A Win for the Vibecession Story

Guess what? Popular economic narratives aren’t reliable

Still experimenting with this newsletter. My original plan was to write most weekdays and take weekends off. But there’s so much to write about! So I will sometimes put up relatively brief (?) posts Saturday or Sunday when something in the news doesn’t want to wait. And here’s one of them.

There are multiple reasons chaos monkeys are in the process of taking over our government, but one of the most important is that despite an economic record envied by much of the world, many Americans believed that we had a bad economy. The past tense there is deliberate; more shortly.

An aside: There are economists out there arguing that inflation wasn’t really transitory, even though the Fed’s preferred measure fell from 7 percent in 2022 to 2.4 percent now without the recession and mass unemployment some had insisted were necessary, because it’s not all the way back to the (arbitrary) target rate of 2 percent. For God’s sake.

Anyway, there has been a running debate over why Americans were giving the economy negative reviews. One side argued that it was about perception rather than reality — that we were in a “vibecession,” Kyla Scanlon’s brilliant coinage. After all, wages for most workers have significantly outpaced inflation since the eve of the pandemic:

The other view was that the data were missing important ways in which Americans’ economic position had worsened. For example, interest rates, say on car loans, aren’t included in the CPI.

And of course there are many families in America struggling to make ends meet. But that has always been true. I mean, almost 22 million workers were laid off in 2019, which most people remember as a good year, and not all of them landed on their feet.

The vibes guys, a group that included yours truly, pointed to a lot of evidence suggesting that while Americans had a negative view of the national economy, they had a much more positive view of their own financial situation, while rating their local economy, which they could some extent observe directly, much more positively than that of the nation as a whole. You could see this, for example, in the Federal Reserve’s survey of the Economic Well-Being of U.S. Households:

You could see it even more clearly in a Wall Street Journal survey reported by Greg Ip:

You could summarize public opinion as being “I’m doing OK, people I know or see around me are doing OK, but I hear that really bad things are happening somewhere out there.”

One sticking point for the vibes story, however, has been that while people have generally told pollsters that they’re doing OK, many surveys — notably the venerable Michigan Consumer Survey — have shown at least a plurality of Americans saying that they’re worse off than they were five years ago.

Now, I’ve always had my suspicions about these results. Are people answering this question reliable narrators? Obviously people who have gotten either much richer or much poorer over the past five years know it. But if you don’t fall into those categories, do you really know without looking it up how much money you made in 2019? You know that prices have risen, but have you kept a diary that lets you compare that price increase with the wage increase you’ve also probably experienced?

So I was curious to see what the first post-election Michigan survey would say. We know that there are strong partisan effects on overall consumer sentiment; supporters of both parties feel better about the economy when their party is in power, but Republicans swing much more strongly than Democrats.

Does the same effect apply to people’s assessment of their own financial condition?

Oh yes it does. The economy now isn’t significantly different from what it was just before the election; economic conditions were fairly stable in late 2019. Yet suddenly a plurality of respondents to the Michigan survey say that they’re better off than they were five years ago:

I guess it’s the economic vibes, stupid.

MUSICAL CODA