Welcome to the Vibeconomy

How is the economy actually performing right now? Not the way most people seem to think. We are currently in a “vibecession,” which is kind of like an actual recession, except that it’s just in everybody’s heads.

The actual economy is doing surprisingly well. Economic growth in the third quarter of 2023 reached a smashing 4.9% annualized rate. Inflation is significantly down from its post-pandemic spike and within sight of returning to its relatively low, long-term normal. Unemployment is at historic lows. Employment growth has been slowing down, but only because so many people are already working that there are not many unemployed left to be hired. Debt-to-income ratios are relatively low. The stock market is up. And so on.

And if we look at how people are behaving, they act as if they are prospering: Consumer spending is strong and rising, having recovered very sharply after the pandemic. People have been declaring how terrible the economy is while standing in front of hundreds of dollars’ worth of gifts piled under the Christmas tree.

But if you ask people in words how the economy is going, they will tell you it’s terrible. According to an October 2023 Associated Press poll, “about three-quarters of [poll] respondents described the economy as poor.” Not for the first time, what people are saying is different from what they’re doing.

That’s the “vibecession.” It’s a recession that can’t be found in the economic data and can only be found in the vibes. It seems to be part of a wider phenomenon you might call the “vibeconomy.”

Live by the Meme, Die by the Meme

A good symbol of this disconnect is the response to Elon Musk’s Tesla Cybertruck, which is being relentlessly mocked on social media as uncool and impractical. There is some rationale for this: The truck has not delivered on a lot of its promised specifications, like range, bed length and towing capacity. Given its higher-than-promised price point, I’m not sure why anyone would choose it over a Rivian, another American-made electric truck. But the mockery is coming from many people who used to be Tesla boosters back when it was the cool “green” car. A Tesla was the car you bought so you could advertise your dedication to the environmentalist cause without actually suffering for it by driving an underpowered little Prius.

But that was back when Elon Musk was the guy leading a revolt against fossil fuels. Now he’s the guy who posts right-wing memes on social media and gives a boost to lowlifes like Andrew Tate and Alex Jones. A lot of the people who liked him before are angry with him now, and with good reason. But notice how shortcomings in his products that were forgivable before are suddenly proof he’s a flim-flam man. His truck must be awful because he is awful.

This is partly a cautionary tale that grizzled PR veterans will tell to youngsters for years to come. Tesla has virtually no advertising budget. Its whole advertising and public relations strategy is to ride off Musk’s personal celebrity. The company is trying to become a serious, large-scale auto manufacturer, with the marketing strategy of a meme stock. But if you live by the meme, you can also die by the meme.

Speaking of meme stocks, when the NFT bubble burst a while back, I hoped it would herald a reassertion of tangible reality over intangible feelings. It turned out that NFTs were just a warmup. Everything now seems to be vibes over data. An unprecedented gap has opened up between the usual measures of the economy and consumer sentiment.

In the Financial Times, John Burn-Murdoch presents the whole picture, in describing a recent FT survey of American sentiment concerning the economy:

Americans are consistently wrong in the negative direction on almost every measure we polled. By huge margins, they believe inflation is still rising (it’s falling), that it has outstripped wage growth (wages have outpaced prices), and that they have become less wealthy (they’ve become much wealthier). Attempts to justify this sense of gloom often emphasize the challenges faced by less prosperous groups, but this also goes counter to the evidence. One explanation I heard is that the despondency comes from young people struggling with runaway rents. But wages have risen faster for them than the old, outpacing rents.

A look at the survey data reveals just how much Americans’ pessimistic views differ from reality. Nine out of 10 Americans believe that prices have risen faster than wages in the last year—they’re wrong. Nearly as many believe that the wealth of the median American household is either smaller or about the same as it was before the COVID pandemic—they’re wrong. More than eight in 10 Americans believe that the U.S. poverty rate is greater or about the same as it was 30 years ago—wrong again.

Why are Americans so wrong about what’s going on in the economy?

Long COVID Economics

Is this all just political partisanship? As Burn-Murdoch puts it, “It seems U.S. consumer sentiment is becoming the latest victim of expressive responding, where people give incorrect answers to questions to signal wider tribal political or social affiliations.” Republicans don’t want to admit good things are happening because the other party’s guy is in office. Yet many on the “progressive” left don’t want to admit anything good is happening because capitalism hasn’t been eradicated yet.

I can understand some of the skepticism. Biden’s policies are not so great that the economy should definitely be booming. Then again, they haven’t been so terrible that the economy should definitely be crashing.

Stronger than expected growth may well be the continuing afterglow of the post-recession recovery. Remember the chaos a few years ago as spending bounced back but supply chains that were dismantled during the pandemic couldn’t keep up? The complex mechanisms of our economy have been built up and optimized over a period of decades. The pandemic subjected them to a sudden and unprecedented disruption. Now they are all being put back together, fine-tuned and optimized all over again as everybody figures out what the new normal is going to look like. That will take years to do, so we will probably experience the benefits of this rebuilding for years.

But is the pandemic also the cause for the disconnect between vibes and facts?

In the New York Times, David Wallace-Wells considers the case that we are still experiencing an emotional overhang from the pandemic—which did, after all, kill more than a million Americans and disrupt everybody else’s lives. He quotes Claudia Sahm: “the pandemic caused a sudden increase in pessimism that hasn’t gone away.” He also notes that this is not unique to America. “What’s unusual isn’t America’s gloominess ... but that the economic reality in the United States is buoyant compared to those peers.” In other words, everyone around the world is gloomy, but we have less cause for it.

But he also points to another pattern of public attitudes toward the pandemic that I find suggestive:

At first, the fundamentals tanked while Americans maintained a rosier view of things, but this relative optimism was pretty short-lived. By the fall [of 2020], 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.

The initial response to the pandemic was massive government “stimulus” and subsidies that were quite clearly and explicitly intended to shield Americans from the reality of the pandemic. While the economy was fundamentally disrupted and unemployment skyrocketed, these were intended to make us feel safe and secure and as if we were not in a state of acute economic distress—which we actually were. Republicans wanted to do this because Donald Trump had planned to run for reelection on the strength of the economy. Democrats wanted to do it because a massively increased welfare state was their goal all along, and they hoped to make all the pandemic benefits permanent.

Either way, people do not see the last two years as a steady climb upward out of a pandemic-induced recession, because they were encouraged not to feel the effects of the 2020 contraction. As I warned at the time, the stimulus merely put off pain that would then have to be spread out over a longer period, particularly in the form of future inflation. We’re just finishing up paying for it, and that has a long psychological overhang.

Reality Gets the Last Word

Disconnecting our mood and attitude from the underlying economic reality was the deliberate aim of almost two years of government policy. And now we’re baffled that we succeeded too well.

But remember the lesson of WeWork, a company that got billions in investments based on “our energy and spirituality” rather than facts and figures—only to go spectacularly bust in the long run. That was an economic venture based on vibes if ever there was one. If the correction WeWork couldn’t avoid was a crash back to reality, the one we will eventually have to make is an upswing to the realization of how good we have it.

We can’t live in a vibeconomy forever, and I’m not sure why we want to live in one this gloomy. The good news is that reality always gets the last word.