It’s The Economy, Stupid, But That Depends on Your Definition of “Economy”

Graphic by Charles A.S. Hall, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons

In the New York Times, Nate Cohn delves into the ongoing debate over how folks feel about the economy, how the economy is doing on paper, how the economy is doing in real life, and how politics is both affected by and filters those things. After breaking down the “case for vibes” verses “the case for the economy explaining all” Cohen concludes and looks ahead thusly:

New Your Times:

After a few months of stubborn inflation, rising gas prices and interest rates, and a falling stock market, the last month or so has brought excellent economic news. The stock market has gone up nearly 15 percent since New York Times/Siena College polls were in the field in late October. The inflation trajectory looks good. Mortgage rates are falling. Gas prices are down. Once-skeptical economists have declared that a “soft landing” seems at hand. And now the Fed is forecasting rate cuts, which augurs growth, confidence in lower inflation and eventually a return to a more normal economy.

Put it together, and the big economic barriers could be poised to fade. If they do and the material economic side of the debate is correct, consumer confidence might quickly begin to recover. And Mr. Biden’s re-election chances would begin to improve, at least to the extent that the economy and not another issue, like his age, is responsible for Donald J. Trump’s lead in the polls.

While it’s too early to say, there are certainly signs that consumer confidence could rise. For one, it has already been doing so. Overall, consumer confidence is up nearly 20 points since inflation peaked in the summer of 2022. That rate of improvement is in line with prior, vigorous periods of economic expansion, like during the 1990s. The monthly pattern in consumer confidence even seems to align with the news: Last month’s strong economic data corresponded with a rebound in consumer confidence that erased the declines of the past four months, when the economic news was worse than over the summer.

That’s what we would expect if real economic factors were driving consumer confidence, though it’s not enough to disprove the vibe theory. To send the vibe argument away, we would need to start to see the gap closing between expected and actual consumer confidence. If fears of a recession fade and a more normal economic environment returns, there might still be enough time for that gap to close before Mr. Biden stands for re-election.

The terminology involved in all this is loaded with assumptions and fraught with broad brushed conclusions, but allow me to take a stab at it in plain language. Most “normal” folks don’t know or care about economic theory, indicators, or statistics, and thus base their perception — “vibes” in the new hotness — on their actual interaction with the economy. What things cost vs what they used to cost, how far their wages go, how much disposable income they have, so on and so forth. The vastly smaller group of folks who do pay attention to economic theory, indicators, or statistics — the “economy explains everything” folks — for the most part tend to not base their entire economic outlook based on how much gas and milk costs.

The problem arises in the social media and news media realm when Economy Everything folks talk down to the Everything Vibes folks like they are dumb for noticing everyday life things that don’t register the same to everyone. Folks feel — correctly — they have a right to be cranky about life being more expensive than it was previously. There is just no version of Economy Everything folks telling the Everything Vibes folks they shouldn’t be cranky that doesn’t come off condescending and tone deaf. Because it is. No matter how much it would be technically correct to point out long term consequences of spending policies and programs that most of those same folks supported, demanded, or at least didn’t care enough to change any votes about, when folks are hurting financially an economics lesson isn’t going to be well received.

The one thing everyone, Economic Everything and Everything Vibes folks alike, should know intrinsically is whatever is going on in the economy right this moment will change. Even with disruptions like the COVID shutdowns, ripple effects from things like the supply chains and overseas conflicts, and the habit of just about everyone to ascribe both too much credit and too much blame for the economy of the moment to political leaders, these things are cycles of ups and downs.

For the most part and in a broad sense, the economy of the United States of America has been so comparatively strong for most of our lifetimes, we — citizens, government officials, policy makers, talking heads — can’t seem to screw it up too badly even when we are trying to. While there is real national financial peril on the horizon with things like the debt and entitlements, the current inflation and cost of living crisis on the personal level should be abating somewhat over the coming months, just in time for a general election.

The “vibes” argument and viewpoint of economics is treated as an annoyance to the economic professionals in the chattering class, but that tells us more about the talking heads, commentators, and professional numbers crunchers than a populace who expresses reactions to what they are experiencing. The Everything Vibes version of reality isn’t the whole story, or even most of it, and it truly isn’t the core to base economic theory around. But vibes are also a reality, and with economics and politics inevitably intertwined, anyone who doesn’t respect the feelings of the populace — whatever the numbers and stats say — isn’t going to like the reception they get.

“Good vibes only” is a great slogan and a healthy outlook; the Everything Economics folks might know it isn’t all good but should try a little bit of it anyway for form sake, if only to show the folks feeling something very real some respect.