Arnold Kling calls it The Depressive Realism Economy:
There are psychologists who argue that healthy people tend to have an inflated view of their abilities and how they are regarded by peers. In contrast, these psychologists contend, there is a tendency for depressed people to accurately assess where they stand. This hypothesis is called “depressive realism.” It explains our current economic gloom.
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It now appears that we were living in a dream world a few years ago, with oil prices unsustainably low and house price inflation unsustainably high. Reality is less pleasant.In theory, a student who suffers a blow to his or her self-esteem can continue to work hard and learn. In practice, educators worry that this will not happen.
Similarly, the asset revaluations that represent blows to our economic self-esteem could be shrugged off by workers and businesses. We still have all of the capital equipment and know-how for the U.S. economy to continue growing.
However, a significant reallocation of resources is required. For example, we need fewer construction workers. During the boom, the housing stock grew faster than the rate of family formation. It will take several years for this excess housing inventory, which some economists estimate may be as much 3 million units above its normal level, to be occupied.
Educational credentials that seemed useful four years ago may not be as valuable during the current transition phase.
Kling sees the problem through the unorthodox lens of macro without aggregate demand:
Orthodox Keynesian macroeconomics says that the cure for economic pessimism is for government to create an illusion. Congress can cut taxes or the Federal Reserve can print money in order to make people feel more prosperous.What government cannot do, however, is figure out how to reallocate workers to new industries in a way that reflects long-term reality. Government does not know whether the journalism graduate should wait patiently for a relevant job or whether he needs to find a different career path.
Adapting to the reality of higher energy costs and an excess housing stock requires myriad complex adjustments, some of which may be obvious but many of which are subtle. Chances are, it will take several years to complete the transition. Meanwhile, there is little, if anything, that policymakers can do to hasten that process.