335 Comments

Every guy is just out to dinner saying “Wow look at the price of steak! I mean I can afford it thanks to my last raise, but how is everyone else managing?” Meanwhile the restaurant is full because everyone got a raise.

Expand full comment
Dec 3, 2023·edited Dec 3, 2023

The striking thing about that graph of public sentiment vs. economic indicators is that American public sentiment is almost perfectly in line with European public sentiment; the difference is that the US is doing well (at least according to the indicators) and Europe is not. That suggests to me that negativity bias might be a good explanation: Europeans and Americans are equally biased towards negative views, and those views just happen to be true there and false here.

Expand full comment
Dec 3, 2023·edited Dec 3, 2023

I work in the tech industry. Many years ago I was a part of the operations team for a well known website. We had many automated metrics and graphs. We were proud of them, as we'd put a lot of work into them. Of the many people on this team, I was the only one who chose to read the user support forums. Usually this was a waste of time: our systems caught most problems before they got bad enough for people to complain. But occasionally, I'd discover a problem that our systems had missed. Sometimes this would be a quite bad problem that was falling through the cracks in our systems.

I learned back then how hard it is to get smart people to understand that the map is not the territory. My colleagues just wanted to look at graphs. If users were unhappy but the graphs said everything was fine, they assumed the users were wrong.

When I read this post I'm getting very strong Jobsian "you're holding it wrong" vibes. If consumer sentiment has historically tracked economic indicators very accurately even through the military-scale operation by the US establishment to give people bad vibes during the Trump years, and still does in other countries, yet has now diverged in the USA, then my first instinct would be to debug the data not the users.

One problem I notice here is that many rebuttals to the claims made by DeusEx guy don't actually address those claims, whilst appearing on the surface as if they do. Take the last point about financial situation. You're arguing that if people say "the economy is bad but my finances are good" then this is a contradiction that can only be explained by bad vibes. But it's not a contradiction. We just went through a couple of years in which people were being dumped on by helicopter money whilst having virtually all the ways to spend that money taken away. Savings rates skyrocketed whilst the economy was trashed. Look at the 25 year view, for many people alive today what happened was just unprecedented:

https://tradingeconomics.com/united-states/personal-savings

If you still have a lot of savings (maybe in equity) but there are no jobs anywhere, then you're going to correctly assert that the economy is bad yet your personal financial situation is good. This would NOT be people being suddenly inexplicably stupid or argumentative for no obvious reason, it would be a loss of resolution over reality caused by dealing exclusively in extremely over-simplified models and graphs.

Expand full comment

Unfortunately I don't think focusing on facts is going to help. Facts don't care about your feelings, but feelings don't seem to care about facts either.

Expand full comment

I live in Europe. No Fox “News” here, (at least where I live). Remove them from the narrative and change a lot of vibes.

Expand full comment

My theory is that the American public is suffering from a severe case of PTSD, due to two difficult events that are unprecedented in the lifetimes of most Americans of adult age today. They are the COVID pandemic and the 9% inflation surge— the first not seen since 1918, and the second since the early 1980s. Either one would be sufficient to scare the living daylights out of anybody, especially those in the lower 60% of the American economic spectrum.

It takes the average soldier about five years to get over experiencing combat (for many it is far longer). The American public, like those soldiers, expects all hell to break out again at any moment.

Only, our rich pundits seem surprised. I'd like to give them a year in the bottom 20% of the income spectrum to give them a tiny taste of the real world.

Regarding this double whammy Covid/inflation PSTD among Americans, I admit they are reacting in a way different from Europeans.

Another reason for Biden's poor polling is that the opposing party never gives the current president high marks on the economy.

Expand full comment

The rate of inflation may be down, but prices are not. Many people may be making more money, but I am personally making less than I was before the pandemic. In Los Angeles, there are lots of people who had a rough year for work with the strikes. Gas has been between $5-$6 per gallon. I know people who are looking for work who are not in entertainment.

Tipping culture now pressures consumers to tip between 18% - 25% on a lot of services, where ten years ago 15% was expected only by waitstaff -- and those folks didn't make minimum wage, while they all do now. I guess those service workers are making more money. And I wouldn't mind it if I were, too.

And I say all this as someone who is glad the economy is doing better for lots of folks and doesn't blame Biden for inflation. I am focused on pressuring my representatives to speed up permitting for housing; mandating landlords install electric appliances and 220V outlets for charging EVs; and taking advantage of the IRA to replace all municipal vehicles with electrics. I want clean air! I want to decouple our economy from fossil fuels, so we can stop subsidizing them and making autocracies rich. I want the predicted cheaper vehicles and fuel. Trucking should get cheaper, too, then, right? Will we get some deflation by 2035..?

