In markets, contagious exuberance can take hold from
time to time, leading to investment frenzies followed by
market crashes. Most people who are interested
in markets and investing find this type of collective delusion
fascinating. It doesn't just show up in
markets, however. Collective delusions are
everywhere around us. According to Pew Research, over
time, more and more Americans believe that crime is a growing
problem. They believe that this is more
the case nationally than locally, but statistics show
that crime in the United States, and especially violent crime,
has plummeted since the 1990s. There are all sorts of
statistics that show the quality of life has improved massively
over time, but for some reason people don't want to believe
that. 20 years ago I came across a book by Stephen Moore and
Julian Simon called It's Getting Better All the Time which
examined the 100 greatest trends of the last 100 years which
showed that people were taller, healthier, poverty rates were
lower, household incomes had not only risen but household sizes
had fallen, meaning that there was more money per family member
than there had ever been before. There were many eye opening
charts in the book which showed that despite all the negative
news that we read, that the overall quality of life was
trending upwards globally, the author showed that a greater
percentage of the global population had access to
education, nutrition and clean water than ever before.
Statistics like global child mortality, a statistic that
pulls together many of the improvements that we've
experienced in terms of medicine, hygiene, access to
food and shelter, safety for wars, and much more, had
improved massively over time. In, 18144% of people died before
their 5th birthday, and today that number has fallen to 3.7%.
The improvements aren't all in the distant past either.
According to the World Health Organization, although the
global population has grown, the total number of under 5 deaths
worldwide has declined from 12.8 million in 1990 to 4.9 million
in 2022. When I look at the comments
section of my videos, I'm occasionally surprised to see
how angry and negative some people are about the economy.
They'll say that the dollar is in decline, but if we look at
the dollar index, which compares the US dollar to a basket of
America's trade partners currencies, we can see that the
dollar is in fact strong. Every major currency in the
world has fallen against the dollar this year.
The US economy has been booming by almost every measure in
recent years. Most Americans are doing better
than they were a year ago. Unemployment is lower, wages are
growing, and inflation is declining.
It's not just the 1%, either. The statistics show that
Americans across ages and social classes are doing well.
In a video earlier this year, I mentioned that unemployment was
near all time lows. People wrote in the comments
that this was because so many people had stopped looking for
work, but that's not true. The labour force participation
rate has risen every year for the last three years.
On top of that, there are more jobs available today than there
are job seekers. These are tangible economic
improvements that should be cheering people up.
But that's not what's happening. Surveys show that Americans are
the most pessimistic that they've been about the economy
in 30 years. Tik Tokers, who Youtubers look
down on, have coined the term the silent Depression, claiming
that it's harder to get by today than it was during the Great
Depression, an idea that is entirely divorced from reality.
During the Great Depression, USGDP contracted by 35%,
international trade more than halved and unemployment rose to
23%. In contrast, last week's GDP
report showed that the US economy grew at a 2.8%
annualized rate and unemployment is at 4.1%, which is near its
all time lows. Up until a few years ago,
Americans economic attitudes mostly tracked what was actually
happening in the economy. When things improved, surveys
showed that people's subjective experience of the economy
improved too. And when there was a slowdown,
people reported that things had gotten worse for them.
Everything seemed to change in mid 2020, when the pandemic
first struck. The economy tanked and sentiment
collapsed with it. So far, that's totally normal.
But the strange thing is that when the economy bounced back,
sentiment didn't. The relationship between
economic statistics and surveys of public sentiment broke down
entirely at that point. And this was totally new.
There's no history of a similar divergent looking back through
economic statistics O Let's dig into why people are so gloomy
about the economy and so pessimistic about the future
today. OK, So what do we mean by a good
economy? Well, to start with GDP growth,
the US economy has been outpacing other advanced
economies, with some projecting that the US will grow by as much
as 3% this year when other leading economies are projected
to grow by 1% or less. Next, the stock market has been
booming. The S&P 500 is up more than 27%
year to date. There's been strong wage growth,
low unemployment, and declining inflation, which is getting
close to the Fed's 2% target. Labor force participation has
increased, which means that even people who weren't looking for
jobs now are working because the employment environment has
gotten so good. Even those Tik Tokers talking
about the silent depression are earning money in a way that was
not possible during the actual or noisy depression as I now
call it. These are all things that we
should feel in our day-to-day lives.
