A Dozen Theories for Unhappiness About the Economy

Why are people so disgruntled when the statistics seem more than OK?

Photo by gibblesmash asdf on Unsplash

I would like to know from my smart readers why you think so many people are down on the U.S. economy when the unemployment rate remains low, growth is healthy and inflation is only a little above the Federal Reserve’s target. Please share your thoughts in the comments below.

I’ve been digging into the topic since I wrote a post on it last week titled, “The U.S. Economy Is Doing Great. Weird, Right?” and participated in two segments on NewsNation.

I still think something weird is going on. Now I have a few more theories that I want to share to get the conversational ball rolling. For people who don’t want to read to the bottom, I think inflation and income inequality have a lot to do with it.

The mystery to be explained is that the University of Michigan’s index of consumer sentiment fell in November to 51.0, which except for one month in 2022 was the lowest for the index since recordkeeping began in 1978. The November data point is even lower than the October one I included in my earlier post.

To emphasize, this is the mystery: that consumer sentiment is more negative now than it was during the deep pandemic recession or the global financial crisis or even the punishing recession at the start of the 1980s. This, even though the unemployment rate and the inflation rate are below their historical averages.

Now, the theories:

Nostalgia People remember what things cost in, say, 2020, before the Covid-related burst of inflation. They’re psychologically anchored to those prices and regard today’s prices as wrong and unfair. Ordinarily people let their anchors to old prices slip over time, adjusting to the new reality, but prices rose so fast around 2022 that people haven’t gotten used to them yet.

Money Illusion Money illusion is the mistaken tendency to focus on prices rather than buying power. Prices alone are meaningless. They needed to be measured against something else, such as wages. If prices go up by 10 percent but your income goes up 11 percent, things are effectively cheaper, not more expensive.

Income has indeed risen faster than prices lately, so the buying power of Americans overall has increased, not decreased. A comprehensive measure of income is disposable personal income, which includes wages, dividends, interest, rents and government transfers (such as Social Security) minus taxes. Even after adjusting for inflation, disposable personal income rose 1.9 percent in the 12 months through August. To use another metric, average hourly earnings adjusted for inflation rose 0.8 percent in the 12 months through September.

Collectively, then, we are better off. But that’s not what a lot of people are hearing or thinking. (I’ll return to why I’m using words such as “collectively” and “overall.”)

Salience Beef, coffee and iceberg lettuce have gotten a lot more expensive. Eggs and pasta have gotten cheaper. Somehow the items that have gone up are more salient — more noticeable and memorable — than the items that have gotten cheaper.

Broken promises While campaigning, President Trump repeatedly promised to roll back prices, that is, to undo the inflation that occurred during President Biden’s term. That was never realistic. Inflation is like a ratchet; the overall price level can stop rising, but it almost never falls outside of severe economic downturns, which nobody wants. Trump’s rollback promise may have helped him get elected, but it’s hurting him with voters now.

Lying eyes Trump is up against the same problem that Biden and many other presidents faced, which is trying to talk positively about the economy without sounding out of touch with voters’ concerns. Trump is making people feel worse about the economy by bragging that it’s the best ever. His implicit message: “Who you gonna believe, me or your own lying eyes?”

Trump Fatigue Trump’s poll numbers are way down. The usual explanation is that people are unhappy about the economy, so they’re unhappy with Trump. But the reverse is also possible. Maybe they’re unhappy with Trump, and that displeasure casts a pall over everything about him, including the performance of the economy since he took office.

Precarity Although the unemployment rate remains low, workers no longer have as strong a hand as they once did. For a time in 2022, there were two job openings per unemployed person. Now there’s only one. That’s still better for workers than the long-run average, but the trend is in the wrong direction. Also: In August, the share of consumers who said jobs are hard to get reached its highest since early 2021, according to the Conference Board.

Artificial Intelligence This is an aspect of precarity. A.I. is making investors rich, but workers understandably fear that it will wipe out their jobs. Focusing on the still-low unemployment rate misses the anxiety many people are feeling.

Saying, Not Doing Another theory is that people are not as negative about the economy as they tell surveyors. Collectively, they’re not spending as if they’re deeply worried. For example, according to Adobe Analytics, which tracks electronic commerce, online spending on Thanksgiving Day was 5.3 percent higher this year than last. The National Retail Federation projected that overall retail sales in November and December would be 3.7 percent to 4.2 percent higher this year than last.

Those projections for spending growth aren’t enormous, but they’re better than you’d expect if all you knew was what people said in the University of Michigan consumer sentiment survey.

Media negativity President Trump argues that the “lamestream” media are feeding voters a steady diet of bad news, and that’s making them unduly pessimistic. But as the economist Paul Krugman pointed out in a recent Substack post, the media are not more negative than usual, at least as measured by the daily news sentiment index of the San Francisco Fed, which tracks economics-related coverage in 24 major newspapers including The New York Times and The Washington Post. The sentiment index is right around its average going back to 1980.

Now I come to what I think is the strongest explanation for the public’s discontent.

Inequality Even though personal income growth has outpaced inflation overall, that’s not so for people at the lower end of the income distribution. The Bank of America has a research institute that analyzes anonymized data on the bank’s customers. Over the past year, it found, after-tax wages and salaries rose about 4 percent for the high-income third of the country, which comfortably exceeded the 3 percent inflation rate, but they rose only 2 percent for the middle third and 1 percent for the low-income third. So those groups truly did fail to keep up with inflation.

The Atlanta Fed’s wage growth tracker also finds that lower-income households have fared the worst lately, although its gap is smaller. It says that the highest quarter of households by income saw pay growth of 4.6 percent in the year through August, while the lowest quarter saw pay growth of 3.6 percent (still above inflation).

Numbers from Moody’s Analytics also make a case that economic reality is worse than the statistical averages indicate. A team led by Mark Zandi, the firm’s director of economic research, devised a way to track spending by income group by blending data from the Federal Reserve’s quarterly financial accounts and its Survey of Consumer Finances, which comes out every three years.

“Looking at the data, it’s not a mystery why most Americans feel like the economy isn’t working for them,” Zandi wrote in a post on X in September. “For those in the bottom 80 percent of the income distribution, those making less than approximately $175,000 a year — their spending has simply kept pace with inflation since the pandemic,” he wrote. He added: “The 20 percent of households that make more have done much better, and those in the top 3.3 percent of the distribution have done much, much, much better.”

Zandi is absolutely right that statistical averages can be pulled upward by the success of people at the top. On the other hand, even people in the middle haven’t done too badly. For example, median usual weekly earnings rose 2.2 percent in the year through the second quarter of 2025, according to Bureau of Labor Statistics data. The median is the midpoint, where half the people earn more and half earn less. Unlike averages, medians aren’t affected by movements at the extremes.

That said, Zandi is a careful economist, so I tend to think he’s finding something real. In that spirit, I’ll finish with one more theory.

Vox populi, vox Dei That’s Latin for “the voice of the people is the voice of God.” If the statistics say things are pretty good and the people say things are not pretty good — believe the people.

So, what do you think?