The Mind-Economy Problem
Overexplaining the Economy's Vibes-Metrics Divergence and its Political Import
Political mandarins and economic soothsayers have been publicly exchanging bewilderment lately about something termed the “Vibecession.” In short, people are gloomy about the economy despite a lengthy parade of favorable macroeconomic statistics testifying that it’s uncommonly fit, including a breakneck 5.2% annualized GDP growth rate in the third quarter. Workers have benefited, too: the unemployment rate is crazy low, real wages have risen, and wealth has escalated across all incomes. I recommend that any nonbelievers out there read
for an informative rundown of this purported enigma (including the pretty data). Still, despite the inflow of positive tidings, economic sentiment has been unable to escape its tailspin.This divide between sentiment and data is uniquely American, and the upcoming presidential election has infused the situation with unusual gravity. Seduced by this armory of commendable readouts, Biden’s campaign team has even been trying to rebrand his presidential tenure as showcasing macroeconomic acumen rather than revealing a pricey ineptitude that anti-Trumpers have to grin and bear. And they’ve been touting this entire perplexing rollercoaster as “Bidenomics.” Again, once you crack open the war chest and review their many economic trophies, this madness is somewhat demystified, but a succession of garrulous speeches about statistical evidence for some hard-won economic amelioration doesn’t exactly seem like a gangbusters political strategy.
Inflation
One explanation for this Vibecession is the curse of knowledge: it’s easy for experts to overestimate what others know about their field. This is true for macroeconomics generally—ordinary folks aren’t regularly scouring unemployment prints and Fed minutes—but it’s especially true for inflation. The discrepancy between expert and layperson opinions about inflation must be among the most dramatic such asymmetries out there (free will is another, and I’ll be writing about that soon).
Many non-economists view inflation as exquisitely deleterious and would probably include that among their most confident economic beliefs. People partly despise inflation because they mistakenly fail to account for their wages increasing. Apparently, workers view pay raises as deserved upward recalibrations of their value as employees, while all the other rising prices are merely inflationary; and, even if their wages have increased, they could be doubtful about their employer continuing to raise them. Thus, they think climbing prices eat away at their rightful earnings. The US public might even be abnormally inflation-averse given that they hadn’t endured a significant unexpected inflation spike in 40 years. For many, this is spooky and unsettling stuff: they’ve never grappled with the tricky logic of monetary phenomena. Others probably associate inflation with myriad late-70s economic ailments (people disliked the vibes back then, too; they just called it malaise). To many economists, however, moderate and predictable inflation is useful and even salubrious (deflationary conditions, on the other hand, are usually terrifying). Some would venture further: when inflation failed to materialize after the Great Recession,
labeled it a policy failure and claimed that inflation was grossly underappreciated.Just shrugging this off as laypersons being too inflation-phobic is facile, though. People aren’t just swallowing higher prices; they’re also buying more. As
has pointed out, consumption expenditures have outpaced inflation, and personal savings rates are ultra-low. This typically indicates that consumers have an upbeat economic outlook; they aren’t worried about preparing for a downturn. Silver and others have demurred, arguing that people could dislike their newfound spending habits. To explain this, Silver hypothesized that companies like McDonalds have recently leveraged, inter alia, some behavioral econ tactics to nudge people into spending more; i.e., consumers aren’t opting to spend more—they’re struggling to avoid spending more.I also suspect that people are unhappy with their own prodigality, but while Silver’s argument is inventive and plausible, I think he misses something. Inflationary calculations include price increases across a spectrum of goods; some prices increase more than others. Consequently, analysts have been overthinking how much prices have increased in general and aren’t sufficiently scrutinizing which things have become so pricey. The psychological impact of inflation will likely vary depending on this. People have ideas about which stuff in society ought to be cheap: McDonalds isn’t supposed to be expensive. Moreover, some items are difficult to substitute away from or forgo purchasing. So, even if the overall basket hasn’t gotten too pricey, you could still be navigating an economy where hard-to-avoid goods (maybe rent, eggs, or used cars) have become luxuries, plus you’re suddenly needing to weigh whether you can even afford dinner at the cheapest restaurants. Additionally, dissimilar groups have dissimilar purchasing habits: the poor and the rich buy different things, young and old people buy different things, etc. Younger and poorer people might rely more on goods that increased the most; this could generate misleading inflationary analyses and also just make modern life seem even less doable.
This inflation-phobia dovetails with another possibility worth mentioning: economic sentiment could be an especially laggy indicator right now. It’s easy to imagine that people are unusually circumspect about positive economic tidings and slow to update their outlook because the macro environment has been so unfamiliar. They could still have their guard up—either that spooky trends like shortages and inflation will resurface or that taming those strange beasts has signed us up for immense unpleasantness moving forward. Experts and policymakers repeatedly warned the public about impending turbulence. Many insisted we boost unemployment or that a recession was unavoidable, and now we’re surprised about public skittishness in re the economy? I think that’s underselling how pervasive and unremitting that fearmongering was: until lately, the Fed has basically been handing survival blankets out and telling everyone to brace for impact. Fed Chair Powell even recently said that “uncertainty about the outlook for the economy is unusually elevated.”
