Episode Details

Jared Bernstein, former top Biden economist and all-round economic expert, and I bat around the puzzle of persistent negative economic sentiment. Recorded Wednesday.

. . .

TRANSCRIPT: Paul Krugman in Conversation with Jared Bernstein

(recorded 4/22/26)

Paul Krugman: Hi everyone. This week I’ve got Jared Bernstein with me for a talk about economic vibes. We had planned and hoped to have G. Elliott Morris in on the conversation, but he came down sick. So it’s just going to be two economists talking about why people are still so negative about the economy. Clearly this is very important for lots of purposes, but also just kind of interesting. So, hi Jared. Maybe you should lead off by explaining why it’s so compelling and then I’ll chime in. We’ve both done work on this, but you’ve done more.

Jared Bernstein: Yeah, well, to me, it’s personal because I was in the White House—in the Biden administration’s Council of Economic Advisers, as you know—during this period when what began to be called the vibecession arose. I associate that term with Kyla Scanlon. This was a situation where we were posting some good strong macroeconomic numbers. GDP was strong. It was above trend. We got back to full employment very quickly after the pandemic-induced recession. But there was a big spike in inflation. As that spike came down, we were rolling down the other side of inflation mountain in the second half of 2022, we thought that was a pretty good development, given how upset people were. But consumer sentiment, consumer confidence, people’s feeling about the economy—these vibes—just kept getting worse. And it seemed to me at the time that that shock, not just to inflation, but to the level of prices—how much prices went up—was more important than most economists were realizing. As you well know, people in our field think a lot about inflation and inflationary shocks. We think less about the level of prices and sort of take that as a given. So that struck me as quite important at the time. And I began to look into it in ways I’m sure we’ll get into.

Krugman: I mean, what was striking about it was that historically, there’s a pretty good relationship between consumer sentiment and macroeconomics. And way back they called it the misery index, which is the inflation rate plus the unemployment rate. It was designed by Arthur Okun, and it did a pretty good job. And then you added a little more sophisticated version of that, and it has historically done a pretty good job of tracking sentiment. But after 2022, even by these measures that had worked before, it looked like an economy that should have had people feeling a lot happier, but they weren’t. But let’s talk a little bit about price level because what always struck me, even from the beginning, was a question about: what period of inflation are we talking about? You know, why should it be the one-year rate of inflation that enters into the misery index as opposed to a two-year, or three-year, or four-year? That’s how we kind of started. In your recent work, you started by saying, “well, maybe with inflation over a longer period,” but this kind of morphed into this price level issue. So why don’t you tell me about that?

Bernstein: So, a couple of things to amplify points you were just making. My coauthor on a recent paper, Daniel Posthumus, and I made a model of consumer sentiment. And this works both on the Michigan version and on the Conference Board version.

Krugman: By the way, people should know that U. Michigan is the longest-standing regular survey of how people feel. But the Conference Bo