The Vibecession Was Real
I like Michael Green and his work. I’m sharing a post from his recent newsletter that’s fascinating because it covers many of the dynamics in the current economy, focusing on housing and overall financial welfare. It's worth a read.
The Vibecession Was Real
And it’s taking a turn for the worse again
Aug 30, 2026
“What? Over? Did you say ‘over’? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!” — Kevin Warsh
Readers of a certain age will recognize that Kevin Warsh did not, in fact, deliver those immortal lines in John Landis’s Animal House. But the misattribution feels appropriate.
Warsh appears to have flopped back to hawk for much the same reason Bluto launched into that speech: the argument itself has become secondary to the question, “Who’s with me?”
That matters because Warsh inherits a hostile room. The Federal Reserve Board is populated by people who have spent their careers studying monetary policy, operating inside the institution, and accumulating precisely the sort of technical experience Warsh conspicuously lacks. They are overeducated, overtrained and, from his perspective, almost certainly overconfident. More importantly, they are not his people.
Imagine walking into that room knowing that much of the institution believes your principal qualification for the job was breaking a glass under a chuppah.
That is an extraordinary psychological position from which to establish authority. You cannot out-CV the room. You cannot out-publish it. You cannot claim greater institutional experience. So you are left with the oldest leadership strategy in the book: pick a fight, plant a flag and ask, Who’s with me?
Every disagreement becomes slightly more threatening. Every appeal to expertise sounds slightly more like a challenge to authority. And the temptation is obvious: establish authority first, build consensus later.
Whatever the psychology, the hawkishness serves the purpose.
Not necessarily because the economic facts suddenly demand it. Because before Warsh can lead the Fed, he has to establish that the Fed will follow Warsh. And this is the risk.
Kevin Warsh sees an economy near full employment with too much inflation. American households see something else. The gap between those views is not noise. It is information.
At Jackson Hole, Federal Reserve Chairman Kevin Warsh asked what is, in many ways, exactly the right question for a central banker: “What is actually going on outside the window?”
His answer was coherent enough even if vanilla. Business investment remains strong, consumer spending continues to grow, unemployment is 4.1 percent and claims remain near historic lows. By most conventional measures, the labor market looks pretty close to full employment. Inflation is the obvious exception. The Fed’s preferred PCE measure is running at 3.7 percent over the past twelve months and 4.1 percent over six, comfortably above the 2 percent target Warsh described as “firm” and “fixed.” If that is your dashboard, his conclusion is hardly surprising: right now the Federal Reserve should be more worried about prices than jobs.
There is not much wrong with that argument as far as it goes. The problem is that an enormous number of Americans have spent the past several years looking at what is supposedly the same economy and describing something very different:
We have been staring at the discrepancy for years. GDP grew, unemployment stayed low, real wages eventually began rising again, and stocks and household net worth reached records. Yet in June 2022 the Michigan sentiment index fell to 50.0 while unemployment was only 3.6 percent; in May 2026 it fell further, to a record-low 44.8, with unemployment still near 4 percent. Sentiment rebounded to 55.2 in July, then fell again to 51.7 in August, leaving it 11.2 percent below the prior year. Those are extraordinary readings for an economy Warsh reasonably describes as close to full employment. Whatever Warsh sees going on, American households do not.
Kyla Scanlon gave the phenomenon its wonderfully durable name: the Vibecession. Initially the term described a puzzle. Somewhere along the way, however, it became an accusation. If the economy was objectively good and Americans insisted it was bad, then perhaps the problem was Americans. Maybe partisan media had poisoned their perceptions, maybe social media had made everyone miserable, maybe people had forgotten what a real recession felt like, or maybe they were just racist. Most commonly, we were told that consumers did not understand the difference between prices and inflation: inflation had fallen, but prices had not.
That last explanation should have ended at least part of the argument, because prices not falling was precisely what people were complaining about. Instead it somehow became evidence that the public did not understand economics.
