The Potemkin Economy and the Origins of the Vibecession

Why Are We Intentionally Misreading Our Own Economy?

By now it has become clear that the political establishment, in tandem with the media, have been lying about the state of the American economy. Politico published a dam break report in February by a former US economic high official admitting that the core metrics used to take the temperature of our national economy — unemployment, wages, and economic growth — are all heavily biased towards a false indication of health.

The all-important “U-3” unemployment rate, for example, completely papers over the fact that a skyrocketing number of Americans are either woefully underemployed, or so chronically unable to find work that they have given up entirely. So while U-3 suggests an unemployment rate of only ~4%, that figure explodes to 23.7% if it includes people who either cannot find full time employment, or otherwise make below-poverty wages.

Similarly, despite top economists insisting that wages are rising even faster than inflation (and thus inferring the American consumer is even better off than before the precipitous rise in prices):

the fact is that the predominant government metric for wages only counts full-time wages, while ignoring completely the income of part-time workers and the unemployed.

A level house cannot be built on a tilted foundation, and thus economists and commentators are left arguing with each other over methodologies — which ratios and correlations are the most illuminating about the economic reality of our lives — when data inputs into those methodologies are so corrupted that nothing useful or accurate can come out of them.

Take, for example, the troubling rise in household credit card debt. Aggregate balances reached an all-time high of $1.2 trillion at the end of 2024, setting off concerns that American households have hit a wall in terms of their purchasing power. The Federal Reserve however has provided guidance that this troubling rise is actually not so troubling, because if the aggregate balances are divided by household earnings, it shows in fact that credit card debt has actually fallen over the past four years. Nothing to be worried about.

Note, however, that while the Federal Reserve provides no sourcing on its household earnings, it’s likely that the only way they could reach this conclusion was using a highly over-stated wages number as described above. It is the only way that they could plausibly claim that American households have enjoyed a rise in income that is even faster than the growth rate of credit card debt.

The Fed’s report suggests that from the beginning of COVID to the end of 2024, credit card debt rose about 28%, almost exactly the rise in wages mentioned by Paul Krugman above:

Thus, while credit card debt did indeed rise dramatically, wages rose even more and thus American households are no more heavily burdened by this debt than before. Krugman openly mocked anyone who interpreted this shocking rise in debt — which carries an average interest rate of (coincidentally) 28% — as either biased or ignorant. Nothing unusual at all is going on. In fact, things are getting better.

But the income-to-debt ratio is built on a sloppy, tilted foundation where only the wages of fully-employed people are counted, while the debt is the aggregate debt of everyone. According to the Politico report, while the “weekly earnings” figure used by the government suggests a median annual wage of $61,900, in fact the median wage would be $52,300 if it included everyone and not just the gainfully employed. That’s 16% lower.

DATA, OR DESIGN?

This could either be a problem of sloppy data yielding errant results, or exquisitely fine-tuned data yielding perfect results. Is it mere coincidence that wages were measured to track CPI inflation almost perfectly (by just outpacing it)? Are these vague econometric practices aligning in ways to create a bustling but illusory Potemkin economy? And if so, why? Why lie about the truth if it’s just a matter of how quickly we are able to detect a major recession?

One possible explanation is simple partisan politics: the incumbent party tends to lose the election if it happens during a recession, so lie about economic indicators until after the election is over. And the timing of the Politico report, just weeks after President Trump’s inauguration, would validate this theory. In fact, the whole of the mainstream media has seemingly abandoned the “vibecession” gaslight operation and begun to admit underlying weakness in the economy above what indicators were suggesting prior to the election, when Biden and Harris were taking victory laps for their economic performance.

But this misaligns with the economic governing choices of President Trump, who immediately launched massive trade tariffs against America’s largest trading partners (deflationary/recessionary), ordered mass firings of federal workers (also deflationary/recessionary), and called for an immediate stop to tens of billions of federal expenditures (again deflationary/recessionary). If the rule is that the ruling party put on falsely rosy airs about the economy, Trump relishes in breaking this rule.

Another possible explanation is that our perception of the US economy is fundamentally wrong, and the data “cover up” was necessary not to secure re-election, but to paper over contradictions in our system which cannot be easily reconciled. In other words, it’s not just that the data is too rosy because we measure it wrong, but we have no explanation for why the data is so bad when the economy is in fact growing.

I’d point out two possible features of our current hyper-financialized economy which economists and commentators never seem to point out, with the intent to write more about each of them in future posts here.

The first is the rise of non-productive domestic product, or economic activity which increases the GDP measurement without creating any actual wealth. This includes the growth in rentier profits disguised as “services” in our “advanced services economy” in which the highest value goods and services in our economy are things like financial audits, legal memos, and M&A advice by professional firms like accountancies, law firms, and investment banks. This also includes extractive and speculative profits, also disguised as “services”, in which money is just punted around in the form of gambling and vice. This includes sports betting apps, crypto and meme trading apps, and OnlyFans. This is a phenomenon in which money is shuttled around the economy at very high speeds and volumes, but very little to no tangible wealth is moving opposite to this flow of money as should be expected through the GDP metric.

The second is the shift of national wealth away from public communal ownership (via the state) towards private ownership. Currently well over 90% of national wealth is in private hands, and of course that is heavily concentrated towards the top of a very steep pyramid structure. The public wealth, shared by the polity in the form of public property, infrastructure, and services, is a small sliver of national wealth and being appropriated into private hands at an ever-accelerating rate. Thus the idea that “America is the richest country in the world” is only true if we count private financial accounts, inaccessible gated communities, and corporate assets such as office buildings and datacenters. In other words, wealth which is off limits to anyone but its private owners. Meanwhile the accessible parts of the country are being immiserated into poverty.

Perhaps these are the true source of the “vibecession” concept: an economy with lots of money flowing around but little in the way of real wealth, and the aggregation of total wealth into a tiny minority of super-elites at the expense of everyone else.