And to top it off, the people who have seen the biggest income
and wage gains are the people at the lower end of the income
distribution. As the widening inequality that
we've seen for decades reverse direction during the pandemic in
pretty much all advanced economies, a wider swathe of
people across American classes in their day-to-day life are
experiencing positive economic benefits.
But despite all of this, the average man on the street still
feels that the economy is in terrible shape.
Now, obviously I'm not trying to say that everyone is thriving
and no one has anything to be down about.
There are of course, plenty of people experiencing misfortune,
but that's always been the case. The thing that's unusual is just
that the average sentiment is so bad when the average American is
doing better economically than they were in the past.
According to Pew Research, large majorities of Americans say that
they're dissatisfied with the economy, and when they look
towards the not too distant future, they see a country that
will be worse than it is today. When they look to the past, 58%
of Americans say that life for people like them is worse today
than it was 50 years ago. Gallup reports that Americans
are the most pessimistic that they've been in decades about
young young people's chances of having greater material success
in life than their parents. 58% of American adults think that
it's unlikely that today's youth will have a better life than
their parents had. This is an 18 percentage point
increase in pessimism over the last five years.
You might think that the people are being cautious and worrying
that an economic boom is about to turn to a bust.
But if that was true, it would be quite a break with the past,
too, as the highest percentage of US adults expecting better
lives for the next generation was 71%.
And that happened in 1999 at the peakofthe.com bubble.
So if people are being cautious now, they certainly weren't
cautious back then. Gilad, Aide at The Atlantic
conducted a poll last December asking over 1000 Americans how
they felt about the economy. Only 20% of respondents said
that the economy had improved over the last year, and 44% said
it had gotten worse. He found that while there was a
partisan split and Republicans were more negative about the
economy than Democrats, Democrats were still very
negative. Only 33% of Democrats felt that
the economy had improved. Interestingly, Fareed Zakaria
reported in the Washington Post that despite all of the internal
pessimism in the United States, international polls show that
the rest of the world views the United States much more
positively than they did five years ago.
A study conducted by King's College London found that across
24 nations where trends exist, the share of the public who feel
the US model should be followed has risen by 7% vantage points
since 2019. Zakaria writes that while
Americans may be troubled by the depolarisation and division in
the country, an international audience sees that the debate
for the nation's dirty laundry is constantly washed in full
public view is better than the alternative of repressing
national problems, as can happen elsewhere where a North Korean
style facade of unity is presented.
Gilad Adelman at The Atlantic wrote that he expected to find
that the economic frustration within the United States was
driven by housing inflation, and so he gave his survey
respondents a long list of factors to choose from as the
metric that was dragging down the national economy.
He found that it wasn't the cost of housing.
The runaway winner, according to his survey, was the price of
groceries at the supermarket. He points out that for every
person that's irritated that housing prices are rising,
there's another person delighted that the value of their home has
gone up. He learned that people weren't
actually upset that the generous benefits handed out during the
pandemic had been withdrawn either, as some people had
claimed. Apparently, people with children
at home were more positive on the economy than people without
kids, which you wouldn't expect if Americans were fuming over
the expiration of the expanded child tax credit.
I would have expected that. Some of the pessimism was driven
by excessive exposure to social media, But the survey found that
those who reported getting their news from Facebook, Instagram or
Tiktok expressed more positive views than people who didn't.
Those who read national and financial newspapers were also
more positive than average. The most negative sentiment he
found came from older people people, not Gen.
Z Tik tokers. This is quite surprising as
older people are asset owners who will have benefited from
asset price inflation. Adelman points out that grocery
prices went up more than average inflation and that in contrast
with housing or used car prices, few ordinary Americans benefit
when grocery prices go up. Higher.
Grocery prices are also something that Americans see
week after week when they go to the stores.
Higher used car prices are much less of an irritant, as most
people can postpone a car purchase if necessary, and it's
a one off event every few years. Now most Americans are making
more money after inflation than they were before the pandemic.
I mentioned that statistic in the video a few months ago, and
it drew all sorts of angry comments with people accusing me
of making it up. But it's there in the data, and
not just that wages have risen the fastest for the lowest paid
workers. If people were coldly rational,
Edelman points out, they would recognize that they're hiring.
Income more than offsets the higher grocery prices.
One reason for the dissatisfaction may be that
workers expect their pay to go up over time.
So they think that it's fair that they're earning more and
unfair that their grocery bills have gone up.