There is, to be fair, something to the various critiques of the data. Republicans become gloomier when Democrats hold the White House and Democrats return the favor when Republicans take over; Michigan has also changed its collection methods, so the index is not a laboratory thermometer. But those effects long predate the Vibecession, and they did not historically produce sentiment this bad alongside unemployment this low. Michigan’s own August breakdown is useful here: the decline was concentrated among older consumers, lower- and middle-income households, and people who own no stocks — almost exactly where a balance-sheet story would tell you to look. The partisan story moves the needle, but it does not remotely close the gap.
The 2026 readings also carry a more immediate burden. The Iran conflict pushed energy prices higher and revived fears that inflation would spread again, so the latest deterioration is not simply the accumulated price-level shock echoing through sentiment. But that shock landed on top of, rather than instead of, an affordability problem that was already visible before it.
The deeper mistake was deciding that national economic accounts and household surveys were competing descriptions of reality, with one supposedly “hard” and scientific and the other “soft,” emotional and therefore suspect. They are both data. They simply count different things, and once you understand how differently they count them, much of the Vibecession ceases to be mysterious.
The Speedometer Is Not the Trip
Economists have a wonderful ability to take an intuitive idea and make it sound forbidding by attaching calculus to it, so let’s try to skip that — Inflation is a speedometer; the price level is an odometer (which measures accumulated lifetime mileage for those with Uber only backgrounds).
Suppose your family spends $80,000 a year maintaining its normal life and, over several years, that rises to $100,000. Inflation then collapses and the following year your expenses increase by only another $2,000. An economist is completely correct to tell you inflation has fallen dramatically. You are equally correct to observe that maintaining your life still costs $22,000 more than it did before. The speedometer slowed; the odometer did not run backward.
Returning inflation to 2 percent does not return prices to 2020. It means the new, substantially higher price level continues rising at 2 percent. By July 2026 headline CPI was roughly 28 percent above its January 2020 level. The rate of increase matters enormously to the Federal Reserve; the accumulated increase is what households inherited.
But even the odometer analogy is too simple, because there is no single American car. The homeowner who refinanced at 3 percent experienced a different five years from the renter whose lease reset annually; the retired couple took a different trip from the family paying for daycare. When we go from “PCE inflation is 3.7 percent” to a statement about how Americans should feel, we have used one aggregate rate of change to summarize millions of histories that began from different places and ended with different balance sheets.
In calculus terms, we are trying to infer an integral from a derivative. But even that gives us too much credit, because it implies there is one integral waiting to be recovered. There isn’t. There are millions.
The K Is the Point
Imagine two households whose average economic condition improves by 1 percent. Perhaps each became roughly 1 percent better off; perhaps one improved by 10 percent while the other deteriorated by 8 percent. The average is identical. The society plainly is not.
That is the useful content of the phrase K-shaped economy. The important feature is not merely that one household is richer than another, but that the same economic event can push them in opposite directions. Rising home prices increase the homeowner’s wealth while raising the price of admission for the renter. Higher interest rates increase the income of someone holding Treasury bills while increasing the cost of a mortgage, car loan or credit-card balance for someone else. Rising equity prices enrich the existing shareholder while increasing the valuation at which the younger worker begins accumulating the same assets.
Then today’s result changes tomorrow’s starting point. The homeowner gains equity and flexibility; the renter pays more for shelter and saves less toward a down payment. The saver receives more interest and acquires more assets; the borrower pays more interest and arrives at the next shock with less savings. The same economy does different things to different people, and what it does to them today changes what it can do to them tomorrow.
A very simple model of an economy where homeownership is split by age and income, financial asset holding is diffuse in number but concentrated in effect, and a “rate shock” occurs can generate exactly our “lived experience” — average net worth up sharply, median net worth up modestly, final consumption higher, and 90% of households experiencing declining real consumption:
This is a K-shaped economy. Once those paths separate, averaging them can discard exactly the information we need. And this is where the supposed contradiction between resilient spending and miserable sentiment becomes especially interesting, because those measures do not merely observe different things. They use different voting systems.
