Why Do People Think the Economy is Bad?

genuine answer to a genuine question

Hello everyone!

Again, I offer you an apology - I missed last weeks newsletter because I was finalizing the book (!!!!) It is officially in transmittal, off to the next phase of its journey before it comes back to me so I can whack it down approximately 20,000 words.

There was a strange sense of melancholy that came after I hit send on the email with the entire manuscript. Despite my seemingly apparent expectations of a shaken world, I was the same before and after I pressed the key. I guess I had been expecting things to feel different, for the sky to open up, a booming voice to say “hey good job” and the sun to beam a single ray of light into the middle of my forehead, for fanfare and chorus and celebration, but instead, it was me and Moo, as always, in my kitchen/office/living room/bike workshop.

When we finish something Gigantic, it’s an End. When Ends come like that, I usually try to run. Ends mean things have gotten too close. Move again. I moved ten times my first two years out of college - four cities, nine apartments, one pillow on a floor.

The theory is, if you keep running, roots never grow. If you stay mobile, nothing can ever catch you. Leave things first, never get hurt. Running will keep you safe. This works until you get tired. One day, running gets heavy. One day, you don’t know where to run anymore.

See, when most people run from things, it’s because they are living in two worlds in once. A world where things are good and beautiful and people love you, and a world where you are still afraid and worried and uncertain.

The two can co-exist.

And the reason I began this newsletter with this unnecessarily indulgent soliloquy (thank you for listening) is because I’ve been thinking a lot about the economy. The continued (false) idea that many have that we are in a Recession, and how that shapes the economy.

How bad it feels to tell people that we aren’t in one, that things could be worse, that actually you should be feeling good - so tell me dear reader, why do you feel bad?

Two Things Can Be True at Once

Things can be true at the same time.

1. The economy can be better than it has been

2. We can continue to have crushing inequality with people who are still struggling

I think there are five main drivers of this disparity.

Quantian did a really interesting thread on Twitter to answer the question of “why do people think the economy is bad?” coming to the conclusion that people are not happy because mortgage rates are high, and basically no one is stoked that borrowing money has become more expensive.

But I think that there is a lot of stuff that feeds into that -

1. Unintentional Oblivion

   1. The concerns and the (somewhat) difficult of finding an answer - how is inflation is falling? What do rate hikes mean? What if I can never own a home?

2. Outsized Negativity

   1. Extremely negative coverage of the economy by the media (and other tabloid-y vibes) and monetized attachment to ideologies

3. Lack of Safety

   1. Learned disembodiment, and broad worries over but not limited to rent skyrocketing, medical emergencies, home ownership, rising inequality, lack of social connection, and corruption

4. Crushing Uncertainty

   1. It might be mortgage rates, but its probably more the uncertainty about mortgage rates

5. Misallocation and Mismeasurement

   1. The gap between VC funding and impact, the difference between stock market returns and company value, survey response skew

Unintentional Oblivion

This is the general idea that most people kinda know what’s going on, but it’s a lot to pay attention to and it’s all convoluted and loud (to be discussed in the negativity section) and therefore, overwhelming, which creates a sort of mental-checking-out.

So as we all know

• We have been in a world of sudden rate hikes,

• Where mortgages more than doubled from 3% to over 7%

• Skyhigh inflation, confusion over whether or not inflation is falling

Of course people are going to feel bad. For many, home ownership is the only path to wealth¹ so if all the sudden, you’re completely priced out of the only way that you thought you would ever make money - heck, the only way that you thought you could have stability - you’re going to feel bad.

But if you can’t figure out why you feel bad, that sucks a lot too.

An Anecdote is Not a Trend

Will Stancil has been doing a good job of explaining the difference between anecdotes and trends -

There is a very, very important difference between telling someone that their PERSONAL EXPERIENCE is incorrect (do not do this!) and telling someone that their understanding of national-scale trends is incorrect (this is just normal political discussion and happens all the time)... If we are forced to accept everyone's subjective interpretations of the world as true, no matter how loosely it relates to their lived experience, we're pretty much living in Trumpland, where everyone's knee-jerk beliefs are always indulged, no matter how contradictory or false

So like, the economy is good. Anecdotes aren’t data.

• Most people are wrong about most stuff, like the “majority of Americans basically never think the stock market is going to go up over the next year even though obviously it does and has gone up most years” as Joey points out.

