As human beings, we’re drawn to bad news. It’s not our fault. It comes down to how our brains process information through what psychologists call a negative bias. Because of this, optimistic people tend to be taken less seriously than their pessimistic counterparts. And while at times it may feel like those announcing the decline of civilization, an epidemic of crime or a more violent society may be right, the data clearly says otherwise.
I just finished reading Steven Pinker’s book “Enlightenment Now: The Case for Reason, Science Humanism and Progress,” which lays out the evidence that, by objective measures, the world is as good a place today as it has ever been. He argues that if newspapers came out every 50 years as opposed to every millisecond on our smart phones, the headlines would be almost universally positive. While I don’t necessarily agree with all of Dr. Pinker’s interpretations, it’s hard to argue his facts about the progress that the world has made over the last 200.
So why discuss this in a column on investing? Because of the core finding that progress and wealth creation have gone hand in hand for the last two centuries.
Investing, especially in stocks, is a long-term proposition and so much of your willingness to hold onto your equities should depend on whether or not you believe that progress will continue. If it does, the markets will likely continue to reach new highs, if not tomorrow then in 5, 10 or 20 years. The contrary is equally true—if you don’t believe progress will continue, then the continuation of your wealth creation is likely to stall.
Life expectancy
Life expectancy has been on an almost constant upward march since the beginning of the industrial revolution. In 1701, life expectancy was approximately 37 years. Today, it’s closer to 81 years. People are leading healthier lives and even accidents are less likely. On the same note, according to the Aviation Safety Network, deaths per million airline passengers declined from a peak of 6.5 in 1973 to less than 0.2 in 2015 and since 1910 death by fire and drowning both declined from about 11 per 100,000 people to about two.
The decrease in violent death and war have also been on the decline in impressive ways over the last 200 years. The 416,800 soldiers who didn’t return from World War II weren’t able to build careers, create new businesses and help to grow the economy—and that’s only impact of one war. Today, we see far less deaths in combat and far more growth in our economy thanks to entrepreneurs, more skilled and trade workers and a more productive workforce overall.
Quality of life
Not only are we living longer on average, but our lives are better. Our ancestors in 1870 expected to work about 60 hours a week whereas today we work about 45, according to the Economic History Association. Perhaps more importantly, we now have more money to spend in our extra free time. In 1929, about 60 percent of our income was spent on necessities, but as of 2016 it was closer to 35 percent. This is an important note considering that, for the most part, a higher quality of living means more time for consumption. For example, if you were working around the clock, it’s unlikely you’d be buying new sneakers as there would be no time to go play that game of basketball. Consumer spending is what drives the economy and more time for spending and leisure activity means there will inevitably be more investment in the economy as a whole.
Wealth
Underlying all these lifestyle improvements is the creation of wealth. Until the industrial revolution, very little wealth was created. After the industrial revolution, wealth building accelerated around the globe. According to the World Bank, in 1820 nearly 90 percent of the world’s population lived in extreme poverty, today it’s about 10 percent, with most of the improvements coming after 1960. While income inequality has risen in the U.S., global inequality has tapered off as the poorest have gotten to enjoy the benefits of progress. Because Western societies were some of the first to start creating the wealth we see today, there is less room for growth than in the lesser-developed parts of the world. The process of wealth creation is still happening all over the globe. China alone has lifted 800 million people out of extreme poverty in the last 30 years. The more opportunity for wealth creation, the more quality of life, the more quality of life, the more wealth is created.
Optimists are on Firmer Ground
When you take all of this together, there really isn’t a better time to be alive than today. All of that progress underlies the performance of the equity markets over the post-war period. We are all the benefactors of a better business environment through higher levels of certainty and constantly growing demand.
One could argue that this is the peak in wealth creation and that we have reached the end of progress. Every generation has nay-sayers about the future. Up until the industrial revolution, the pessimists were more or less right. But since the industrial revolution, those same pessimists have largely been wrong, with 1960s predictions about population growth leading to famine falling flat. In fact, the incidents of famine have declined, theories about peak oil have been dismissed as new technologies have found ways to extract ever more oil from known sources and doomsday-ers about nuclear conflict (luckily) have so far been proven wrong.
I believe in the ingenuity of humans to solve the problems of today and the future. After all of this, you still may think that sounds naive, but as history shows, my beliefs are well founded. As a result of my optimism about human progress, I am also optimistic about prices of equities, even if I don’t know what will happen tomorrow or the next day.
So, the next time you’re at a dinner party and someone starts to tell you all the reasons why the market can’t go up further or that we’re doomed for a prolonged period of secular stagnation, smile and nod, but know that the facts aren’t on their side.