Dollars Vote Differently Than People
A household survey is trying to approximate a representative picture of people. A millionaire does not receive fifty answers because he has fifty times as much wealth. The economy works differently: in the economy, dollars vote. If one household spends $120,000 a year and another spends $40,000, the first contributes roughly three times as much to aggregate consumption. There is nothing wrong with that; GDP is measuring economic activity, not conducting an election. But the survey and the national accounts are answering different questions.
Imagine ten households. Nine have become somewhat less secure and each trims discretionary spending. The tenth owns substantial financial assets and a home financed at 3 percent; its portfolio is up, its interest income has risen, and it spends more. Ask the households how they are doing and most say “worse.” Add the dollars and spending can still rise. Both observations are correct. The survey tells us how widely the experience is shared; the spending data tell us how many dollars moved.
In a K-shaped economy that distinction matters enormously because the upper arm of the K has more dollars with which to vote. The widely repeated claim that the top 10 percent now account for half of consumer spending comes from a Moody’s estimate that works backward from asset flows; survey-based measures put the top decile much closer to a quarter of spending, roughly where it has been for decades, and the Minneapolis Fed’s review of the available evidence finds the post-pandemic split in spending growth to be real but modest. From the third quarter of 2020 through the third quarter of 2025, nominal spending rose about 29 percent for the lowest-income third of households and 36 percent for the highest, against a price level up roughly 25 percent over that window. Nominal spending therefore rose across the distribution, although at the bottom it ran only modestly ahead of prices. The much larger divergence appeared underneath the spending. In New York Fed credit data, the flow of mortgages becoming seriously delinquent in the lowest-income quarter of ZIP codes rose from roughly half a percent of balances in 2021 to nearly 3 percent by late 2025, while the overall average was about 1.3 percent and higher-income borrowers remained near historic lows. The consumption K is modest. The balance-sheet K is not.
The squeezed household may itself keep spending because necessities do not become optional when they become expensive. Rent, groceries, electricity and auto insurance still have to be paid, and a household can therefore maintain an astonishing amount of consumption while becoming progressively less secure underneath it. That is the point the aggregates miss. The macroeconomy sees resilience while the household experiences depletion.
That is why the disagreement between sentiment and spending was always useful information. The national accounts tell us where the dollars went, surveys tell us how broadly prosperity or distress was experienced, and balance sheets tell us whether those dollars came from rising income and wealth or from shrinking savings and greater debt. You need all three to understand the trip. And it is clear that we have decided to ignore the surveys in favor of the stock market. After all, it was rough out there under Biden… somebody had to think of the make up girls.
Nobody Buys CPI
The next problem is simpler: nobody buys CPI. People buy groceries, pay rent, turn on the lights, insure the car and go to the doctor. Since January 2020 the broad consumer price level has risen roughly 28 percent, but many categories households find hardest to avoid rose faster. Through the end of 2024 alone, motor-vehicle insurance was up roughly 54 percent, electricity and utilities about 37 percent, shelter about 35 percent, food at home around 27 percent and medical services more than 20 percent, versus roughly 24 percent for headline CPI over the same period.
This does not make CPI fraudulent. We need an aggregate index; the trouble begins when we forget what an aggregate is. A lower-income family devotes more of its income to necessities, a young family may face childcare a retiree does not, and a first-time buyer confronts not only a higher house price but the higher price of financing it. The aggregate basket is useful precisely because it aggregates those experiences; it just is not anybody’s actual life.
There is also a cumulative cost that the latest inflation reading cannot erase. The groceries bought while wages lagged have already been eaten, the higher rent checks have cleared, and the insurance premiums were paid. If those expenses forced the household to draw down savings or accumulate revolving debt, that damage remains even after wages catch up. An economist may correctly announce that real wages have recovered; the household balancing the checking account is entitled to respond, “That’s nice. Where were you three years ago?”
