Vibecessions, Part I
Why does a good economy sometimes feel bad?
Paul Krugman
Nov 16, 2025
Chart 1
Donald Trump continues to claim that grocery prices are “way down”. Yet anyone who does their own food shopping – unlike Trump -- can tell you that Trump’s statement is false. He also insists that polls showing high disapproval of his economic management are “fake,” despite blowout Democratic victories in recent elections that validate what the polls were saying.
That said, although the U.S. economy isn’t performing as well as Trump claims, there is a disconnect: by conventional measures it isn’t doing badly enough to justify the extremely negative views Americans currently hold. The last economic numbers available (delivered before the shutdown) showed unemployment at 4.3 percent and inflation at 3 percent. These are both decent numbers from a historical perspective. Yet according to the long-running University of Michigan survey of consumer sentiment, shown as Chart 1 at the top of this post, Americans have a worse view of the economy now than:· in mid-2022, when inflation hit around 9 percent
· in the immediate aftermath of the financial crisis, when unemployment was in double digits
· in 1980, when the economy was in recession and had double-digit inflation. Many observers have compared Trump’s predicament with the problems faced by the Biden administration, whose attempts to highlight good economic data alienated many voters who felt that their concerns weren’t being taken seriously. In one important way this is false equivalence: Biden and his officials were pointing to actual data that did indeed seem to paint a relatively positive picture of the economy. Trump and company, by contrast, are simply lying.
But although Biden and his people were honest, while Trump and his people aren’t, it’s true that we now have two presidencies in a row in which Americans are far more negative about the economy than the usual measures would have predicted.
So I’m devoting this and next week’s primers to the topic of “vibecessions,” a term coined by Kyla Scanlon for periods in which people feel lousy about an economy that according to conventional measures seems pretty good or at least not so bad.
Fair warning: I won’t pretend to have a definitive explanation of the phenomenon. But in the process of trying to understand vibecessions we can learn a lot about both recent economic history and the factors that affect economic perceptions.
Beyond the paywall I’ll address the following:
1. The surprisingly strong case for Bidenomics
2. The inflation story
3. Why people hate inflation
4. Why vibecessions are still a puzzle
In that final section I’ll show that the economic vibes have been surprisingly negative even taking inflation into account. Next week I’ll take on possible explanations of this negativity.
Bidenomics: The triumph that nobody appreciated
The U.S. economy experienced a severe financial crisis in 2008, then another severe economic crisis when Covid struck in 2020. The aftermath of the financial crisis was ugly: almost 9 million Americans lost their jobs. But job losses were even bigger in the first few months of the Covid crisis, when an economic lockdown — what I described at the time as putting the economy into a medically induced coma — led to a temporary decline in employment by more than 20 million.
In the short run, then, Covid was a worse shock to the economy than the financial meltdown. But the trajectory of the economy after the crises tells a different story.
Recovery from the 2008 crisis was very slow. According to the data, the U.S. economy never fully recovered from the financial meltdown because it never caught up with economic projections made before the crisis.
You can see this in Chart 2, which shows the path of real GDP over time, compared with the expected path before the crisis. To make that comparison, I use the projections made by the Congressional Budget Office in 2007. CBO doesn’t have a magic crystal ball, but its projections are a good representation of what smart, well-informed observers expect to happen. As you can see, from 2008 on U.S. real GDP fell far below pre-crisis projections, and never caught up:
Chart 2
Many observers expected a similar or worse result from Covid. In 2020 there was widespread discussion of the likelihood that the shutdown would produce “scarring,” long-term economic damage. But that didn’t happen. At the right side of Chart 2 I compare real GDP with CBO’s projections made in 2019, just before Covid. As you can see, the economy recovered rapidly, and by 2023 it was already above pre-Covid projections.
The U.S. economy also vastly outperformed other advanced economies. Chart 3 shows real GDP since the eve of the pandemic in the U.S. and the euro area, both expressed as indexes with the fourth quarter of 2019 set equal to 100. U.S. outperformance has been huge:
Chart 3
That’s GDP. What about jobs? There too, the data suggest that the U.S. economy was far more successful in bouncing back after Covid than it was after the financial crisis. One widely used indicator of the state of the labor market is the percentage of adults in their prime working years — ages 25-54 — with jobs. Chart 4 shows that measure since 2007 (shaded areas in FRED charts represent recessions):
Chart 4
The employment recovery from the financial crisis was very, very slow. The crisis went critical in September 2008, with the failure of Lehman Brothers. It took roughly a decade after that moment for the prime-age employment ratio to return to pre-crisis levels. After Covid, however, employment came roaring back, more or less returning to pre-Covid levels within two and a half years.
