On the Surface, the U.S. Economy Looks Better than Its Fundamentals

The stock market says “all good.” Consumer sentiment says “2009.” Both can be true—if the scoreboard is rigged, and sends the wrong signals in the context of AI-overexuberance and a two-class system t

The stock market says “all good.” Consumer sentiment says “2009.” Both can be true—if the scoreboard is rigged, and sends the wrong signals in the context of AI-overexuberance and a two-class system that suppresses labor while juicing capital…

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Unemployment is low. Unemployment counts joblessness. It does not count fear. It does not count the worker who won’t complain, won’t organize, won’t quit—because deportation or lost health insurance is worse. Sentiment captures that reality first. The live question, therefore, for capital: do domestic gains from rent extraction enabled by labor suppression beat global losses from deglobalization and trade chaos? I think probably not. But the stock-market tape, also juiced by the AI bubble says yes. Maybe we have a genuine two-speed economy. Or maybe we are genuinely flirting with recession, with AI-hype euphoria papering over a broader stall. Thus if you want a historical rhyme, don’t fear 2009. Fear the late 1920s: ticker-tape joy atop sectoral distress and fragile distribution. When you watch the wrong scoreboard, you understate the risks of crashes. Perhaps the workers and consumers with strongly negative confidence are putting more accurate numbers up on the scoreboard.

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Paul Krugman writes:

Paul Krugman: The U.S. Economy is in Worse Shape Than it Looks <https://paulkrugman.substack.com/p/the-us-economy-is-in-worse-shape>: ‘No recession so far, but the no-hiring economy is hurting workers…. Consumer sentiment is much weaker than it was pre-Covid, in fact comparable to its level at the depths of the 2008-2009 financial crisis…. There are some objective, measurable reasons to say that the US economy, which appears OK by the most commonly used measures, is definitely not OK…. AI is booming, but the rest of the economy isn’t…. While there have been no mass layoffs so far, people who have lost their jobs or are just entering the work force are finding it very hard to get new jobs…. [And] there are clear signs that middle-to-low income consumers are struggling… [while] the top 10% of the income distribution now accounts for nearly half of all consumer spending…. [Perhaps] Trump’s wildly erratic policies are creating huge uncertainty which is deterring many companies – essentially those that are not in the AI sector or a sector catering to the affluent – from making investments. And those forgone investments include hiring new workers.… The number of long-term unemployed — would-be workers who have been jobless for more than 6 months — had soared as of August, and has probably continued to rise since then:

Workers believe, rightly, that if they should happen to lose their current job they will have a hard time finding another. This obviously means that workers have much less bargaining power…

My take: The disconnect between official metrics and what we seem to see in felt experience runs deeper than a mismatch between aggregate statistics and individual anxieties. There has been a vibe shift to a new régime of labor suppression, one that operates through immigration enforcement, regulatory abandonment, and the systematic dismantling of worker protections. The stock market’s buoyancy masks what may be either a genuine two-speed economy or—more troubling—a weak economy-wide recession papered over by AI-driven irrational exuberance.

Start with what most economic commentary ignores: the precarity that now defines the status of all non-citizens in America. Many people I talk to do not grasp how thoroughly the ground has shifted. This is not merely about immigrants without papers, though their vulnerability has intensified. Even if you hold a green card—that putative guarantee of permanent residence:

• Kristi Noem can ask Marco Rubio to revoke it.

• He will do so.

• And then you are gone from these shores.

The administrative machinery exists; the political will to deploy it has been demonstrated; the checks that might once have constrained such actions have evaporated.

Or consider the H-1B visa holder. You face not just the risk of attracting political attention from Noem and Rubio, but the employer’s power to destroy your legal status by firing you and dropping a dime to ICE. What is your ability to negotiate wages, resist exploitation, or assert workplace rights collapses under this Sword of Damocles? The visa ties you to your employer in a bond of indenture. Your company knows it; you know it; the entire labor market knows it. This knowledge reshapes bargaining power across the board.