Modern price indices add another wrinkle through substitution. If beef becomes much more expensive relative to chicken, households buy more chicken, and economists sensibly want the index to recognize that response. But the question changed. The economist asks how much more the household needed to spend after allowing substitution; the household may be asking, “Why am I eating chicken when I used to eat steak?”
If rent rises and you add a roommate, you substituted. If the neighborhood near work becomes unaffordable and you accept an hour-long commute, you substituted. If childcare becomes prohibitive and one parent reduces working hours, the family substituted unpaid labor for daycare. Sometimes substitution means, “I found something equally good for less.” Sometimes it means, “I can no longer afford what I wanted.” The spreadsheet has trouble distinguishing the two, but the consumer does not.
How the New Price Became the Old Price
Warsh went further at Jackson Hole, arguing that responsibility for more than five years of elevated inflation “sits squarely with the central bank.” I would not allocate the blame quite so neatly, and this is exactly where confidence should fall rather than rise. Bernanke and Blanchard’s work on pandemic inflation emphasizes product-market shocks, commodity prices and sectoral shortages in the initial surge, with tight labor markets contributing more persistence; the San Francisco Fed’s supply-versus-demand decomposition likewise finds a changing mixture rather than one permanent culprit. Any sentence claiming that “X caused the inflation” should make us a little suspicious, including mine.
The Fed certainly contributed, and housing is its hardest decision to defend. Americans suddenly wanted more private space at the moment construction, inventories and mobility were constrained (as populations have done throughout every pandemic in history), while the Fed maintained near-zero rates and continued buying mortgage-backed securities. Fiscal policy simultaneously poured purchasing power into an economy whose ability to supply goods had temporarily fallen. Neither fact is difficult to connect to higher prices.
But the pandemic also exposed how aggressively we had optimized supply chains for efficiency rather than resilience. Inventories were lean, production was concentrated and important inputs often came from very few suppliers. When several links failed at once, the immediate result was scarcity; the more interesting result was that consumers lost their reference prices. Freight costs exploded, delivery dates became guesses, commodities swung violently and used cars briefly behaved like collectibles. Everyone knew prices were rising. Almost nobody knew how much they needed to rise.
That uncertainty was valuable to firms with pricing power. In normal times, if my costs rise 3 percent and I raise prices 10 percent while the competitor across the street raises 4 percent, customers notice. During the pandemic almost any increase had a plausible explanation, and the old price stopped functioning as an anchor. Companies did what companies normally do when given additional pricing power: they used it. This is not a story about executives suddenly becoming greedier; their desire for profit did not change, their ability to obtain it did.
General Motors supplied a useful illustration in May 2021 when Mary Barra told analysts that GM would never return to pre-pandemic inventory levels because the company had learned it could operate more efficiently with fewer vehicles sitting on lots. That does not tell us how much autos contributed to national inflation, but it demonstrates the mechanism: a temporary shortage can teach a consolidated industry that scarcity is profitable. Once the higher price is established, nothing automatically forces it back down when the shortage ends. Nobody mails the customer a refund. The new price becomes the old price.
The question that matters for the Vibecession is who absorbed that new price level, and from what starting point.
The 65-Year-Old Was Not a Plutocrat
Consider a reasonably successful 65-year-old retiring today. Not a CEO, not an investment banker and not someone whose parents handed him a trust fund. A rough reconstruction using Census household-income histories by age puts his household around one-and-a-half times the income of the typical household its age through much of the working life, something like the 70th percentile. Successful, certainly; hardly a plutocrat.
He also saved more than average, and that deserves credit. He worked, deferred consumption, took the employer match when available and used the tax advantages the system offered. The point is not to deny discipline but to keep it in proportion: a stable upper-middle-income household did not need to perform an act of monastic deprivation to arrive at retirement with substantial assets, particularly as retirement policy increasingly rewarded households with the income and stability to participate.
The interesting part is what happened after those savings entered the market. His career began as America was changing the architecture of retirement, with defined-benefit pensions gradually giving way to defined-contribution plans. Coimbra, Gomes, Michaelides and Shen show in a calibrated general-equilibrium model that pension architecture affects asset demand, interest rates, the equity premium and risk sharing.