Why was post-Covid performance so much better than post-Lehman performance? One reason is that the shocks that hit the economy were very different across these two episodes. Historical experience says that recovery from financial crises is often sluggish. Unfortunately, we can’t easily compare the post-Covid result with historical recoveries from pandemics since there are few examples.But maybe it was just easier to bounce back from Covid than it was to bounce back from the financial meltdown.
However, policy differences surely played a role in the relatively strong performance of the US economy post-Covid versus the dismal post-Lehman performance. Textbook economics said that the U.S. government should have responded to the financial crisis with deficit spending to boost demand, filling the hole left by the housing bust. The Obama administration did indeed pass a stimulus bill, but it was grossly inadequate — which was obvious at the time — and thus faded out much too quickly. Recovery could and should have been much faster.
The Biden administration took this lesson to heart. As a result they went big on spending during and post-Covid, with the goal of achieving rapid recovery. And it worked! Not only did the U.S. have a much stronger recovery from Covid than it did from the financial crisis, it had a much stronger recovery than other countries that didn’t provide similarly strong stimulus. If GDP and employment were your only measures of achievement, Biden-era economic policy looks like a triumphant success.
But what about inflation? Thereby hangs a tale.
The post-Covid inflation shock
Between 1991 — when there was a brief burst of inflation associated with the Gulf War — and 2019 U.S. consumer prices rose an average of 2.3 percent a year. Inflation wasn’t zero, but it was low enough that rising prices didn’t really impinge on consumers’ consciousness. We all became accustomed to a low-inflation economy, with the high-inflation 1970s a distant memory even for the diminishing number of Americans old enough to have experienced them. (You kids get off my lawn!)
But for a period of about two years in 2021-2023 the world saw a return to high inflation. I say “the world” because this wasn’t solely a U.S. phenomenon. Chart 5 shows inflation in the United States and in the euro area as measured by the Harmonized Index of Consumer Prices; I use this index rather than the standard Consumer Price Index because it lets us do an apples-to-apples international comparison. What we see is that America and Europe had very similar inflation experiences. If anything, the European experience was somewhat worse:
Chart 5
What caused this inflation spike? At the time many people blamed deficit spending — the same deficit spending that, as I just argued, helped us recover so quickly from the Covid recession. And it’s reasonable to argue that deficits must have played some role. However, the fact is that Europe, which didn’t spend nearly as heavily as the Biden administration, had almost the same inflation experience we did. This suggests that global forces, not U.S. policy, were the main drivers of the Covid inflation spike.
The story that appears best suited to the facts goes like this: As the world emerged from lockdown, consumer spending surged. But consumers spent their money differently than they had pre-Covid. In particular, they tended to avoid in-person services, still fearing contagion, and bought more physical stuff instead. Fewer restaurant meals, more purchases of kitchen gadgets. Less going to the gym, more purchases of home exercise equipment. And so on.
The problem was that the world’s infrastructure couldn’t cope with this sudden increase in the demand for goods. For example, ships were steaming back and forth off the Port of Los Angeles because there weren’t enough docking facilities for them to unload. There was even a global shortage of the standardized shipping containers that carry much of the world’s commerce. As a result of global supply chain problems, prices soared for a number of goods.
The only way a surge in inflation could have been avoided would have been to implement tight-money policies, mainly through higher interest rates. That would have addressed inflation by suppressing the demand for the supply-constrained goods, like kitchen gadgets and home exercise equipment. But doing that would have suppressed demand for all goods and services, not just those facing supply constraints. The end result would have been a slow recovery, perhaps even a recession.
So from an economic point of view, the post-Covid inflation surge was the best outcome given the feasible choices. It was better for the economy as a whole — better for jobs and better for living standards — than trying to squelch inflation by suppressing the economy. In other words, it was better to accept a temporary spike in inflation than to inflict the job losses and lost GDP that would have been the consequences of trying to keep inflation low.
It’s important to recognize that this cost-benefit comparison would have been reversed if the post-Covid inflation surge hadn’t been temporary — that is, if it had become entrenched like the inflation of the 1970s, therefore requiring years of tight-money policies and high unemployment to get it back down. Some economists, most famously Larry Summers, did indeed warn that getting inflation back down would be extremely costly. But they were wrong. Instead, we experienced “immaculate disinflation”: Starting in mid-2022, inflation rapidly descended to tolerable levels, without any need for a recession to get it down.
So it was a happy story, right? Thanks in part to a strong, big-spending response to Covid, the U.S. economy recovered far more strongly and quickly than it did from the financial crisis. We did experience a burst of inflation, but it was temporary and never became entrenched. All in all, you could say — and some smart people, like Brad DeLong, have said — that the U.S. economic response to Covid was a triumphant policy success.
