theories of the vibes

everything's fantastic and nobody's happy

A reader asked a while back about what might be said about the current climate of “vibecession” in the USA. (Before continuing, I note a favoured old joke that on album covers of the 50s, a credit of “Vibes” means “Almost certainly the best musician on the album”, while in the 90s it means “Literally did nothing”).

“Vibescession”, a term which I do not propose to spell consistently, refers to the following set of economic phenomena:

1.      Solid growth in employment and real wages

2.      Anomalously poor consumer sentiment

3.      Which seems to have begun around 2020/21

If you characterise it that way, you can quickly chuck out a lot of candidate explanations.  Inequality, social mobility and inadequate welfare state provision are all bad, but they didn’t start three years ago.  And although it’s true that people hate inflation, this isn’t the first period of inflation that we’ve ever seen; we need a theory which explains why consumer sentiment is so much worse than you would have expected it to be given all the other economic indicators.

It's possible to chuck out a few other tentative theories once you accept that vibecession is almost entirely a phenomenon of the USA (in other countries, there’s hardly any anomaly and the historic relationship between measured data and surveys has broadly held).  So we’re looking at something that changed in the last few years, which is specific to the US system.

That would suggest to me that the benchmark, default theory ought to be “the consumers are just wrong, it has taken them a while to get used to the sticker shock of the 2022 inflation and for wage increases to work through to household budgets”.  With a bit of “the numbers are being thrown off by millions of Trump fans who are still salty about losing”.  One of the things we know about the world is that people are often wrong about things, and they’re more likely to be wrong if there’s a whole big media-industrial complex dedicated to misinforming them. 

But, you know, we owe it to ourselves to explore other theories, and I in particular feel a sort of duty to come up with one that’s vaguely related to the cybernetic themes of this Substack.  So …

I think I would start from a really simple toy theory of what’s bad about economic bad times for consumers.  First three principal components, not necessarily in the right order:

1.      Physical lack of ability to buy desired goods or services.

2.      Lack of control or agency over own economic life.

3.      Perceived loss of relative status.

The first of these isn’t worth me having a theory of because it doesn’t seem to be true, and the third might be the psychological basis of the “salty Trump fans” theory.  But the second is right in my wheelhouse.

Most of the economy is about structures of control; that’s the big thing you get from reading Marx, and it’s why Marxist economists always do surprisingly well in big banks.  And the psychological sensation of not having control over your own life is really bad; in Michael Marmot’s books on inequality, he thinks that this is the thing which causes the physiological stresses which account for the known negative correlation of life expectancy with Civil Service grade in the Whitehall studies.

Which leaves me thinking that what we might be seeing here is at least partly the fact that when people assess the movement in their real incomes, a lot of them are going to answer the question by thinking about that part of their income which is free for them to dispose and spend on what they like.

That’s a concept which is a little bit narrower than just “disposable income” (typically meaning after taxes) or even “post housing costs income”.  The income concept I’m thinking about here is one that’s familiar to me from having done analysis on debt management companies in the 00s – the firms that used to advertise on daytime TV that they could get you out of debt trouble by drawing up a Creditors’ Voluntary Arrangement.

At the heart of the CVA system in England was the idea that you needed to rewrite the debtor’s household budget.  You’d start with the fixed charges necessary to provide a “decent life”, give a small allowance for everyday purchases, and then the rest would go to debt service for a few years, after which the balances were written off.  I’m interested in the real value of that “small allowance”, or its equivalent for solvent households.

I’m also interested in the fixed charges.  These obviously included housing costs and a standard figure for food and clothing; they also included mobile phone bills.  One of the great debates of the time when I was really into this used to be whether Sky Sports subscriptions were a necessity for a football fan, and lots of CVAs ended up ruling that they were (the debtors’ representatives successfully argued that if they weren’t taken into account, the debtor would end up spending all their disposable income).

Over the last few years, the other big thing that’s happened is that interest rates have gone up. Housing costs are measured in a weird way in national statistics, which doesn’t always correspond well to cash costs of mortgages, and the cost of consumer debt is, I think, basically accounted for as something people choose to do with their money.  A lot more consumption of media and entertainment has moved to subscription pricing; in general, there appears to have been a lot of growth in the use of subscriptions for all sorts of things.

Where I’m going here is that there’s a wedge between real household incomes, and the proportion of that income which the householder perceives as being under his or her control.  Measured consumption doesn’t distinguish between goods and services that are experienced as a personal decision and exercise of purchasing power, and those that show up as yet another monthly bill that has to be paid.  Although I think my most likely explanation is “they’re just wrong”, and that consequently the “vibescession” will end over the next twelve months, I’d be very interested in any research it might be possible to do on the extent to which inflation has differentially impacted wholly discretionary purchases, and to which household interest bills have undone the work of real wage growth.