the new age of diminished expectations
could it really be that simple?
I promised this in a note yesterday – my latest theory of the “vibecession”. I still think that a lot of the reason why people get confused by this is that they have narrowed their scope of inquiry down to a sort of treatment/response model with a relatively short lag; when I was discussing it on The Socials, economists kept on dismissing potential explanations because they didn’t show a sharp change in 2022.
But here’s a really simple point. Everyone knows that having children is a financially disastrous decision. If someone is prepared to allow you to live rent-free, it’s economically rational to take that offer. But as the saying goes, while a ship at harbour is safe from storms, the purpose of a ship is not to remain in a harbour.
In other words, during a period in which birth rates and family formation has been falling, and adults living with their parents has been rising, is it such a great puzzle that so many people answer positively to questions about “how are your personal financial circumstances?” but negatively to questions about the performance of the economy?
And if measured income inequality is falling, but house prices are through the roof and childcare even more so, then the position you have to be on the income distribution in order to buy a house or start a family has changed. Again, is it such a surprise that people think inequality is rising?
I don’t know if this can explain the whole statistical gap, but the change in the proportion of people who are delaying starting a family or moving into a house of their own is quite significant. And the general point here is that we can’t just look at the measurable quantities. People judge things relative to their expectations.
Expectations of this sort are hard to measure, and I suspect that any process of trying to reduce the phenomenon I’m talking about to a Likert scale is going to wash out the information we really need. As I said on the last trip round this mulberry bush, if you want a theory of the vibes, it is the vibes that you must start looking at.
Apropos millennials' disappointed expectations, YME this TikTok from 2023:
https://www.tiktok.com/@allyrooker/video/7274732509512879403
(She's a make-up tips poster, hence the nails)
Firstly, economists don't seem to take into account that people don't get "average wage increases" (however that is calculated) but very personal situations. Low wages and retirees on fixed incomes mostly keep falling behind the price rises.
Secondly, some price rises are just egregious. As an outlier, a cat flea pharmaceutical has risen in price by 40% in 2 years. Well above inflation, certainly not due to some tariff issue, and probably more to do with "greedflation". Social studies have consistently shown that people do not like "cheating" and this sort of corporate behavior is "cheating".
Thirdly, people do notice a deterioration in local businesses - e.g. stores closing, malls emptying, etc. It doesn't have to affect them personally, but it doesn't look good. Add in fears of the increasing police state, and that is a negative vibe.
Lastly, just as the stockmarket reflect future earnings (or hot money pumping it up, just like auction prices for unique items, however trivial), people can project into the future too. Inflation expectations, a big problem in the 1970s can be understood today for a variety of issues. If the question: "Is the economy/country on the right track?" is answered in the negative, then this is probably going to color one's POV of the personal economy currently. Knowing property insurance will rise steeply, or the landlord is raising your rent more steeply than historically, is enough to push down one's perception of the economy, especially when the news reinforces this perception with data.