These are more than vibe shifts. They are, I think, already having powerful consequences:

Thus we now have a large workforce segment that cannot risk asserting rights, cannot job-hop for better wages, cannot organize, cannot complain about wage theft or unsafe conditions. The spillover effects extend well beyond the directly affected workers. When a substantial portion of your labor market operates under these constraints, it exerts downward pressure on wages and working conditions for everyone competing in adjacent labor markets.

Now layer onto this foundation the systematic abandonment of other worker protections. No checks on union-busting remain. The regulatory apparatus that might investigate, penalize, or prevent the suppression of organizing efforts has been dismantled or deliberately starved of enforcement capacity. Wage theft—the practice of simply not paying workers what they are owed—proceeds without meaningful consequence. The agencies that might intervene have been neutered.

Extend the logic further: no checks on corporate consumer financial fraud either. The regulatory framework that might protect consumers from predatory lending, deceptive practices, or financial manipulation has been hollowed out. The Consumer Financial Protection Bureau, once a source of genuine constraint on corporate behavior, has been transformed into a decorative shell.

The message to capital is clear: the rules, such as they remain, will not be enforced against you.

Add in the latest Republican tax cut for the rich. This is not merely a fiscal policy choice; it is part of a comprehensive architecture for transferring income from labor to capital. The immigration enforcement regime suppresses wages. The abandonment of worker protections prevents labor from organizing to capture productivity gains. The gutting of consumer protections allows capital to extract rents through financial manipulation. The tax cuts then formalize and accelerate the transfer by directly moving resources from public goods and income support toward the already-wealthy.

These mechanisms are not independent policy choices but interlocking elements of a system. The result is considerable pressure transferring income from labor to capital—and this transfer is not accidental or incidental but the explicit goal of the policy architecture.

And so the stock market climbs. Add in irrational exuberance from the AI bubble, and it is no surprise that equity values soar. The market anticipates productivity gains from AI that may or may not materialize, extrapolates them into the indefinite future, capitalizes them into current valuations at discount rates that assume risk has disappeared, and adds on a rocket boost from labor suppression.

And so here we encounter an old problem: the American press’s strong tendency to view the stock market as the scoreboard for the economy. This habit always serves us badly. It serves us especially badly now. The stock market rises on the back of labor suppression and speculative exuberance. And all the media are treating it as evidence of economic health, thus producing dangerous confusion.

The question before capital is this: Do the benefits to capital from labor suppression outweigh the costs to capital from the rest of the world slowly deglobalizing its production value chains from America? I do not think they do. The Trump administration’s chaos-monkey approach to trade policy, its contempt for alliance relationships, and its systematic destruction of the institutional frameworks that enabled global supply chains—these are smashing many of American capital’s wealth gains from globalization.

But the stock-market disagrees. And I recognize that I might be wrong. This might actually be good for capital even in the long term. It might be that we genuinely have a two-speed economy: gains from domestic rent extraction exceed the losses from international retrenchment. Then the economy looks strange because it is strange—one sector genuinely thriving while another suffers.

There is an alternative interpretation: The wealth losses to capital from deglobalization are real and substantial. But these losses get papered over by AI-driven over-exuberance in equity markets and by systematic underestimation of how many of American capital’s wealth gains from globalization are being destroyed by Trump’s policies. In this scenario, we are not in a two-speed economy but stagnant, flirting with a weak recession that we are failing to recognize because we are reading the wrong indicators.

In this case, the historical parallel that should haunt you is not 2008-2009, despite similar consumer sentiment levels. Perhaps the parallel to fear is the late 1920s, when stock market exuberance and agricultural depression coexisted, when the maldistribution of income reached levels that made the economy fragile, when observers focused on the stock ticker rather than on underlying structural weaknesses.

The crash, when it came, surprised people who had been watching the wrong scoreboard.

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