Meanwhile, equities enjoyed a historic bull market, interest rates fell for decades, and a growing share of retirement flows became passive. The inelastic-markets literature associated with Gabaix and Koijen remains contested, but it provides a useful warning against assuming that price-insensitive demand disappears harmlessly into infinitely elastic arbitrage. Our retiree therefore did not compound his savings in a vacuum. He compounded them during a long period in which discount rates fell and the financial architecture generated persistent demand for the assets he bought cheaply. Thrift supplied the seed; the regime supplied a remarkable share of the harvest.
There is no accusation and it requires no conspiracy. It matters because the asset sitting on one household’s balance sheet is often the expense confronting the household that comes next.
The Same Recipe at a Different Price
Now consider a 32-year-old renter trying to buy her first home. She has a car loan around 9 percent, occasionally carries revolving credit above 20 percent, and is still paying for an education whose promised career path has not developed quite as cleanly as advertised. She also did what she was told: get educated, borrow if necessary, build skills, save to buy a home, contribute to the retirement account, buy the index and give compounding time to work.
There is nothing obviously wrong with the recipe. The problem is what the ingredients now cost. The older household accumulated equities before much of the repricing and then benefited from it; the younger household begins by paying the resulting price. The older household bought housing during decades when falling mortgage rates repeatedly increased how much house a monthly payment could purchase; the younger household confronts the home price produced by that process while financing it at a rate far above the one enjoyed by the current owner.
This is the point that gets lost when the debate becomes moralistic: what appears on his balance sheet as wealth appears on hers as the price of admission. They are two sides of the same asset price. That does not mean the older homeowner stole anything from the younger renter. It means “save like I did” and “skip the avocado toast” is incomplete advice, because identical behavior undertaken at radically different starting valuations and financing costs need not produce identical outcomes.
Housing makes the asymmetry impossible to miss. At the peak of lock-in in 2022–23, roughly two-thirds of outstanding mortgages carried rates below 4 percent; by early 2026 the share was closer to half, still an enormous stock of below-market debt. A $400,000 mortgage at 3 percent costs about $1,690 a month in principal and interest. If the comparable house is now worth $520,000 and a new buyer finances 80 percent at 6.5 percent, principal and interest rise to roughly $2,630 before the larger down payment, higher taxes and higher insurance enter the picture.
So the owner stays. The family that normally would have left the starter home remains there; the starter home never reaches the first-time buyer, who remains in the apartment, which never opens for the household behind her. Higher rates suppress housing demand and eventually supply of new homes, but with so many existing mortgages fixed below market they also suppress effective secondary market supply. Yesterday’s monetary policy protects the incumbent owner; today’s lands on the prospective one.
The same asymmetry appears in interest income. Higher rates make borrowing more expensive, but interest expense has a counterparty. Homeowners and large corporations entered the tightening cycle after years of locking in cheap long-duration debt; the federal government, which continually refinances, did not. As rates rose, T-bills and money-market funds began paying meaningful yields again. Treasury’s expense became someone else’s income, and financial assets are not distributed evenly.
Our older homeowner can therefore borrow at 3 percent on his largest liability while having earned close to 5 percent on liquid savings at the peak and still earning well above what he pays on the mortgage. The younger renter faces the new auto rate, credit-card rate and prospective mortgage rate. This does not mean higher rates are secretly stimulative; it means monetary policy works through balance sheets, and balance sheets differ. One household can spend because wealth and investment income increased while another maintains spending because rent, food and insurance are unavoidable even as savings fall. Both dollars appear in consumption; each household gets roughly one answer in the survey. The famous disconnect begins to look a lot less mysterious.
Full Employment Is Not Necessarily a Career
The labor market creates the same problem in another form. Warsh looks at unemployment of 4.1 percent and concludes, reasonably, that the country is close to full employment. On conventional measures of slack he is basically right; there is no secret 8 percent unemployment rate hiding under the headline.