And this is tough to talk about - some of the oblivion is based in the idea that the trend of the economy is strong, even though it doesn’t feel that way for everyone.

People Sometimes Don’t Know What’s Going On

There is also this, as David Roberts describes -

Voters from both parties like the sound of the policies in the Inflation Reduction Act, but they don't know the Inflation Reduction Act exists, so they score Biden poorly on climate

There is genuine unawareness, a little bit of confusion (and of course, existing mind barriers) and actual economic pain. There’s also stuff like this from Will again -

One thing that a lot of people seem kind of confused about: the reason we’re seeing a lot of strikes and unionization is not because the economy is really BAD for workers, but because it’s GOOD for workers in a way that has given them tons of new bargaining power.

So many things that feel like they should be bad (like workers unionizing) is actually good. It’s actually good that people are able to have power and part of that is the economy is strong enough for them to do this! Which feels counterintuitive in so many ways, but allows workers to make demands.

But then of course, part of the reason that people don’t know what is going on and why stuff is confusing is the media.

Outsized Negativity

So I don’t want this section to be all frothy mouth “mainstream media bad” but I do think there is some stuff to say about coverage.

Frothy Mouth Media Coverage

The Federal Reserve of SF publishes a daily news sentiment measure and as you can see in this chart that John Handley made comparing sentiment and news - it’s been pretty negative, but also coverage has tended to pull consumer sentiment down with it.

Source: John Handley

For one example of how coverage can erode sentiment, Ben Carlson wrote an excellent post - Why I’m Not Worried About $1 Trillion in Credit Card Debt - in response to the sometimes pretty scary headlines about consumer debt.

There are always going to be households who rack up unsustainable levels of credit card debt regardless of the economic environment but right now things look pretty good as far as the collective consumer is concerned from a debt perspective.

Credit card debt is not that bad. But if you looked up an average article about it, it would tell you that the world is going to snap from the amount of debt the average person has. There is a difference between delivering facts and delivering engagement.

Making Money from Being a Horrible Person

And there’s also the whole “make a lot of money from being really loud” - Pearl Davis is a TikTok influencer who has built a platform on saying things like “Women Shouldn’t Vote”. Almost all of her views are offensive, but that’s by design. The more that people yell at her, the more money she makes. Monetized dopamine hits driven by a reaction function.

• And to be clear, this is a phenomenon. In Arabic it’s called have خالف تعرف, it means “oppose and you’ll get recognition” which is a person who’s only ideology is the opposite of whoever they are talking to.

Markov wrote a really excellent thread about “how ideologies eat you”

These causes and judgements are not statements about reality, they are statements about groups of people and how they act or what they believe in aggregate/average. this establishes friend and foe, folly and wisdom, and it sets the stage for people to engage… At this point the original story and it’s message have been subsumed into the eternal pissing match that is public discourse. It has been recast in the familiar and stereotypical archetypes that reify an ideology. By making it familiar, we are told what we should believe… this is bad for the truth because it gets lost in the cacophony

But the problem is the cacophony matters more than truth. The cacophony gets you paid.

Lack of Safety

So this one is really big, and stems from general fears over the future that haunt pretty much every generation. The plans are eroding. There is often an unspoken expectation, an idea, a plan of financial and psychological wealth built on home ownership. When those expectations, which are the root of reality, fall, it can feel devastating. For example, in the 1980s, the average home price was ~4.5x the median income. Now it’s closer to 7.5x.

The Nihilism is a Little to Real

There is also a weird meta irony around Gen Z (and I play into it to) but it sort of sets the broad atmosphere for them - for example:

Source: memetic_sisyphus

And of course, it’s just a joke. Don’t take it so seriously, some say. But as memeticsisyphus points out, it’s not just a joke. U.S. suicides amongst youths is at a 20-year high.

"Nihilism=funny" but sometimes that nihilism comes a little too close² catalyzed by social media and the meme becomes reality and all the sudden you feel very alone. And I am not a psychology person (although the economy certainly feels more like psychological analysis than financial) but there are so many weird things with how we interact with social media and each other

• As Ali Taylor pointed out - “learned disembodiment from being on screens probably doesn’t help either”

• We have lost a sense of community or a sense of collective responsibility which deserves it’s own piece - as LVWorkshop published this TikTok explaining how American norms and values were broken during the pandemic that has shaped a lot of what we see today.

