Pessimism is the world’s main economic problem

POSITIVE THINKING can help people who are feeling down. Politicians, too, grasp that gloomy expectations can be self-fulfilling. In the late 1970s, as America grappled with an energy crisis and stagflation, President Jimmy Carter warned that the gravest danger was a “crisis of confidence” corroding public institutions and private enterprise. Decades later Abe Shinzo, Japan’s longest-serving leader, argued that stagnation was sustained by a “deflationary mindset”, and tried to jolt households and firms out of it. Xi Jinping, China’s paramount ruler, has made promoting “positive energy” a national priority.

Today positive energy is in short supply. Pessimism has become widespread and persistent. In America consumer sentiment is near a record low. All around Europe economic confidence has been below its long-term average for over three years. A new poll by FGS Global, a consultancy, of 20,000 voters and business leaders across America, Britain, Canada, the EU and Japan finds a bleak consensus: in all 27 countries, majorities believe life will be harder for the next generation and that the system is rigged in favour of the rich. In all but Denmark, majorities judge public institutions ineffective and wasteful.

Other polls tell a similar story. In a Gallup International survey of nearly 60,000 adults, economic pessimists outnumber optimists by about two to one in Britain and Japan. In Germany they are nearly 12 times more numerous.

Persistent pessimism has become one of the global economy’s biggest constraints. When expectations sour, economies can behave in ways that blunt the effects of otherwise sensible policy and distort politics. John Maynard Keynes captured this with the idea of “animal spirits”, which put confidence and expectations at the heart of economic outcomes. Robert Shiller, a Nobel-prizewinning economist, has since described how glum narratives can spread, shaping behaviour in ways not predicted by economic models. As gloom becomes entrenched across rich economies, it risks turning into a self-reinforcing drag on growth. The consequences are less investment in the future, a drift towards zero-sum protection and a politics that makes fiscal restraint harder to sustain.

Pessimism first acts like an uncertainty shock. When the future looks darker, the option value of waiting rises. Households and firms postpone decisions that are costly to reverse. Short-term effects are already visible. In America, hiring and worker quits are a third or so below their post-pandemic peaks despite solid GDP growth. Such slow labour-market churn weighs on efficiency. The euro zone’s household savings rate of 15% in 2025 was well above its pre-pandemic norm. Low confidence may also contribute to other social changes, from low fertility rates to falling college enrolments.

Another expression of pessimism is the belief that the economy is rigged, which encourages zero-sum thinking. When people assume that gains for one group come only at another’s expense, they support policy that shifts the focus from growth to redistribution and protection. Pepper Culpepper of the University of Oxford and co-authors find that, across several rich countries, those who believe the system favours the wealthy are more likely to back explicitly zero-sum redistribution.

Similar instincts shape views on migration and trade. Stefanie Stantcheva of Harvard University shows that zero-sum thinkers favour protectionism and tighter borders—sentiments now common in the rich world. The same logic applies to technological change. In Harvard’s latest youth poll, young Americans were more than three times as likely to say artificial intelligence will destroy opportunities as create them; in the FGS Global survey, seven in ten respondents backed strict regulation and heavy taxation of AI firms. The likely result is a turn towards a fortress economy that vows protection but dulls growth.

A final danger of pessimism is that it undermines fiscal discipline. When voters think the future is bleak, their tolerance for short-term pain drops. Sweden’s belt-tightening in the mid-1990s worked because Swedes felt sacrifice would be rewarded. Where such a belief is absent, belts unbuckle. Across southern Europe after 2010 consolidation imposed amid stagnation met fierce resistance. When electorates feel down, they reward politicians for cushioning rather than restraint. This keeps deficits wide and inflation harder to tame.

This is already happening. Last year the average budget deficit in rich countries exceeded 4% of GDP; in America it was closer to 6%. Yet fiscal restraint remains elusive. President Donald Trump has pushed through fresh tax cuts while floating more giveaways to placate discontented voters. France’s attempts to trim spending routinely trigger political crises. In Japan the government late last year unveiled its largest stimulus since the pandemic, despite public debt being among the world’s highest. Canada, too, resorted to temporary tax holidays to lift sentiment, adding costs and complexity for firms.

Today’s malaise is fertile ground for populists promising protection and spending rather than reform. This feeds a self-reinforcing loop where gloom fuels support for populist leaders, whose rule weakens institutions and hurts growth. Research shows that countries governed by populists suffer lasting economic damage, with lower incomes and greater instability long after they take power. The greatest threat to the world economy is now a politics shaped by pessimism itself. ■