The problem is that “employed” is a poor description of an economic life. A college graduate in a job that did not require the degree is employed; so is a software engineer doing gig work between technology jobs. The unemployment rate asks whether you have work, while the worker may be asking whether this is the work she spent years preparing to do and whether it is taking her somewhere. Those are different questions.
This is particularly important for younger workers because the bargain offered to them was never simply that some job would exist. The bargain was that they should consume less now, borrow if necessary and invest in human capital because the resulting career would justify the cost later. When the debt arrives exactly as promised but the career does not, classifying the borrower as employed does not tell us whether the bargain worked.
Part-time data offer an interesting version of the same issue. Involuntary part-time employment remains around 3 percent of employment, near levels associated with strong labor markets, while the share of employment that is usually full-time has slipped to roughly 84 percent, near the low of a series beginning in 1968. Most of that decline is secular and has ordinary demographic and labor-force explanations; it is not a hidden post-pandemic recession. The narrower observation is that the full-time share improved in the 2022 recovery and weakened again after 2023 even as conventional involuntary part-time slack stayed low.
The classification itself contains the substitution problem we saw in prices. A parent who cuts hours because childcare became unaffordable may accurately report a family reason. A graduate accepting flexible work while waiting for an opening in his field may accurately describe the arrangement as voluntary. Sometimes “voluntary” means “this is what I wanted.” Sometimes it means “this was the best choice available.” Statistics can record the choice; they have more trouble recording the missing alternatives.
The post-pandemic labor market also delivered something genuinely good: wage growth at the bottom was unusually strong. But workers care not only about the number on the paycheck; they care about the return to experience and skill. If an entry-level wage rises from $12 to $18 while an experienced worker goes from $22 to $24, both got raises, but the premium for experience fell from $10 to $6. Add a large increase in necessities and the economist can correctly report rising wages while the worker correctly wonders why ten years of experience buy less economic distance than they used to.
What This Does — and Does Not — Tell the Fed
None of this means Warsh is wrong to worry about inflation today. The odometer helps explain sentiment; it does not tell us where the federal funds rate belongs. If the price level were 28 percent higher than in January 2020 but inflation had settled durably at 2 percent, tighter monetary policy could not return the lost purchasing power. The higher level would be a sunk injury and destroying additional demand would merely add unemployment to the bill.
That is not the environment Warsh faces. Inflation has reaccelerated, shorter-term PCE measures are running well above target, and year-ahead inflation expectations are 4.0 percent, down from 4.2 percent in July but still above every reading recorded in 2024. A central bank that ignores renewed inflation because households are angry about the previous episode risks converting a price-level shock into an ongoing process. Warsh’s focus on prices today is therefore defensible.
Where I part company with him is the claim that the whole path “sits squarely” with the central bank and the temptation to imagine monetary policy can fix every affordability problem left behind. It cannot. The Fed cannot build a house, connect a transmission line, add a power plant, train a nurse or create another daycare slot. Where inflation reflects excessive demand and drifting expectations, restraint is the right tool. Where the problem is physical scarcity, restraint mainly makes households less capable of paying for the scarce thing. Sometimes that is necessary. It is not the same thing as making the thing less scarce.
Higher mortgage rates reduce the number of buyers who can afford scarce homes, but they do not build another home and, through lock-in, may reduce the number offered for sale. Electricity has the same basic structure. If demand is outrunning generation and transmission, society can restore equilibrium by forcing demand lower or by building more capacity. Only one approach leaves the country with more electricity.
The Economy People Actually Live In
The obvious lesson is not that CPI or PCE are wrong. They do the jobs they were designed to do, and replacing them with a politically convenient “real inflation” measure would merely create a new argument. The problem is that we keep asking them to answer questions they were never designed to answer. CPI can describe the movement of an average basket; PCE can tell the Fed a great deal about the inflation process it is trying to manage. Neither can tell us, by itself, whether a household still recognizes the economic life those prices are buying.
