One of several recurring themes in this year’s notes from Morgan Stanley’s Mike Wilson is the idea that the government (i.e., “the fiscal”) is crowding out small businesses and consumers in the US.

I’d say I like a “good” crowding out narrative as much as the next guy, but that’d be a lie. Because I don’t. Like a lot of other “classic” economic theories, the crowding out effect assumes a cartoonishly simplified world, and I’m not capable of making such assumptions. (I’ve tried. Really I have.)

That said, crowding out narratives (and this is something else they have in common with other narratives based on textbook economic theories) are useful at a conceptual level. That’s not nothin’, so to speak. As derisive as I generally am vis-à-vis the soft sciences, don’t forget that I’m also a person who spent tens of thousands of dollars to obtain degrees in those same soft sciences. (That was a lot of money back then.)

Anyway, Wilson thinks you can explain small-caps’ woes and, to some extent, subdued consumer sentiment by way of “a classic crowding out.”

The figure above’s pretty straightforward. Small-caps are in a bad way, relatively speaking. That, despite what Wilson called “a seemingly strong economy.”

In addition to the deleterious effect on smaller firms, fiscal largesse may be (ironically) weighing on consumers, the very economic actors government generosity is designed to benefit.

The figure below shows Americans don’t necessarily share the optimistic outlook telegraphed by “efficient,” forward-looking stocks.

It’s almost as if regular people don’t own any stocks and thus don’t benefit from a trebled equity market.

Sarcasm aside, Wilson’s right to suggest that if a strong fiscal impulse does help explain stubbornly elevated price growth, it’s also forcing the Fed to loiter longer at terminal, which in turn means high short-end rates.

Those two together (high inflation and high short-end rates) are onerous both for small firms and households, Wilson said Monday.

Many Americans, he went on, “feel like they can’t get ahead in the current economic backdrop.”