What’s the Economy, Stupid?
I don’t think it’s over-philosophizing the matter to also pursue the idea that experts and laypeople possess conflicting operational definitions of “the economy.” The handwringing about the Vibescession implies a kind of Berkeleyan idealism: it’s as if experts doubt there’s really anything underneath the metrics—like the economy isn’t much more than a collection of stuff like unemployment figures and interest rates. These economists analyze the situation from a top-down vantage point, surveying board data that captures averages and patterns and then inferring how participants in that economy ought to feel about it. For them, vibes are ineffable and illusory, and they regard normies claiming the economy is worse than the metrics as equally nonsensical to the old aphorism about how Wagner’s music is really better than it sounds.
When folks who aren’t equipped with that impersonal, top-down perspective are queried about their sentiments, they’ll probably try to work outward and generalize from a ground-level, subjective view of things, and they may include facets of their life and outlook that get lost in contemporaneous macro data. Common economic measurables won’t accurately relay long-term fears about LLMs displacing legions of office workers or curbing future income gains; they mostly disregard eye-watering federal debt that upcoming generations will need to wrestle with, and they ignore how entitlement programs are tracking towards oblivion. They won’t capture defeatist ennui about student loan payments restarting or the hopelessness inspired by lofty housing prices that refused to budge downward even with soaring mortgage rates, and they don’t reflect nervousness about future resource demands from geopolitical crises or climate turmoil. Moreover, for workers, mundane stuff like potential employers constantly ghosting candidates could strongly inform their economic opinions; these frustrations wouldn’t register too much for economists, but something like the cultural norms of job hunting are visceral and significant economic componentry. In sum, the possible origins of these negative vibes are basically endless, and all these ineffable vibes might really be the most concrete aspects of the economy.
Beyond disagreement about what the economy is, experts and laypeople might also disagree about when the economy is. Their temporal framing is probably different: economists persistently refresh their viewpoint based on inflows of new info, and their responses are probably closer to snapshots of the present, without too much forecasting or old data. Laypeople are, I hypothesize, more like the god Janus, who overlooked the gates of Rome, one face looking towards the past, another looking towards the future, and update their views less frequently and incorporate broader timescales. Younger people specifically might be estimating career trajectories far away based on present opportunities and frustrations.
Ultimately, I do think that the American public’s undereducation and anti-inflationary bias explains most of this Vibecession effect, but explanations abound. The illusion of a mystery has been fomented by everyone suggesting pet theories, and then people confusing a multivariate explanation or a lack of consensus among the commentariat for helpless perplexity. If anything, the Vibescession is overexplained, it’s only the apportionment of the plethora of explanations that’s debatable.
Political Ramifications
In many ways, the whole ordeal feels very 90s, when a minor recession facilitated the George H.W. Bush ouster. Back then, economics actuated politics, and Clinton’s success was partly fueled by the campaign mantra “It’s the economy, stupid.” Some wonder if the shifter got knocked into reverse, and political allegiances are now dictating economic opinion. Well, a good deal of perception about the economy is governed by partisan filters these days, but only 24% of Democrats say they’re better off financially under Biden. For the paranoid Dems out there thinking Biden is getting some raw deal, the good news is that politically motivated economic perceptions shouldn’t be very costly, because they’ll merely reaffirm presuppositions. In short, you can’t have it both ways: if people are interpreting the economy a certain way because of politics, then why should they be defecting rightward? The real danger for Biden is that the misperceptions and undue wariness are apolitical and that a Republican overseeing transitory inflation and a soft landing would face similar blowback.
and have discussed the tribulations of trying to warn that Bush campaign about economic dissatisfaction and wrong-track numbers over a cacophony of yesmen. The Biden camp can’t afford similar smugness; they could likely pin weekly real wage figures to his fucking jacket and it’s unclear whether the messaging would land, let alone whether it would land well. The US has been slouching towards populism for decades, so while it’s probably okay for Biden emissaries to protest all the doomsaying (so long as it’s couched empathetically), too much braggadocio about economic successes can easily be misread as denialism about economic struggles.During that 1992 presidential campaign, someone at a debate asked about how increasing federal debt had personally affected the nominees: Bush’s answer was fumbling and somewhat defensive, whereas Clinton mostly eschewed the question and focused on empathizing with people’s financial struggles. Now, maybe Donald Trump doesn’t wield the chumminess or sangfroid required to keep pace with this Clintonian highwater mark, and Joe Biden isn’t the effete, bespectacled nabob that Bush was, but if a swarm of leftist eggheads refuses to disarm and Biden starts rodomontading about econometrics or proudly leafing through graphs in Rose Garden—implying that if people are struggling it’s their own damn fault—well, just remember to put your own oxygen mask on before assisting others.