In 2021, I prophesied That public mood will become increasingly depressed, partly due to the removal of stimulus. This past JuneI cited a Michigan survey that showed record low consumer sentiment.

A new article in The Economist cites evidence that this phenomenon is affecting most OECD countries and offers some reasons.

Economist notes that sentiment is worse than what a model based on inflation figures alone would suggest, and cites several factors, including slower productivity growth. But this caught my eye:

The second relates to the coming down from the stimulus bonanza. Rich-world governments committed trillions of dollars to households in 2020-21, raising disposable income by unusually large amounts. Governments have largely stopped handouts this year. Average disposable income is now declining, even without accounting for inflation. Nobody likes it.

The third relates to the stimulus bonanza. A new paper by Harvard University’s Anya Jaroszewicz and colleagues found tentative evidence that people who give modest cash payments of up to $2,000 — the amount given during the pandemic — actually become unhappier. These payments are not large enough to be life-changing and can only highlight what recipients are unable to afford. The financial response to Covid, it seems, has a sting in its tail.

I’m becoming more and more convinced that much of the fiscal stimulus was a mistake. Even if it makes people happier (which seems increasingly doubtful), society will pay the price in the next few years in terms of painful austerity. Again, there is no free lunch.

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