STRUCTURAL AFFORDABILITY, vibe-pocalypse, J-POW, and more
Considering the real implications of low economic sentiment
By now, I’m sure you’ve heard some variation of this tale: tons of Americans feel the economy is bad, but economists say it is really good, actually. Recently:
45% percent of Americans described the current economic conditions as “poor” and another 31% as “only fair” in Gallup’s August 2024 Economic Confidence Index.
“Our economy is strong overall,” opened Federal Reserve Chairman Jerome Powell (J-Pow) in a speech he delivered on September 30. And headlines continue to pronounce: “All the data is pointing to a soft landing in the US economy, top economist says” and “All the good economics news vindicates Bidenomics.”
Two roads diverged. What gives?
If you consume as much economic media like I do, you may have noticed an emerging consensus that this dichotomy in sentiment is driven by something called “structural affordability issues.” Put simply, the markets for basic needs are set up so that most Americans can't afford them. This reality is often overlooked in headline economic data, which tends to focus on employment rates.
If the most essential parts of your life—the fixed costs that eat into your paycheck like rent and basic healthcare—feel out of reach, how could you feel like you are doing well, economically-speaking?
Fighting grocery price inflation is a central priority of the Biden administration. Oil prices have the power to decide elections. People experience “the economy” as a series of costs they face – at the grocery store, the gas pump, the doctor’s office, the hair salon. So when these numbers trend upwards – often with little improvement or innovation – people look at their largely unchanged paychecks and worry they are being left behind.
Healthcare (as I’ve written before) and education are just two of the many components of life that are increasingly becoming unaffordable, or as my college professors would say, succumbing to cost disease. The problems are, of course, structural. These are the sectors which have experienced price increases far exceeding the supply-chain driven concerns of the last few years, whose market structures over the last few decades feel quite fixed.
To summarize with a few econ 101 terms, demand for both healthcare and education is inelastic – you will always need both. This gives providers in both markets incredible pricing power. There’s massive gaps in information asymmetry. (It is no surprise why comparing “ROI” for various degrees is becoming more common.) Both markets have sky-high barriers to entry – how many new hospitals or new universities are popping up in your neighborhood? In healthcare, mergers and consolidation further limit existing competition. The fixtures of payers and subsidies (hospitals and insurers; universities and student loan servicers) accelerate cost increases; consumers barely see it happen in front of their eyes.
Now let’s consider the consumer impacts of this, among other sectors:
Imagine you and your husband are a normal couple in the Bay Area (where I live). You pay for one child in daycare and one grandparent’s rent in assisted living. You and your husband make the median local income for a family of 3, which is $134,850, which becomes $84,538.80 after federal and state taxes.
Housing: Your rent for your two-bedroom apartment in the Bay Area is $3,966 (the local median). Without utilities, this will cost you $47,592 per year. You want to buy a house someday: but despite tech salaries pushing up the median household income, it would still take your salary about ten years of diligent saving (in 1970 in SF, it took only 2.7 years of saving). Want to leave? The $250k houses in Indiana (which are the state median) sound quite cheap until you consider the median wage there is $57,034.
Healthcare: Your annual premium for family insurance coverage is $23,968 (the average). But your greatest risk lies in falling victim to a disease like cancer, simply being unlucky, and thus being liable for the median out-of-pocket initial treatment cost of over $43,000 annually.
Childcare: Sending your toddler to daycare for a few hours of the day is $13,408 per year (which is the state average, and realistically much higher in the Bay).
Elder care: Your parent’s room in an assisted living facility costs you $6,250 per month, or $75,000 per year (also a state average).
Education: You are saving up to pay for your future child’s college education, praying it will be somewhere prestigious, local, and affordable like UC Berkeley, so your savings budget should exceed $80,000 to cover their four-year education.
At the end of this exercise, without even paying for basic utilities or eating food or saving for your child’s education or your future house or retirement, your bank account reads something like -$6,680. You’re just living what seems ostensibly like a normal human life with normal human relationships, working a normal job, but as they say on Tiktok, “the math isn’t math-ing.”
In theory, you can always find a better-paying job (much harder in practice). But the cost of living will follow you everywhere.
In 2024, Bankrate reported more than 50% of Americans can’t come up with $1,000 needed in an emergency. Americans live in a high state of anxiety relative to their European counterparts. As mentioned above, health costs from a car cash or cancer diagnosis can bankrupt what savings you’ve managed (66% of bankruptcies in the US are caused by medical debt). You could spend your entire life making good decisions, saving for retirement and living a humble life within your means, and lose it all in an instant. Or, you watch this happen to your friend or family member, and your pessimism about your well-being and the economy more broadly evaporates in the same instant. The psychological impacts of this are tremendous, not to mention its impact on your physical well-being.
