The real reason Americans hate the economy so much

Americans’ doom and despair about the economy is mounting.

In fact, by one measure, the public is more depressed than they’ve ever been in the postwar era. The University of Michigan has been surveying American consumers’ sentiment since all the way back in 1952 — and their result from last month was the lowest level they’ve ever found.

A CNN survey this week found deepening doubts about the core of the American dream. Asked whether most people can get ahead if they’re willing to work hard, 47 percent of respondents agreed. A decade ago, in 2016, 67 percent agreed. And the swing toward pessimism was relatively similar regardless of age, race, or gender.

President Donald Trump’s approval ratings on the economy also hit new all-time lows in recent weeks, in polls from both CNBC (which showed him at 39 percent) and CNN (which showed him all the way down at 30 percent).

All this is occurring while several key topline economic stats — such as GDP growth and jobs numbers — continue to look decent or outright good, and while the stock market remains near all-time highs.

Yet the American people are furious, for the same basic reason they’ve been furious most of this decade: high prices and the cost of living. In an open-ended question in CNN’s survey, 76 percent of respondents offered some variation on affordability as the biggest economic problem facing their family.

For that particular problem, there’s no end in sight — indeed, recent economic news suggests it’s getting worse:

Yet as painful as the 2020s inflation has been, there’s still a bit of a puzzle about why exactly it appears to be overwhelming all other economic indicators in Americans’ minds this time around — making people feel worse than they did even in inflationary periods that were far more prolonged and severe.

A new article from two economists proposes one explanation for what they term the “vibe gap”: that the past few decades fundamentally changed Americans’ expectations for the economy in ways that have left them more outraged than ever before. If they’re right, it could be quite a while before consumers start feeling like happy days are here again.

In explaining Americans’ bad economic vibes, some point to decades-long economic trends like the rise of inequality or the failure of the country to adequately recover from the Great Recession. Others are inclined toward big society-wide explanations that don’t have much to do with the economy at all — for instance, negativity on social media, or deepening political partisanship.

These explanations simply don’t fit the data based on the timing. That’s because, in the mid-to-late 2010s, Americans thought the economy was doing just great. And, as you may recall if you’re old enough, social media negativity and intense political partisanship existed plenty back then.

The University of Michigan’s monthly survey is widely held to be the gold standard on measuring US consumers’ sentiment about the economy. The number they report is an index based on how positively survey respondents answer various questions. (Its peak was 110, in early 2000, at the height of the dot com bubble.)

During President Barack Obama’s second term and Trump’s first term, the index was regularly in the nineties, and even the high nineties for Trump. But the pandemic — and then, even more so, the post-pandemic inflation of the Biden years — sent it plummeting, to a nadir of 53 in the summer of 2022.

Things slowly began looking better as President Joe Biden’s term stretched on, albeit well short of the highs of the 2010s. Then Trump’s second term sent it crashing downward again — with the decline spurred first by his tariffs, and more recently by the Iran war and surging gas prices.

It’s not exactly news that Americans are irate about high prices — it’s been the central political story of the 2020s.

Still, the sheer depth of rage and despair has been somewhat of a puzzle to economists, who tend to believe that the current economy really isn’t anywhere near as bad as the public appears to think.

They point to healthier current indicators like GDP and job growth, and argue that things have certainly been far worse at many points in the past. Inflation in the 1970s, for instance, was far more severe and lasted far longer than that of the 2020s — yet it’s now that the consumer sentiment index hit an all-time low. And the consumer sentiment index typically matched “hard” economic data measures of well-being — until, in the 2020s, it stopped doing that.

What accounts for the difference? One new and compelling theory, put forth by economists Jared Bernstein and Daniel Posthumus this month, is that there’s a gap between the economy that Americans expected to have and the one they’re getting that’s proving especially hard to reconcile.

Inflation was a major problem between the mid-1960s and early 1980s. But once the Federal Reserve finally got it under control, it stayed relatively low regardless of what else was going on in the economy.

As a result, Americans are now comparing how much things “should” cost based on not just the last few years, but a sustained four-decade period of predictably smooth price increases. And for most workers, it was the only economy they’d ever known: “Nobody under the age of 43 in 2022 would have been alive during the last time inflation breached 7.5 percent, much less actively participating in the economy,” the authors noted.

To test their theory, Bernstein and Posthumus added a new variable that accounted for consumers’ expectations for price levels over time, and found that their model predicts recent dismal consumer sentiment far better.

In that context, the 2020s inflation no longer seems like a typical economic headwind — it comes off as an outright betrayal, a sign that something had been fundamentally broken in the economy.

And if the recent ominous inflation data is any indication, it still hasn’t been put back together again.