That suggests adding something rather than replacing anything. Oren Cass and American Compass have pioneered one version with the Cost-of-Thriving Index, comparing major family costs with the income required to pay them. I would not call COTI, or any successor, the “true” inflation rate; there is no such thing. Its value is that it asks another question. If PCE inflation falls to 2½ percent while the cost of maintaining a recognizable household life remains dramatically above where it stood five years earlier, the two statements do not conflict. The first tells the Fed how quickly prices are changing now; the second helps explain why the person paying them is still angry.
We should read those measures alongside surveys and balance-sheet data because together they tell us what none can tell us alone. Price indices describe the movement in prices; a household-cost basket says something about the accumulated cost of maintaining a life; surveys tell us how widely the experience is shared; balance sheets tell us whether households reached the other side with higher income and wealth or by saving less, borrowing more and postponing what they expected to do next. When those measures disagree, the disagreement is not an embarrassment to be explained away. It is probably the most interesting thing in the data.
The same discipline should apply to policy. If demand is running too hot and expectations are drifting, the Fed should restrain demand. But if housing is expensive because we made it difficult to build where people want to live, making mortgages more expensive is a peculiar substitute for fixing zoning. If electricity is scarce because generation and transmission cannot connect quickly enough, suppressing demand will not add capacity. If a critical supply chain is brittle because firms eliminated redundancy, higher rates do not create a second supplier. And if temporary scarcity becomes durable because concentrated producers discover that fewer units at higher margins are profitable, we have wandered out of monetary policy and into competition policy whether economists enjoy that fact or not.
Sometimes the problem really is too much money chasing too few goods, and reducing the money is appropriate. But sometimes the important part of that sentence is too few goods. We have spent much of the past five years trying to solve the latter by attacking the former because monetary policy is fast, centralized and available while building houses, power plants, transmission lines and resilient supply chains is slow, political and irritating. Sending more dollars into a market whose supply cannot respond can simply raise prices, but making consumers poorer does not create supply either. It merely changes who loses the auction.
That is the economic distinction the Vibecession was trying to tell us all along. We were looking for one number that could adjudicate whether the economy was “good” or “bad,” when different households were being pushed through very different versions of the same economy. The aggregates were not lying. Neither were the households. We were asking the wrong question.
Outside the Window
So return to Warsh’s window. He sees solid business investment, resilient consumption, unemployment close to full employment and inflation moving the wrong way again. He is looking at real data. The 32-year-old renter sees a house that moved beyond reach, an education she is still paying for, a career that has not quite delivered the return she was promised, and a monthly budget increasingly dominated by expenses she cannot easily avoid. She keeps spending because much of that spending is necessary, even if maintaining it means saving less. She is looking at real data too.
Across town, the 65-year-old homeowner sees an economy that treated him remarkably well due to his excellent choices. His discipline mattered, but so did the regime into which he saved; he spends too, and in the consumer survey he gets roughly one answer, just like the renter. In the economy, he gets many more dollar votes and damn it, he earned that cruise.
That was the error at the heart of the Vibecession debate. We treated disagreement between aggregates and lived experience as proof that one side had to be mistaken when the disagreement was exactly what should have interested us. The national accounts counted the dollars, the surveys counted the people, and the balance sheets recorded how different starting positions, asset ownership and financing costs separated their paths.
The economy did not secretly fall into recession while the statisticians failed to notice, nor were millions of Americans hallucinating economic deterioration because social media told them to be miserable. The economy split, and once it split the average increasingly described a household nobody actually knew. The speedometer is telling Warsh something important, and he is right to pay attention to it. But the many odometers are telling us something important too, and the surveys have been telling us for years that the passengers did not all take the same trip and many are approaching the point of fatal exhaustion.
The Vibecession was real. We should have listened. It’s not too late, but time is running out.
As always, thoughts, men’s moderately high-end facial moisturizing products, and interest in Tier1 are always appreciated.