Finally, the whole student loan thing.

If You Die, Your Student Loans are Forgiven (Sort Of)

The headline of a Bloomberg article is - “US Will Have to Write Off Billions in Student Debt Due to Deaths” which like, oh my gosh? And yes. Around 300,000 people died over the past few years who still owe student loans. That’s roughly $5 billion in lost revenue from the government.

And the phrasing of this - “hey man, if you die, that’s lost money for Uncle Sam” is mechanical because it has to be but the whole concept of educational debt is absurd. A few points

• Education in a good society should be for education - accessible, free, and something we encourage people to pursue for the sake of being educated

• It’s not fair to the student to force a huge financial burden onto them, and it’s not fair to taxpayers to eventually say “well yikes, our students can’t pay the massive amounts of debt and interest we saddled them with”

• Not even death is an escape. Many had to have parents co-sign for the loans.

• Colleges are responsible too for the costs that have become exorbitant

• Trade jobs are widely available and should be pursued

And then, the whole feeling weird thing.

Crushing Uncertainty

There was a piece in the Atlantic that talked about what the best places in America had in common, and it’s not just a lot of money -

The lesson is that people seem to thrive—not always in high salaries but in health and life chances—when inequality is low; when landownership is widespread; when social connection is high; and when corruption and violence are rare.... Until these regions’ virtues are shared nationwide, poverty and disadvantage will continue to haunt America.

So the thing is, it might be that mortgage rates are causing people to feel bad about the economy, but it’s probably more the uncertainty around mortgage rates. It’s the building blocks of inequality, lack of ownership either of land or a home, lack of community, etc etc, all stuff we already know.

Misallocation and Mismeasurement

I think the venture capital industry truly owes the world an apology. So much incinerated capital, chasing returns over reality, it’s just depressing stuff. I understand the structure of the industry, but there is a misallocation of capital to shiny bright new things versus foundational needs.

• There is also weirdness around data measurement and divergence in vibes and reality - NFIB, National Federation of Independent Business, releases an Optimism Index. Soft and hard data has diverged wildly, mostly because it’s pretty confusing to figure out what’s going on in the economy. People feel bad! But things are okay.

• I am just going to let this sit alone - "Nearly 60% of companies that have been public in the U.S. over the last century or so have failed to create value, defined as earning total shareholder returns in excess of one-month Treasury bills."- Henrik Bessembinder's research

• Also no one knows whats going on with the labor market - Anna Wong published a thread on how the labor market might be weaker than it looks highlighting that maybe the Phillips Curve isn’t dead, and again, maybe this economy is really really weird.

Final Thoughts

How to fix all of this?

1. Unintentional Oblivion

   1. This will be one of my hottest takes, but I think we need to expedite FedNow and offer people a centralized app where they can 1) invest 2) save and 3) send money. I know people are like “but I’m important enough that the central bank wants to track all my movement” and I implore you to think of a world where people have access to the tools they need to make smart financial decisions

2. Outsized Negativity

   1. One cannot ask media to change their headlines for clicks or for people to not post engagement bait, but perhaps more conversations around media diet and discerning reality and someone just trying to rip a dollar out of your angry quote tweet

3. Lack of Safety + Crushing Uncertainty

   1. This one is hard and ties into policy, which is hard. I think that student loans should be a conversation (and yes you can not want to pay peoples loans and still agree that it’s ridiculous), build more housing like Minneapolis (and subsidize it) and not freak out about fiscal deficits

4. Misallocation and Mismeasurement

   1. This one is also hard. Better data through better surveys? I understand I am beating on a proverbial trashcan in my newsletter and saying “FIX IT”

As an add on, as Alex Williams said

the meme going round about using taylor swift to fix the economy is lame, but does touches on something real imo: the economy desperately needs people to get better at throwing fun parties with good vibes.

Finally, we also have to recognize that two things can be true at once. The economy can be good, but that can be meaningless if people feel unsafe and uncertain and unsure.

Daniil Kharms

Thanks for reading :)

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Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, or financial advice.

1. I wrote about this in the follow-up to my Vibecession piece - I despise this, and think that to solve it we need to provide ownership opportunities beyond Home Go Up

2. And I think every generation does this as they grow up, being a teenager is one of the hardest things in the world