Autumn has arrived, and as we are moving closer to winter, darkness occupies more and more of every day. Darkness may also come to mind when thinking about the economy and peoples’ lives. We have a refugee crisis, we have the conflict between Russia and the West, and the extremist movement IS spreads horror all over the world. But these themes are not new. Looking at nightmarish events, and taking these accounts as our overall standard, paints an unjustifiably gloomy picture. As a whole, we are much better off now than ever before.
According to Morgan Housel, columnist at The Motley Fool and writer for The Wall Street Journal, the reason might be that humans find it difficult to grasp change when it is not immediate.
Think about how education or global governance with corporations has changed over the last 20 years. Or how cell phone reception has improved over the last decade. And just a few years ago we had to go to the library for reading material, yet now we complain when our smartphone does not instantly load web pages from our favorite magazine.
”Things change immensely. But when things change slowly over time, when it is just kind of a trickle, you do not really notice those changes. But if you stop and look back over the raw change, over say a 30-year period, I think people will be pretty chocked and fascinated to see how things have changed,” Housel reasons. ”The idea of a sort of false nostalgia, (which there has been a lot of in the United States) is the notion that life in general used to be better 20, 30, 40 or 60 years ago. There is nostalgia in the United States, which says that the 1950s and 1960s were glorious times when everyone were happy and had a high-paying job. And the government was functional and things were great and things were glorious. But by almost any reasonable statistic of measuring quality of life, we are so much better off today than we were in the 1950s. Whether it is equality, wages, unemployment, home ownership, health or life expectancy. You just go down the list. But since those things progress slowly over time, you do not really notice it until you stop and take a step back.”
Taking this step back is difficult. Our working memory is limited and constantly being exposed to plenty of stories and data will fill up the storage capacity of our working memory.
”It is very difficult to put into context how things have changed because I think our working memory extends back maybe two or three years. Think about your memory of how you felt emotionally about different topics, how you felt about cell phones and the unemployment rate. How did you think about them in the past? I think most people have a pretty short-term memory with those kind of things. How did people live 30 years ago? How did people think 30 years ago? Even if you were a competent adult 30 years ago, I think it is very difficult to look back and remember accurately what life was like and how you felt. For me, I think that the only way I have had any success doing this, is by burying myself in data; to look at objective facts on how life were back then, rather than trying to remember it or trying to ask someone what they remember it being like.”
Part of this problem is also being confused about absolute and relative gains. If you are 100 points better off, while nothing has happened to the rest of the people, you will be notably better off than if all of us would have been better off by 100 points each. You would not have seen any difference when comparing your well being to others.
Much of the reason for not appreciating society’s improvements probably lies in this difference between absolute and relative gains.
”Most people, when they try to measure their well-being, do not measure it as ’I am better off than I was in the past’. They measure it as ’am I better off than my neighbor right now?’ It is the difference between an absolute gain and a relative gain, which causes people a lot of distress.”
”I think that, to the extent that people can focus on absolute gains over time, it is a much more sustainable path towards happiness than the very common, and it is biologically common, comparing yourself to your peers and your neighbors. It is extremely difficult to get away from that mentality. But I think that people who can do it are objectively happier in life. Those are the people who do notice the absolute changes over time. Better life expectancy, higher income, and more efficient vehicles. When you go down the list, you start realizing that life for most people, almost everywhere in the world, gets better over time. But since we are constantly comparing ourselves to other people, it does not feel that way. As soon as you can break away from that mentality, I think most peoples’ lives, their outlook on life and their happiness in life would improve substantially.”
This article is the first in a series of two, on change and how absolute and relative gains affect people. Next article will be featured in the next issue of Nådiga Lundtan. Until then, check out Morgan Housel’s writing in The Motley Fool and The Wall Street Journal, where he writes about big picture finance and the broad investing topics that will help investors to avoid mistakes.