Not everyone has assets or stocks to sell in these scenarios, either! The Federal Reserve’s Survey of Consumer Finances (SCF) reports the median account balance is only about $8,000. To my surprise, 39% of Americans don’t partake in the stock market at all. Between taking out credit cards and setting up GoFundMes and floating checks and selling MLM products, Americans have learned a certain resilient craftiness. But I can’t imagine it inspires much confidence in the broader system.
Returning to this article’s framing, one product of these structural affordability issues is negative economic sentiment. Even with the strong employment reports last week, I’m not convinced the vibes are improving. In fact, they seem to be getting worse ahead of the election.
The University of Michigan’s consumer surveys are a gold standard for surveying Americans’ perception of broader economic conditions. Why do you think we’ve fallen off the cliff? Maybe it’s employment distress from Hurricane Helene. Maybe it’s gas prices rising again. Maybe it’s losing faith in the presidential candidates.
Low sentiment is exceptionally well-documented in the media through post-pandemic coverage of the “vibecession” (a clever term coined by economic commentator
, which explains the dichotomy between economic sentiment and economic indicators). You can read about the vibecession in outlets from Bloomberg and The New York Times to the X posts of Neoliberals and the DSA members setting out to destroy them. With such ample agreement that people’s personal experiences of the economy matter, it’s fair to consider the malaise well-diagnosed – and it is time to gnaw at something deeper.In an interview with Nathan J. Robinson (that editor of Current Affairs), Scanlon noted:
“We have structural affordability problems and crises with housing, healthcare, elder care, child care, all of these different things specifically in the United States. And so, it makes sense you would feel bad, and we have to pay attention to how people feel because those expectations, oftentimes, ultimately end up dictating where the economy goes.”
(Worth noting, I reviewed her book for the Los Angeles Review of Books).
If the next President fails to address the country’s mounting structural affordability issues, we risk a “vibe-pocalypse”: a feedback loop between negative economic sentiment and actual economic outcomes, whereby consumers lose such faith in the economy they withhold their spending, trigger market sell-offs that results in lower stock prices, read more and more headlines about the economy doing poorly, and withhold even more spending.
So where are we headed? Inflation has been the great challenge of the Biden administration, and it’s true that we may have weathered the storm on that one. But many federal policies and programs influence economic well-being and sentiment. The child tax credit, expanded unemployment insurance, and the student loan pause once gave Americans a bit of breathing room. So when Covid-era benefits began to subside in 2022 and 2023, sentiment nosedived.
Harris’ proposed administration, which seems freshly focused on the mounting cost of living, might address this. In fact, the subtitle of Kamala Harris’ 82-page economic agenda is “A Plan to Lower Costs and Create an Opportunity Economy.”
Even if the negative reaction to her proposed grocery price controls resulted in their modification, it seems generally good that specifically lowering the costs of certain essential things are among Harris’ priorities.
On the other hand, economists at Brookings and Urban Institute’s Tax Policy Center predict that Trump’s tax cuts, tariffs, and “mass deportation” would actually increase costs. His proposed tariffs alone are thought to increase prices on imported goods (and maybe their domestic competitors) to the extent that they would lower Americans’ after-tax incomes by about $1,800 or 1.8% of their income, which should be deeply concerning to anyone who has bought a product made in China, bought a product made with products from China, or ever heard of the general idea of products which are made in China.
Maybe the biggest structural issue of them all is the need for collective responsibility. Universal healthcare, affordable public housing, improvements to public education, and subsidized childcare and eldercare programs would each offer meaningful respite from structural affordability problems. If we continue to ignore the obvious, expect increased anxiety, a deeper vibecession, and a drag on economic growth itself.
The stakes couldn’t be much higher as the election approaches. Both sides promise distinct paths forward but cannot escape the same underlying and profound challenge: facilitating an economy that is fundamentally kind and hospitable to everyday life.
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A majority of the premiums are covered by employers. In the case of family coverage it's something like 70% so the $24k number is more like $7200 for family coverage.
https://www.kff.org/report-section/ehbs-2023-section-6-worker-and-employer-contributions-for-premiums/
Thanks for writing this! I’m from the Bay Area though I haven’t lived there in 7 years and these figures are horrifying/ further proof I could never go back even if I wanted to…