Have you heard we're in a recession?

Have you heard that inflation is spiraling out of control?

Have you heard that people have less spending power today than their parents did 30 years ago?

If you're on social media and who isn't, you've probably heard some or all of these facts presented like they were common knowledge.

The problem is they're all wrong.

By virtually every available metric, the economy seems to be doing really well.

GDP has shown astonishing growth quarter after quarter.

Unemployment in ‘23 hit record lows and wages are up for nearly everyone, especially low income workers.

And yes, that's adjusted for inflation.

Americans have more household wealth than they did three years ago, and more Americans own stocks, retirement accounts and small businesses.

What makes this all the more impressive is how unlikely it is.

For the last few years, virtually every economist was predicting doom and gloom.

There was no way they claimed that we'd be able to get inflation back down to normal levels without triggering a full blown recession that would throw millions of people out of work.

And yet, over 2022 and 2023, inflation dropped from 9% to 3% without a dent to the labor market.

The so-called “soft landing” that everyone thought was a fantasy really seems to be happening.

Now, this doesn't mean that everyone's doing great.

There are still lots of people struggling to make ends meet and forced to make gut- wrenching financial decisions.

And even though the gap between rich and poor has shrunk for the first time since the 1980s, it's still a very, very large gap.

But compared to recent history and experts expectations, the U.S. economy has made a stunning rebound from the pandemic much better, in fact, than most Asian and European countries.

And yet, in survey after survey, Americans are telling pollsters that the U.S. economy stinks and is getting worse.

They think that prices are rising higher than wages, which is not true.

They think that the median household had more wealth before the pandemic.

Also not true.

And they think that poverty and unemployment are higher now than they were 30 years ago.

Very not true.

Despite years of impressive growth.

Almost 60% of Americans believe that we're currently in a recession.

In fact, Americans now rate this economy as as bad or worse than the Great Recession of 2008, the most destructive economic disaster of our lifetimes.

Okay, I know that money is inherently an emotional topic, and I don't like to tell people that their feelings about money are wrong.

But this seems so wrong.

What's going on?

That's what a lot of economists and social scientists are wondering.

Never before has public sentiment diverged so drastically from economic indicators, and it seems to be a uniquely American phenomenon.

Surveys in other countries are more in line with their economic realities.

What's even stranger is that consumer spending continues to be robust, which is one of the main metrics economists use to gauge how people feel about the economy.

From Christmas gifts to Taylor Swift tickets.

Americans are spending money like times are great, but telling pollsters that everything sucks.

This has some economists referring to the phenomenon as a “vibecession”.

There are several theories for the disconnect, and the most obvious one is partisanship.

America has become so politically polarized over the last decade that half the country will reflexively say the economy is poor if they didn't vote for the current president.

Polls show economic opinions flip flopping every time the White House changes hands.

That means that if just a small segment of the president's voters are unhappy, it can tip economic approval rates into negative territory.

Another big factor is inflation, or more specifically, the psychological effect of inflation.

While it's true that wages have been increasing faster than prices, people are more mad about the price increases than they are happy about the wage increases.

This might be because high prices get rubbed in our faces more often.

We may only notice our wage hike once or twice a month when we cash a paycheck.

But every time we go to the grocery store, shop online, or drive past a gas station, we're reminded that everything costs more.

This is an example of loss aversion.

The natural human tendency to feel the sting of loss more acutely than the pleasure of gain.

It's made even worse, thanks to what behavioral economists call the self-serving bias, which leads us to credit ourselves for the good things that happen but blame outside forces for the bad things.

So while the high price of eggs is the government’s fault, the raise you got at work was all thanks to your own hard work and talent.

And just because inflation has almost returned to normal levels, that doesn't mean that prices are falling.

It just means that they won't be rising as quickly anymore.

Prices almost never go down, and if they do, it's usually a sign that something is wrong with the economy.

If people are waiting for things to cost what they did before the pandemic, well, they're going to be disappointed.