But that’s not how the public saw it. People, long accustomed to low inflation, were enraged by the post-Covid inflation surge. As we saw in Chart 1, consumer sentiment plunged. In Nov. 2024 voters who said the economy was their top issue favored Trump by 60 points — only to favor Democrats by 30 points in the Nov. 2025 gubernatorial elections, an extraordinary 90-point swing.
Why did seemingly successful economic policy bomb so spectacularly in the political arena? Let’s talk about the psychology of inflation.
People hate inflation
People really hate elevated inflation — that is, they may be OK with 2 percent inflation, which is low enough that it doesn’t really impinge on their consciousness, but get very upset when inflation rises well above that level. This is clear from many surveys, not to mention election results. Economists and political scientists who try to produce statistical models of both consumer sentiment and voting behavior invariably find that inflation has a significant negative impact on views of the economy and incumbent politicians.
But why do people hate inflation? Don’t say that it’s obvious, that rising prices make people poorer. Imagine that we were to have an episode in which prices went up, but so did incomes, and most people’s incomes rose more than prices, leaving them better off in real terms. Would they still be angry? Yes.
I’m not describing a hypothetical scenario. The Biden years were marked by a period of unusually large increases in prices, but they were also marked by unusually large wage gains. Contrary to what many people believe, these wage gains were bigger for less-well-paid workers than for those with high initial wages:
Chart 6 Source
Overall, consumer prices rose a bit more than 20 percent between the eve of the pandemic and mid-2024, while wages of nonsupervisory workers — who are 80 percent of the work force — rose a bit more than 25 percent. So most workers’ real wages rose:
Chart 7
Note: If you’re puzzled by the 2020 bump in wages, that’s a statistical illusion caused by the pandemic. Workers laid off during lockdown tended to be low-wage service workers, while higher-paid workers kept their jobs. So the average wage of those still employed rose, an effect that went away as the economy recovered.
So were workers OK with rising prices because their wages were going up even more? No.
Back in 1997 Robert Shiller, who would later win a Nobel for his work on behavioral economics, wrote a paper titled simply “ Why do people dislike inflation?” He conducted several surveys, whose results can be summarized thus: Even when wages rise faster than prices, people believe that they earned their wage increases, only to have their gains taken away by inflation.
Recent work by Stefanie Stantcheva confirms Shiller’s insight.
Politicians could try to educate the public about why this is wrong, telling people that they’re wrong to be angry about inflation if real wages are rising. That is, they could do this if they wanted to commit political suicide. Whatever our models may say about how the public “should” feel, people hate inflation.
Economists and political scientists have understood this reality for a very long time. Back in the 1970s Arthur Okun, who had been Lyndon Johnson’s chief economist, suggested measuring the state of the economy using what he called the “misery index,” the sum of unemployment and inflation. Unemployment does clear harm to the economy, while the real costs of inflation are surprisingly elusive. Yet the misery index, which puts equal weight on unemployment and inflation, and various refinements and elaborations thereof, has historically done a fairly good job of predicting measures of consumer sentiment, such as the Michigan number in Chart 1, at the top of this post.
Notice that I said that the misery index has worked “historically.” For the fact, and the mystery, about the vibecessions under both Biden and Trump is that economic sentiment and voter anger have been far worse than one would have predicted from past experience even taking inflation into account. In the final section of today’s primer I’ll document this fact and briefly preview the possible explanations I’ll discuss next week.
The vibecession mystery
Chart 7 shows the misery index — the sum of the unemployment rate and the inflation rate — over the same period covered by the Michigan measure of consumer sentiment I showed at the top of this post:
Chart 7
The misery index was very high at the beginning of the 1980s thanks to a combination of high unemployment and inflation, corresponding to very low consumer sentiment at the time. It shot up after the 2008 financial crisis, again corresponding to low consumer sentiment. The surge during Covid was arguably anomalous: many people were unemployed at the peak of the pandemic but were receiving generous benefits to tide them over. Misery shot up again during the inflation surge of 2021-22. But with inflation way down and unemployment still fairly low since 2023, one might have expected consumers to feel considerably better.
Instead, consumer sentiment is at a record low, and voters are angry at whoever holds the White House. Chart 8 shows how voters who identified the economy as their main concern voted in the last presidential election and the recent gubernatorial elections:
Chart 8 Source: Strength in Numbers
So what’s going on? This post is already long, so I’ll turn to explanations of the vibecession next week. As a preview, here are several possible explanations of bad feelings about the economy, each of which probably has some validity but each of which is also problematic in some way:
· Media negativity
· Extreme partisanship
· People care about the level of prices, not their rate of change
· The economy is worse than it looks
For more about vibecessions, check in next week.
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