credit card in order to pay off the first credit card. We were, I think, down to $2,000 in our savings at one point.
So it's kind of normal to struggle when you're 24, 25, 26 years old. The question is the directionality. Do you feel like you're going to get out of it? Well, it's not just that young people feel like they are struggling. They are concerned about what comes next. So there's widespread concern over inflation.
That includes 37% of all Americans, of all young Americans believe that inflation is their top issue. That includes 36% of Democrats, 48% of Republicans, and 34% of independents. Other concerns include healthcare, housing, jobs, taxes, and wages.
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Chapter 6: What are the implications of crime stories for political narratives?
What's fascinating is that, again, when people feel unsettled, it is not as though they come down squarely in one ideological camp. They actually start just losing faith in pretty much all ideological labels. One of the most interesting results from this Harvard Harris poll was a question about support for ideological categories in economics.
And what the poll showed is that in 2018, 43% of young people said that they supported capitalism. That went up to 45% in 2020. And today it is 39%. So it's down fairly significantly. Democratic socialism, however, is down dramatically. So these sort of Bernie Sanders, wild redistributionism schemes, 39% said they supported that in 2018, 40% in 2020, only 29% today.
So capitalism, according to this Harvard Kennedy School Institute of Politics poll, according to that poll, young people still favor capitalism over democratic socialism by 10 percentage points. As for socialism proper, like the nationalization of resources, Only 21% of young people say they support that ideological category, which again is really, really interesting.
In other words, they don't know where to turn. The one thing that it seems like they want is quote unquote strong leadership. When people don't know where to turn and they want strong leadership, that is not necessarily a wonderful thing. Now, as far as right track, wrong track,
When you look at this youth poll, what it shows is that a huge number of people believe that the nation is headed into the wrong track. Four percent of Democrats, of course, say the nation is headed in the right track. They're very upset with President Trump. Thirty three percent of Republicans say that the nation is headed on the right track. Twenty seven percent wrong track.
Thirty nine percent unsure. So those aren't stellar numbers even among Republicans. More than half of Hispanic and black respondents report financial hardship compared with 39% of white peers. Financial insecurity is sharply higher among non-degree holders, 53%, than among college students, 28%, and graduates, 32%. And again, economic pressure is the defining force in young people's lives.
There's nothing atypical about that. That, of course, is true. And so that requires us to ask if, in fact, young people do have it historically bad. Now, by some measures, they do. In terms of the percentage of income they are spending on housing, that is way higher than it was, say, 40 years ago for their parents in 1980.
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Chapter 7: How is immigration policy impacting local communities?
1980, percentage of income spent on housing was lower than it is today. And we can get into that in a moment. But to pretend that unemployment rates are just gigantic among young people, particularly college graduates, would be to ignore the actual statistics.
The unemployment rate for new law school graduates, for example, like the more educated you are, the better chance that you're about to get a pretty good paying job.
That seems to be the pattern that has resulted in some pretty terrible college policy in which we seem to believe that if we artificially inflate the number of people who go to college, then we will also artificially inflate their career prospects, which of course is really, really silly.
It turns out that when you look at the bell curve of earnings, that bell curve remains, even if you take the entire bell curve and shift it up by two years in terms of years of education obtained. By the statistics, the unemployment rate for new law graduates is somewhere between four and a half and 5%. For overall engineering graduates, that'd be like electrical, petroleum, mechanical.
The overall employment rate is 0.9 to 2.3%, which is really, really low. It's basically a 0% unemployment rate. So those would be a lot of the jobs that are currently being ignored in favor of liberal arts majors, which again is one of the reasons why the government should not subsidize majors that are unlikely to earn out.
Computer science and computer engineering, that may be one area where AI is cutting in because AI is designed by engineers to replace engineers in many ways. For medicine, there's 100% employment rate. So there's certainly areas of the American economy where you can get a job.
Again, the unemployment rate today remains steady at 4.4%, and there's still well over 7 million unfilled jobs in the United States. So one thing that is worth noting about the way that people perceive the lifestyle in America is largely location-dependent.
This is something that I've pointed out before and I've gotten a lot of flack for it, but living in Austin, Texas is not the same thing as living in New York. That is just really true. It is basically true. And if you're looking, for example...
at the price of housing and the elevated price of housing, it's very difficult to average the elevated price of housing between areas of the country that are more suburban or rural and big cities. Big cities universally have gone way up because more Americans have moved to those cities and fewer Americans are moving away when the opportunity does not present itself.
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Chapter 8: What potential changes are being discussed regarding Homeland Security leadership?
Well, the high demand is part of that equation. And it is true that the myth that young people have been sold, that they never need to move at any point, especially when they are young, before they have kids, when they are first getting out in the world, that's had a real impact in terms of public policy and in terms of pricing.
And all these factors have to be taken into account when we determine why things are unaffordable. Because the question is why things are unaffordable, not whether it is moral for things to be unaffordable or not unaffordable. Why are things unaffordable?
Well, one reason is because, according to our sponsors at Comet, a project of perplexity, I asked, are 21-year-olds moving less today in the United States than they did in 1980? And is that creating upward pressure on housing prices and downward pressure on wages in major cities? And the answer is yes. Residential mobility among young adults has fallen substantially since 1980.
And this reduced movement is one factor among several that can raise housing costs in thriving cities. But its effect on wages is more complex and not uniformly downward. Data from the Current Population Survey and related research shows a broad, long-run decline in U.S. residential mobility since the 1980s. In the 1980s, about 20% of Americans moved every year.
By 2018-2019, only about 10% did, with especially steep drops among young adults and in short distance moves. So what is the effect on housing prices? Lower mobility can reduce the flow of people from high cost, opportunity rich metros to cheaper areas, keeping demand high in superstar cities, while supply is constrained by zoning and other limits, which tends to push up prices and rents.
One of the things that happens in overcrowded cities is nimbyism. People don't want a gigantic apartment building going up right next door to them in major cities. Sometimes they don't want a gigantic block. that is filled with cheaper housing going up right next to where they live, may lower their real estate values. And so they vote to stop all of that. And these are political reality.
Now you can try to ban those sorts of regulations and stop those sorts of regulations and that would be good. But is that going to solve the problem? Obviously it's not, which is why you've seen mass population movement from North to South. It's why you've seen in-migration to popular regions like the Sunbelt, according to Comet.
Now, again, standard economic theory predicts that more workers moving into a city should put downward pressure on wages there unless local productivity or demand rises enough to offset the larger labor supply. So this is the other problem.
If you have a lot of people who are in a city and you have more people moving to that city, that is creating more demand for housing and it is going to mean less available supply of jobs, right? Because you have more people who are seeking the same job that creates competition for the jobs, which means that the wages tend to be lowered.
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