Expand full comment

Could it have to do with locus of control? Several thoughts here.

Background- I am a business person with interests in several small, basic manufacturers. My income is down substantially from 3-5 years ago, although I don’t translate that to the whole economy.

What causes my negative sentiments is the price and lead time for virtually any production equipment has gotten ridiculous. It costs millions and takes years to make improvements that used to be much more available, turning all of them into huge risks. Yet labor demands are constant pressure.

Second, the mid-size community that I live in struggles to make even nominal investments, unless tied to some federal program or some Fortune 500 sponsorship.

All this leaves a sense of powerlessness to affect our own outcomes. The economic benefits seem bifurcated. Grandiose towards large scale, fed-supported efforts; modest and much riskier to everyone else.

Sorry no data. Just an impression.

Expand full comment

Let me try to answer the actual question - just conjecture.

1). Housing is a huge deal. I’d like to see the data about affordability today vs 2019 - it strains credulity that it’s not much worse. In Europe they likely don’t have a supply shortage as they don’t generally have 30 year mortgages - everyone’s payments are up so the phenomenon of people hanging on to houses doesnt exist

2). Composition effects. Who’s answering these surveys? It seems that the aggregate improvement is a result of bottom and younger workers improving at the expense of the professional class who are paying the higher restaurant tab. Maybe this is what lowering inequality feels like.

3). Loss aversion. The “stinky” payments were much higher in the US and the hedonic adjustment kicked in. If I give you $5,000 and then take away $4,000 most people will be pissed however irrationally.

4). Societal volatility. European governments it seems have chosen to support employment vs workers. This probably is a worse choice in the long term as the US economy will innovate and better adjust as a result but the process is painful.

5). WFH. Not nearly as much of thing in Europe in Europe. As people are called back in, they don’t like it because they have optimized their life for WFH and are now rediscovering the sky high day care costs etc. again to point (2).

6). The old adage of “happiness = reality - expectations”. It seems that US expectations have skyrocketed during the pandemic (stimulus, WFH, wealth effects). Now people are extrapolating those. In Europe I don’t think we ever had the expectations surge.

7). General media fearmongering that has been eloquently discussed. If the world is ending in 2030 as AOC says (tongue in cheek), who cares what U6 number is.

8). The McDonalds theory of bad vibes - Nate Silver’s recent piece. Do read it. In Europe the companies’ ability to manipulate people into greater consumption may not be as high due to significant regulation on what they can and cannot do.

What say you Team Noahpinion?

Expand full comment

I'd add that one reason people are reverting to vibes is continuing fall out from the loss of trust in academic political neutrality. People really want to know whether a vote for Biden is a vote for a soft economy and that's a question that non-economists don't have a chance of reliably evaluating the evidence on their own.

However, since voters no longer feel they can disentangle expertise from the values held by the expert they might as well just go vibe. Not that vibes weren't always popular but the lack of expert guidance makes it worse.

Expand full comment

I found this planet money episode helpful by suggesting a reverse halo effect: if climate change/racism/trump are so bad, how could the economy possibly be good? General doomerism seems like a good explanation of why there might be a "vibecession" and why the techo optimist bent of this blog is so positive.

https://www.npr.org/2023/12/01/1197955840/planet-money-consumer-sentiment

Expand full comment

Dude, I am a longtime fan of your work, but you're somehow missing what seems blatantly obvious to many regular people, which is that we're getting killed at the grocery store. This is not a narrative. I live and work among people who are suddenly struggling to cover routine expenses. Consumer debt is running amok. I know an HVAC sales guy who only eats what he kills, and he can't sell systems bc nobody is getting approved for financing. The tide has risen fast, and many of us are struggling to keep our breathing holes over the line.

Expand full comment

People have negative views on the economy because the string of 20+ months of negative real inflation was only just recently ended.

Low(er) inflation in the last couple of months still leaves everyone with a significantly lower income after net inflation adjustment for the last 2+ years.

My wife still works a corporate job - she got a 3% raise last year which was above average for her company. Social Security COLA increase in 2022 was 5.9%, 2023 increase was 8.7%. How many people got 15.1% salary increases over the past 2 years? Not too many, I think - I doubt anyone would consider SS COLA increases to be the top end of the income increase scale.

Equally, the "lower" inflation didn't mean prices went back to 2020 or even early 2022 prices - prices only increased at a lower rate vs. the worst of mid to late 2022 i.e. prices are still very high.

