By David Wallace-Wells New York Times December 10th 2023
“Why is everyone so grumpy?” my colleagues Peter Coy and Binyamin Appelbaum asked last month, broaching the subject that has preoccupied confused economists and anxious Democrats.
American G.D.P. is booming, unemployment is near historic lows and inflation increasingly appears to be under control, such that even notorious inflation scolds have declared that a once improbable economic “soft landing” is imminent. But if every conventional top-line measure of the health of the economy is strong, why are so many Americans so despondent about the state of the country and its future, with poll after poll showing deep dissatisfaction with the state of the economy?
The outsize effect of inflation has been the most commonly offered hypothesis in debates over the “vibe-cession”: While the inflation rate has slowed considerably, prices are stable only at much higher levels than even three years ago. Other theories: that partisanship is clouding our judgment, that the media is shoving too much bad news down our throats and that the grimmest takes invariably take over TikTok. There are other propositions, too, each weedsier than the next: that wage gains powered by pandemic relief were reversed when that stimulus was withdrawn, that rent and the cost of homeownership are driving generational despair and so on.
But in fishing for causes, an obvious contributor is often overlooked: the pandemic itself. It not only killed more than a million Americans but also threw much of daily life and economic activity and public confidence into profound disarray for several years, scarring a lot of people and their perceptions of the country, its capacities and its future.
When Americans are asked whether the country is on the right track, or whether they themselves are optimistic or pessimistic, they don’t treat the query like a trivia quiz about the last quarter’s G.D.P. growth or the Black unemployment rate or even the size of their own paychecks or stock portfolios. They are effectively responding to the therapist’s query: How are things? They answered that question according to one set of patterns, stretching back decades. And the pattern did not begin to shift only when inflation peaked in late spring 2022, or when pandemic relief was relaxed in fall 2021, or when supply-chain issues first arose earlier that year. They began answering differently in 2020, as the scale and duration of the pandemic came into view.
For decades, surveys about the economy were such an accurate gauge of economic fundamentals that, practically speaking, there was little need to distinguish between the two.
That all changed in early 2020, when a significant gap opened between economic conditions and public perception. Perhaps the most vivid illustration of this gap comes from The Economist, which trained a computer model to use fundamental economic indicators to estimate consumer sentiment. Using those indicators, the model was able to quite closely predict public sentiment, showing a very close correlation between economic fundamentals and public perceptions that stretched back at least to 1980.
Then, in early 2020, the correlation evaporated in the United States. At first, the fundamentals tanked while Americans maintained a rosier view of things, but this relative optimism was pretty short-lived. By the fall, the gap had opened up in the opposite direction, with Americans more pessimistic about the economy than the “fundamentals” model predicted. By the spring of 2021, the gap was about 20 points. By the end of the year, which was both the deadliest in the pandemic and when inflation first arrived, public confidence was 30 points lower than the model suggested. By June 2022, when inflation peaked just after the cessation of the Omicron wave, the gap was about 35 points.
A similar analysis by The Financial Times shows the same pattern: An expectations gap in the United States opened up in 2020, grew in 2021 and held steady through 2022. Other ways of charting the divergence tell slightly different versions of the story: Data from the Conference Board show steep falls in confidence in 2020, followed by messier data since. Last month my colleague Paul Krugman published his own analysis, using a different model built on the University of Michigan data, which more clearly showed the effect of inflation in 2022 but also showed larger gaps at earlier points in recent economic history — and made the current divergence, which measures at about 15 points, seem less anomalous as a result. In fact, the most striking feature of his chart may be the step-change downward in 2020, for both “observed” and “expected” sentiment. The current gap appears no bigger than the negative gap that prevailed in 2009 and 2010 and not much bigger than the positive one that held through the Trump “boom,” when partisanship probably helped contribute to public confidence 10 points higher than the fundamentals suggested.
If all of these analyses suggest that the gap between fundamentals and mood represents a negative vibe, it is probably worth considering, alongside the economic factors, the way that vibes of widespread social dislocation, illness and death have contributed, as well. But it is remarkablehow invisible the pandemic has been in recent debates about American gloom, with only a few economists even considering the role that recent mass death and social disorder may be playing in our moods. America’s worst year for Covid deaths ended just 23 months ago.
There were secondary effects: mass unemployment, G.D.P. contraction and a stock-market collapse, a rapidly expanded social safety net. But each was reversed fairly quickly, leaving behind a discombobulated economy that nevertheless looks, at first glance, pretty healthy. These days, both consumers and businesses are acting as if the economy is booming, spending and investing and mostly reporting good news about their own finances. But when asked to assess the broader state of the world, they invariably get bleak. “The pandemic shattered a lot of illusions of control,” the University of Michigan’s Betsey Stevenson recently told The Times. “In terms of sentiment,” the former Federal Reserve economist Claudia Sahm wrote this fall, “the pandemic caused a sudden increase in pessimism that hasn’t gone away.”
Covid-19 isn’t a total explanation, of course. People do worry about price levels, not just the rate of change, and for much of the past two years, inflation outpaced wage growth. Much of the gains Americans got from pandemic stimulus policies disappeared in 2022, when they were rolled back, driving child poverty back up and leaving millions more disenrolled from Medicaid. Partisanship skews perceptions, and perhaps the media does, too, including by underplaying the way that a Trump presidency would make inflation worse. (Though none of those phenomena were new in 2020 or 2021.)
But let’s not forget that the backdrop for all of this economic dislocation was the pandemic itself — a tough and disorienting few years for almost everyone, whether you spent them anxious about infection or outraged about mitigation overreach or somewhere in between. According to the General Social Survey, the share of Americans describing themselves as “very happy” fell about 40 percent between 2018 and 2021 and has only halfway recovered since. The share of Americans who described themselves as “not too happy” roughly doubled early in the pandemic and has barely declined since.
That alone is a big hole to climb out of, emotionally and politically, and as Jerusalem Demsas noted recently in The Atlantic, it takes a little time for perceptions to catch up with reality. Would it have been reasonable, in 2010 or 2012, to ask about public confidence in the economy or the shape of the future without emphasizing the financial crisis in the rearview mirror? In 1992, 15 months after the end of what was in retrospect a mild U.S. recession and in a much calmer time for partisanship and news polarization, the percentage of Americans who said they were satisfied with the direction of the country hit a new low: 14 percent.
This time around, the top-line recovery was remarkably swift. But while President Biden is being graded harshly — with lower approval ratings at this point in his first term than any other president since Jimmy Carter — only one leader of a Group of 7 nation is more popular than he is. In Britain, Rishi Sunak’s net approval hit negative 45 in September; in Canada, the Justin Trudeau government has a negative 33.
What’s unusual isn’t America’s gloominess, the Financial Timesanalysis illustrates, but that the economic reality in the United States is buoyant compared to those peers. Consumer confidence in the United States is roughly the same as it is in France, Germany or Britain, each of which has had worse experiences of inflation and a worse postpandemic economic performance than ours.
It may be that there are some unusually negative features of the American recovery buried deep in the data, or that there is something unique about the way American partisanship and news polarization shaped the country’s experience of the pandemic and the pandemic recession. But it’s also worth noting that things look and feel pretty bleak everywhere, regardless of the economic data. In the aftermath of what counts these days as a world-historical trauma, the world as a whole remains in a pretty gloomy place. Is that really a surprise?