"Look, the economy is bad. It is far below what we Americans have a right to expect, but we are not in a recession," Gramm said. "We may or may not have one in the future, but based on the data, we are not in a recession. But that does not mean all this talk does not have a psychological impact."
Democrats on the Hill took advantage of Gramm's remarks to attack McCain.
"It takes a lot of nerve for someone to say this is 'a nation of whiners.' Americans are hard workers," said Sen. Claire McCaskill, D-Mo.
"This is Exhibit A about a presidential candidate not in touch with the American people," McCaskill said. "Exhibit A!"
"I can tell you when I was filling up my Saturn in the Twin Cities, people at the pump were not hallucinating," said Sen. Amy Klobuchar, D-Minn. "This is not mental delusion, this is real."
The back and forth between the campaigns comes as both candidates attempt to focus their messages on the economy. Campaigning in the swing state of Virginia today, Obama targeted his message to working women, proposing tax breaks and better maternity leave benefits.
Obama urged women voters to compare his economic plan with McCain's.
"When you look at our records, you look at plans on the economic issues that matter most to women, it becomes very clear that he will not bring change and I will," Obama said, "That starts with acknowledging the economic difficulties that so many families and so many women are experiencing right now. If you can't see the problem, you're not gonna solve it."
Reacting to Obama's "Dr. Phil" quip, McCain argued Obama should be labeled "Dr. No" because he opposes many of the economic and energy proposes McCain has put forth.
"He's Dr. No on energy," McCain said of Obama, "He's against nuclear power. He's against the storing of nuclear fuel, and he's against reprocessing it. He's against off-shore drilling. He's against offering a reward for the development of electric cars. He's against everything we need to do to make this nation energy independent."
Following a question about Gramm's comments, McCain added, "My response is, I speak for me, I've been speaking to the American people, and I've been leading us forward with plans of actions to address our economy and our need for energy independence."
With files from ABC News' Jake Tapper, Teddy Davis and Z. Byron Wolf.