Nor is the unemployment rate truly an independent indicator. A huge number of Americans in both relative (percentage) and absolute terms are working 2 or more jobs - clearly the mere fact of having a job does not automatically equate to meeting the cost of living.

And finally: greedflation. It is the meme being pushed by defenders of the present administration but I think is overegged. My personal observation via my grocery shopping is that the "list" price of food has gone up a lot but the "base" price is up but relatively not so much. My proof is my Safeway statistics: I have been a customer for over 20 years. I am an inveterate bargain hunter. Although I am shopping only for 2, my lifetime savings is over $7000 - I averaged around $500/year for the last decade plus.

My savings for 2023 is nearly $1300. It is this high because the list prices of many things I buy on sale have exploded. Cans of soup used to be list price in the $2.x range - they are now $4.79. When I buy this soup on sale from $1.27 to $1.99 ((used to be $0.99), I am now "saving" literally 3 times or more what I used to.

The same can be said for a wide variety of other food of all varieties.

People who are not inveterate bargain hunters and who just buy food when they need it, are paying these exorbitant not-sale prices.

But Safeway shopping is mostly food "at home".

For food "not at home" - which is where the vast majority of food inflation has been coming from:

I went to Taco Bell because of the wife a couple weeks ago. 1 burrito supreme (hers) and 3 specialty burritos on sale (mine, of which I gave one to her) plus a large drink, in a small town in Central California, cost $18.49. While it has been 3 decades or more since $0.59 bean burritos and $0.99 beef burritos - this is simply egregious.

Even San Francisco minimum wage would require more than a full hour to pay for this "meal".

An appetizer at a local Thai restaurant - beef - used to be $12 in 2020 pre COVID. Now it is $23.

Overall - some things are getting back to pre-2022 inflation levels. Chicken breast: there was a period of at least 8 months where chicken breast never went on sale, not once. Typically there is a sale at least 3, 4 times a year where the price drops to $1.99/lb - these sales were missing for a long time but have now returned. Ironically, there are sales now because Safeway is clearly repackaging Deli chicken breast as opposed to the (presumably egg layer slaughter) previous seasonal sales.

My point is that these changes impact bank accounts.

Net net: pointing to year ago comparisons to try and say that people have inaccurate understanding of their actual economic/financial situation is literally saying that they should not believe their own bank accounts as opposed to the statistics you cite.

Good luck with that.

Expand full comment

Three big biases that are often present, I assume here too:

(1) Loss aversion. A little has changed since the pandemic. Some things got better, some got worse (different goods' prices, opening hours of motel front desks, etc). When the better and the worse are equal, Kahnemann predicts you think you're worse off.

(2) Negativity bias

(3) political tribalism from the opposing party (clearly demonstrated in the partisan consumer sentiment jumps after a Presidential election changes the party), and from leftists against Democrats (seems obvious from anecdotal observation, but I don't know of evidence about it).

Expand full comment

Noah, I'd like to get your take on something I heard in an interview Ezra Klein did on his NYTimes podcast with Michael Podhorzer a few weeks ago. Famously, I suppose, he predicted Trump's victory and has long been a skeptic of the way polling is conducted these days when it comes to the economy and politics. Frankly, I thought he made a ton of sense. In the discussion, he was talking about how one of the primary reasons why "normal" economic indicators, or at least, "traditional" ones that the media likes to focus on, like the stock market, the unemployment rate, and GDP numbers, no longer accurately reflect people's attitudes on the economy overall is because that stuff mattered a lot more in decades past when shares of economic prosperity were more evenly distributed.

Now, with things being as unequal as they are, the average American worker sees less and less personal prosperity from a booming economy, so "good" economic news, while better than bad news, sometimes leads people to be angry and resentful when they don't see those headlines translate to a stronger pocketbook. The recent bout of inflation only exacerbated this phenomena, which goes a long way towards explaining the "bad vibes" as well as anger at elites. Note that while the inflation rate has been arrested, prices are still higher and have not gone down. I know that we don't actually want deflation, but if his line of argument is correct, we not only need a boost in wages, we need a substantial reduction in inequality, or this problem is only going to continue to cause a political ruckus.

Do you think that is a fair observation?

Expand full comment

I see too many downtrodden folks on the streets who have not received raises and or cannot go to restaurants with their meager wages. No equality or equity here. Just tone deaf pseudo elitists pitching their data and their interpretation of the data they have concocted for their own self interest. The so called winners write history, come up with the data they want, and it all justifies their lives.

Expand full comment