The Free Press
In July 2024, the economist Tyler Cowen published an essay on his Marginal Revolution blog with the headline “The changes in vibes—why did they happen?” Writing just four days after the attempted assassination of Trump at his campaign rally in Butler, Pennsylvania, Cowen began by focusing on the Republican nominee, calling him the “clear favorite in the next election.”
Cowen offered 19 answers to his own question, ranging from the rise of social media to high inflation and interest rates to a decline in the credibility of higher education. Trump’s election vindicated Cowen.
By Inauguration Day, New York Times columnist Ezra Klein had come around to Cowen’s thesis, agreeing that “mass culture was moving in a Trumpian direction” despite what Klein saw as “a squeaker” in the election results.
Klein focused on several of the same factors that Cowen did: Republicans winning social media, a latent corporate desire to shift toward the right, resurgent masculinity, the divorce between Big Tech and the left, and the backlash against “wokeness.”
Actually, though, the vibe shift had been coming for a long time. The clearest example: Companies started backtracking on diversity, equity, and inclusion (DEI) programs and on environmental, social, and governance–based (ESG) initiatives even before it was clear Trump would be last year’s Republican nominee.
For example, the number of times that “DEI” or “diversity, equity, and inclusion” were mentioned in earnings calls by companies peaked in 2021’s second quarter and has fallen precipitously since then, according to AlphaSense. The Los Angeles Times reported that “spending on DEI roles” at giant companies “started to fall in 2022 as mass layoffs swept the tech industry,” citing data from Revelio Labs, which analyzes public employment records. By the end of 2023, CNBC was reporting on Big Tech’s “retreat” from DEI. Google and Meta also cut some DEI employees and programs around this time.
Big Tech’s DEI backtracking does not seem to have been primarily ideological—or tied to national politics. According to Felix Richter of data-analysis firm Statista, “Apple, Microsoft and Alphabet performed significantly worse than the overall market in 2022,” while Amazon and Meta saw their valuations fall by half and nearly two-thirds, respectively. It makes sense that these companies would cut nonessential roles as they adjusted to a more difficult macroeconomic environment and fears of slower profit growth.
It turns out that 2022 was also the pivot point for ESG. According to Bloomberg this January, “Since the beginning of 2022, as pandemic-era emergency measures including interest rates at crisis lows started to fade, the S&P Global Clean Energy Index has lost roughly half its value. In the same period, the S&P 500 Index rose almost 30%.”
“Clean energy, clean tech, and climate solutions haven’t done well in the context of high interest rates,” Hortense Bioy, the head of sustainable investing research at Morningstar Sustainalytics, told Bloomberg in January.
American ESG funds saw large inflows between 2019 and 2021, minimal change in 2022, and then outflows in 2023 and 2024. This decline occurred despite a Biden administration eager to encourage sustainable investing, and despite major legislation designed to encourage a transition to “green” energy.
One explanation for these changes comes from Peter Earle, a senior research fellow at the American Institute for Economic Research. Earle argued in March 2023 that ESG investing was “an artifact of ZIRP” or zero interest rate policy. Low interest rates lead to bubbles, like ESG, he wrote, but “when interest rates normalize and sobriety re-obtains, cost structures reassert themselves. It’s back to the business of business.”
Another way of putting it is: When money is free, crazy ideas get funded. When money has a price, funders and investors want to see a direct link to value. That means ideological pet projects are the first to go.
The interest rate explanation isn’t exhaustive. Ideas still have consequences. Some Americans sincerely believe in radical climate activism and in progressive politics broadly. They weren’t all just speculating on the ESG bubble. And several other factors loom large in helping to explain the vibe shift, from Russia’s invasion of Ukraine three years ago, to Elon Musk’s purchase of Twitter in 2022, to the October 7, 2023, attack on Israel.
Still, the mismatch between public opinion and elite institutions demands an explanation. Progressives have long been in the distinct minority on climate, race, and numerous other issues. For about a decade, however, it felt like progressive activists had gained hegemony over nearly every elite institution. And now, it doesn’t feel like that any more. That’s the vibe shift.
What needs to be explained is not why mass culture increasingly reflects public opinion, but why institutions ever got so far out of alignment with the public to begin with. If expensive climate policies and explicit racial preferences are broadly unpopular, for example, why did so many institutions act as if they were inevitable?
This is where the peculiar political economy of the ZIRP era comes in. CEOs and other leaders in American life are rarely political ideologues. If an activist group demands that CEOs start some new program, it can be easier to comply than to push back, but only if the cost is low. If it means they have to sacrifice their annual bonus, that’s a very different decision.
The implicit assumption of free money also defined the past era of politics. Democratic primary candidates in 2020 competed to combine Medicare for All, the Green New Deal, jobs guarantees, and universal basic income into a national movement. The numbers never added up, but it felt more plausible when interest rates were low and inflation was a distant memory. High inflation and interest rates, though, led Kamala Harris’s 2024 campaign to ignore most of her past progressive commitments.
On the right, the zero interest-rate policy era featured years of heady talk about industrial policy and wielding the power of the administrative state. The era of limited government had ended, Reaganism was passé, and we were all social democrats now, those on the new right said. Those people are now confronting what Trump’s second term in the White House actually means: a Republican party that is more interested in deleting government agencies, cutting taxes, and opposing European regulation than in pairing left-wing economic policy with right-wing social policy.
The economic drivers of the vibe shift look likely to endure, even if there is social backlash to specific Republican policies. Federal Reserve Chairman Jerome Powell recently told Congress he thinks that the neutral interest rate, where the economy hums along at full employment with stable inflation, is higher now than it was before Covid. Inflation remains a problem, and the ZIRP era is firmly in the past. CEOs and politicians who continue to act like money is free will pay a steep price. The vibes may have shifted, but the business of America is still business.
Russ Greene works for a nonprofit in the D.C. area on federal regulatory issues. He previously worked for CrossFit Inc., and has a BS from Georgetown’s School of Foreign Service.
For another view on Trump’s economic policy, read Niall Ferguson’s piece “A User’s Guide to Wrecking the Global Financial System.”