Let's also remember that some price increases are the result of workers getting paid more.

We should ask ourselves whether low prices are worth erasing the gains that low income workers have made in the last few years.

The stimulus packages championed by both the Trump and Biden administrations are widely credited with limiting the COVID recession to just two months, the shortest on record.

But they may have had a negative psychological impact.

To keep Americans afloat amid the widespread job losses of the pandemic, the government offered generous unemployment insurance and direct cash transfers and temporarily paused evictions, late penalties and student loan payments.

Suddenly, millions of Americans had breathing room.

They paid off their debts, padded their emergency funds, upgraded their homes and bought appliances and furniture.

But this couldn't last forever.

Once the government checks stopped coming and the loan payments resumed, people watched those sudden savings start to dwindle.

Even though many Americans are making more money now than they did before the pandemic, it might feel lousy compared to the year of stimulus.

The media we consume may also have a strong influence on how we feel about the economy.

Throughout much of 2020 and 2021, headlines and chyrons were consistently predicting a bigger, deeper recession.

Even news stories about strong growth and low unemployment came with warnings that things were about to turn bad any day now.

Is it that surprising, then, that so many Americans believe we're in a recession?

The economy gets especially rough treatment on social media platforms, where pessimistic posts tend to travel faster and farther than optimistic ones.

They don't call it doomscrolling for nothing.

In 2023, TikTokers on the left and the right went viral for proving that life was easier during the Great Depression than it is today.

The problem is that their statistics were often cherry picked or downright wrong, like the claim that the average American salary was around $5,000 a year in 1930, a number that came from income tax returns that applied only to the richest 10% of Americans.

In reality, the average salary was closer to $1,000 a year, or about 22,000 in today's dollars, well below the current household median.

In fact, Americans today have almost seven times more disposable income than in the 1930s, after adjusting for inflation.

Not to mention widespread amenities like indoor plumbing, air conditioning and vehicle ownership.

We also have the benefits of government programs like Social Security, welfare and unemployment insurance that help keep us afloat during rough patches.

I can't believe I have to say this, but no, things are not worse now than during the Great Depression.

This was a time of unprecedented unemployment, poverty, homelessness and suicide.

It was really, really bad.

There is one aspect of the US economy, however, that genuinely is in a state of crisis: housing.

After the real estate market collapsed in 2008, developers were so spooked that the building rates of new homes never really returned to previous levels.

And starting around 2015, America started feeling the shortage.

As we've mentioned in a previous episode, if you're one of those lucky people who managed to buy a house before prices started skyrocketing, you're probably feeling good right now.

If not, you may be watching the dream of homeownership float farther out of reach.

To make matters worse, the Fed has been steadily increasing interest rates to tamp down inflation.

While that seems to be working, it also means that securing a mortgage is more expensive and it discourages current homeowners from selling their homes.

Because who would want to trade their 2% interest rate for 7% one?

Many cities and states are pursuing policies to speed up the homebuilding process, and if the Fed starts to lower interest rates in 2024, as expected, homeownership may begin to feel more attainable in the coming years.

In the meantime, there are alternative places to invest your money, like the stock market, which has seen a remarkable rebound since the pandemic and is expected to continue growing as interest rates fall.

There is one more theory to explain Americans sour attitude, and it has less to do with economic indicators and more with our changing expectations.

Even though on paper people are better off than they were 30 years ago.

More Americans are starting to question the fairness of the system.

Ever since the 1970s, the US economy has become increasingly stratified, with the richest 1% taking bigger and bigger slices of the pie.

Even though technically all boats are rising, Americans may just be fed up with the inequality and expressing that to pollsters when they say the economy stinks.

Some of these reasons may be understandable or even laudable, but in general, no economist thinks it's good when citizens are misinformed about the state of the economy.

You can't make sound financial decisions with bad information and you can't keep track of your bottom line if you only look at one side of the ledger.