At the same time, there is reason to believe that the
pandemic and the associated lockdowns might also have harmed
the mood of the country, too. Research from Boston University
found that prior to the pandemic, 8% of American adults
experienced some form of depression.
By April 2020, that proportion had jumped to 28%, and in 2021,
the figure rose to 32%. Other reasons for America's
pessimism of late is the worry that AI will take everyone's
job. If we listen to Silicon Valley,
we're only a year or two away from a society where film
makers, journalists, lawyers, and doctors are all put out of
work by AIS. You'll be sitting at home,
penniless, worried about what will happen when you have to
explain to the robot plumber who's just unblocked your drain
that you can't afford to pay him.
Will you be able to remove his battery pack before he puts you
in cuffs and carts you away? And how will the Roomba react to
seeing you do this? You kind of knew it was a
mistake giving the vacuum cleaner your Wi-Fi password.
What were you thinking? According to you Gov, 46% of
people who use AI tools at work are worried about AI taking
their job. Among those who never use AI
tools at work, 26% are concerned about this.
While AI can be expected to transform many aspects of daily
life, there's been a long history of Labor automation.
And historically, labor demand shifts away from jobs that can
be automated towards new types of work where people work
alongside the new technology. Workers Becoming more productive
doesn't lead to job losses, it leads to more production, which
also means greater availability of goods and services.
One of the best examples of jobs being rapidly automated away is
telephone switchboard operators. Around 350,000 women worked for
telephone companies as switchboard operators up until
as late as 1950. An additional million worked as
switchboard operators at offices, hotels and other
businesses. The rate of growth of telephone
networks in the 1920s LED people to project that the phone
companies would soon need to employ every American woman of
working age as a switchboard operator.
When mechanical switchboards were installed, the number of
women employed as telephone operators immediately fell by
50% to 80%, and wages for women in other occupations fell
rapidly as employers were flooded with job applications.
This didn't last for long, however.
Studies show little or no negative long term employment
effects at all. Laid off switchboard operators
quickly found employment like secretary, material work, and
restaurant jobs. And while some of those jobs,
like restaurant work, paid less, others paid the same or more.
Automation typically increases worker productivity and reduces
employment in a given field. But we've seen all sorts of jobs
automated in the past without leading to mass unemployment.
The same can be expected in the future.
There are all sorts of things that we can choose to worry
about. The Doomsday Clock is a symbolic
clock that represents how close we are to destroying the world
with dangerous technologies of our own making.
It warns how many metaphorical minutes to midnight humanity is
left. It suggested every year with the
goal of warning the public and inspiring action.
I suppose we could lie awake all night worrying about global
events that are entirely outside of our control.
Or we could focus on taking action to improve our lives and
the lives of those around us. There are all sorts of positive
changes occurring in the world. Despite all of the news we read
about hurricanes and natural disasters, the number of deaths
from natural disasters has fallen by 75% over the past 100
years. This figure's even more shocking
when you consider how much the global population has grown over
that period. Over the last 20 years, the
proportion of the world's population living in extreme
poverty has more than halved. The share of the world's
population living in democracies increased continually over the
last 250 years. And 80% of the population who
live under an authoritarian regime today live in one
country, China. The world's population has
greater access to education than ever before too.
For those feeling down about the economy, frustrated about
politics, are worried about what the future has in store for us,
it's worth reflecting on the idea that there have been much
more difficult periods in the past and that for most people in
the world, things have never been better than they are today.
The reason these statistics have improved is not because people
sat at home and worried about the direction society was
taking. They've improved because it's in
everyone's self-interest to improve the world, and when
things got hard, people applied their energy to making things
better. Our capacity to reflect on the
challenges we face and find solutions explains all of the
scientific and economic progress that's been made over time, and
there's no good reason to believe that that will change
anytime soon. Economic statistics show that
the US economy is doing just fine right now, and even if it
was not, if somehow the numbers are wrong, there's very little
we can do about it individually. If you're feeling pessimistic,
one of the best ways to lift your mood is to go outside and
exercise. Contribute to your community,
try to learn new things, engage with your friends, family, and
loved ones, and work hard on improving your situation rather
than focusing on the things holding you back.
Thanks for tuning into this week's podcast, with particular
thanks to my supporters on Patreon whose support makes this
whole thing happen. Have a great week and I'll talk
to you again soon. Bye.