It's psychology, stupid. Not since World War II has an economic recovery been so hobbled by poor confidence. Every recession leaves a legacy of anxiety and uncertainty. But the present residue is exceptional because the recession was savage and its origins were unfamiliar. People are super-sensitive to the latest news, for good or ill, because their vision of the future is blurred, and their bias is gloomy. Having underrated economic risk during the boom, Americans may be overrating it now. Unfortunately, perceptions can become self-fulfilling.

The Obama administration is grappling uneasily with this reality. It can rightly claim that its economic policies quelled the near-hysteria of late 2008 and early 2009. But the success was partial, and the administration isn't getting much credit even for that.

The weak labor market is a powerful psychological poison. Almost everyone knows someone who is or was unemployed. True, the unemployment rate (9.7 percent in May) is below the post-World War II high (10.8 percent in late 1982), but underemployment and prolonged joblessness hover near postwar peaks. Almost half of the 15 million unemployed have been jobless six months or more.

The stock market also shapes psychology. "Our economy has become very sensitive to the stock market," says Mark Zandi of Moody's Economy.com. The wealthiest 20 percent of Americans represent about 60 percent of consumer spending, says Zandi. These same people are most heavily invested in the market. When the market rises, they feel wealthier, save less and spend more — and vice versa. In mid-2007, their savings rate plunged to 1 percent of disposable income; but when the market dropped, savings jumped to 16 percent and spending suffered.

The market's rebound beginning in March 2009 prompted another reversal. Feeling richer, the well-off spent more. By year-end 2009, their savings rate had dropped to 3.5 percent. Similarly, the market's latest decline could weaken the recovery.

The danger is that pessimism feeds on itself and leads to a dreaded "double-dip" recession. Companies won't hire because they fear customers won't spend; and customers don't spend because they fear companies won't hire — or may fire. For the moment, a double-dip seems a long shot.

Economists aren't especially adept at relating popular moods to economic outcomes; that's one reason why most missed the housing bubble and why today's forecasts seem tentative. It's also a further cause of depleted optimism. People have lost faith in economic seers, who often miss the latest turn in local or global developments. Was the present euro crisis widely predicted? Nope.

Given the magnitude of the housing and financial carnage, most of today's cautiousness and risk aversion were unavoidable. But the Obama administration's anti-business rhetoric and controversial health "reform" may have compounded the effect. These policies created uncertainties and fanned partisan rancor. In the case of health "reform," they raised the cost of future full-time employees.

The administration believes these various policies don't hamper economic recovery. It ignores contradictions and inconsistencies. Historians, more detached and better informed, may conclude otherwise.