Are you angry? Do you know people who are angry? Do you know anyone who isn’t? This is a bit of a departure from my normal investment and economic missive, but I believe the level of anger in the US today is very germane to both.
Driving to a 2:00 pm appointment yesterday along a tree-lined street in an affluent neighborhood, I saw a man in his 30’s approach a crosswalk with his dog. It was a glorious fall afternoon, and I drove with my windows down, thinking how lucky we were to have days like this. There were a few cars ahead of me just reaching the crosswalk and all going about 25 miles per hour. The first few cars could not have stopped for the man and his dog, and when they didn’t he produced an aggressive thrust of his middle finger and shouted vicious, spittle-strewn curses at the cars who failed to stop as he approached. I was stunned. My thoughts that had just been enjoying the bucolic fall afternoon were suddenly agog at this nuclear eruption.
Time Magazine reports that 88% of would-be voters in the upcoming Presidential election describe themselves as angry. Certainly people in Ferguson, Baltimore, New Orleans, Charlotte, and many other cities are angry. But what’s wrong? The US Economy is growing slowly, but it’s growing. Stocks prices are near all-time highs. Housing prices are high. Interest rates and fuel prices are low. Unemployment is below 5%. So what’s the problem?
The Harvard Business Review suggests it’s not a lack of prosperity in the US that’s causing the problem, it’s the lack of productive uses of that prosperity that is leaving most Americans out of any lifestyle improvements. HBR looks at something called The Social Progress Index. It directly measures the lived experience of the citizens of 133 countries around the world. Using 53 different indicators, including nutrition, safety, education, human rights, tolerance, higher education, and others, it paints a vivid picture of American failure. The United States is one of the richest countries in the sample, ranking 5th out of 133 on GDP per capita, and yet is 19th in the world on social progress. That puts the US just below Belgium, Spain, and France, in that order. Lifestyle gains in the US significantly underperform those in other countries that have significantly less economic growth and well-being.
HBR also clarifies, Some may bridle at these findings, suspecting that a measure of social progress somehow favors more-socialist countries. That would be to misunderstand what the Social Progress Index measures. The Index makes no judgments about policies, such as money spent or laws passed, since it is based entirely on outcome measures. Moreover, although the more-socialist Nordic countries are among the highest performers, there are plenty of countries with free-market systems that perform equally well.
Britains recently voted to exit the European Union. Data available prior to the vote demonstrated that an exit would not only be a significant negative for GDP growth but also result in a reduction of 4-6% in average household income. Recession would be inevitable. But these economic data were not at the fore of the discussion. At the fore were issues of immigrants taking British jobs and weighing of social resources. At the fore was anger, and there was a lot of it. Their angry votes were cast, and the consequences will evolve. Maybe the consequences won’t be as bad as forecasted, but that doesn’t change the fact that a lot of people voted for something that would ultimately harm them.
Behavioral finance believes that Homo Economus (economic man) is rational. Adam Smith in The Wealth of Nations called for three things: limited government, free markets, and pursuit of enlightened self-interest. Did Smith consider the effects of angry myopia? Perhaps he should have bolded and underlined the word enlightened. Maybe he did when he was tweeting about it.
We have written a good deal about wealth disparity and its destabilizing effects on society. The current concentration of income among the top 1% of earners was last at these current extremes in 1929. Said another way, “Let them eat cake.” didn’t work out well for Marie Antoinette.
There are remedies. Tax reform, containing runaway entitlement spending, spending on infrastructure, free trade, and responsible immigration will all help enormously. Moreover, continued high employment will remove slack from the labor force. Wages will increase and more money will be earned by a broader cohort of Americans, and organic economic growth will accelerate. All of this feels like pie in the sky right now, but let’s not make things worse by ‘wolfing down ourselves, and becoming the skeleton at our own angry feast.’
Hang in there.