Former Senator Phil Gramm, one of John McCain’s economic gurus, seems to think that current economic problems are purely subjective, talking to The Washington Times about a “mental recession” and whining that “we have sort of become a nation of whiners.”
My understand is that economic downturns do have a certain psychological component insofar as expectations make a different to the economy, but we’re clearly living through some very real supply shocks. The rising cost of food and energy, coming at a time when many people are seeing the value of their main asset decline, naturally causes hardship and slows economic growth. The fact that everyone has more difficulty obtaining credit than they did a couple of years ago doesn’t help matters. These are all very real phenomena.