The Problem with Pessimism

With markets improving and the overall economy strengthening, why is everyone so negative about our country’s current financial state? By many measures, I believe our economy is far better than people’s sentiment toward it.

The last two years brought the strongest labor market in a generation, for example. Yet many are convinced of an impending recession. The University of Michigan Index of Consumer Sentiment, a measure of how positively or negatively people “feel” about the market, indicates a lower low than during the 2008 financial crisis. The 2023 level is even lower than in the 1980s when inflation was 15%, and the 1970s during a challenging economic period.

Inflation certainly is a factor in people’s negativity. But that hasn’t stopped consumers from spending, which is generally a sign that things are going well at a household level.

It’s also bizarre to see sentiment so low with unemployment near the lowest levels since 1969. With something like 10 million job openings and only 5 million potential workers, the problem isn’t job creation; rather its people filling those jobs. Workers hold an advantage over employers.

Workers are also happier with their work situations than they’ve been in decades, according to a May Wall Street Journal article titled “Workers Are Happier Than They’ve Been in Decades.”   Rising pay certainly helps, as does the new-found mobility in both job roles and schedule flexibility originating during the pandemic. Consider how many people work from home today compared to just three years ago.

Furthermore, according to a February Gallup poll, personal satisfaction is quite positive across multiple areas including home life, income, housing, profession, education, community, health, among others. The Federal Reserve’s latest report on the economic well-being of Americans seemingly confirms this, showing that the financial health of most households is high. Yet those same households rate the local economy as low and the national economy as terrible. It would seem people are reporting they’ve got things covered, but they worry about everyone else. They think they’re doing well while everyone else is suffering.

That doesn’t make much sense to me. So, what does this disconnect mean?

I believe we live in a world and time with persistent negativity bias. Point out five ways the world is better today than ten years ago, and you’ll generally hear back 50 ways the world is worse than just a few weeks ago. Things may not be perfect, but people tend to lose sight of society’s long-term progress. But why?

We tend to hyper-focus on what we see right in front of us. It’s very difficult to combat the deluge of bad news or opinions beamed onto our TVs and phones. Furthermore, we tend to believe that keeping up with this constant deluge is not only good, but necessary as “informed citizens.”

To combat this negativity, I first encourage you to find meaningful ways in which the world is improving every day. Things may never be perfect, but bad news always gets more attention than good. Think beyond the examples I shared from current reports, and consider some of these long-standing trends:

• US GDP vs. the world — Nearly 30 years ago in 1995, the US GDP was 24% of the world’s overall GDP. The internet was just getting started, and Netscape was the search engine of choice (Google hadn’t been conceived.) The financial markets would roughly triple over the next five years. Though we’ve had a few setbacks since then, our piece of the world GDP pie is unchanged at 24%. Even with worldwide growth, we’ve kept producing at a comparatively impressive rate.
• Worker productivity — The typical U.S. worker produces more than five times the economic output of a Chinese worker. Our output is greater than that of the Europeans, Japanese, British, Canadians and Australians by a wide margin, even though we tend to work fewer hours. Our productivity growth is also roughly 60% faster than those economies. “By a whole range of measures, American dominance is striking,” writes The Economist.
• Financial Capital — The U.S. arguably has the deepest and most liquid financial market in the world, enabling the birth of new businesses and continued growth of successful ones. The public financial value, also known as market capitalization (worth of all publicly traded companies) totals 170%. For most countries, it’s below 100%.

The U.S. remains the land of opportunity. Its prosperity was created by generations of entrepreneurs, risk-takers, inventors, and workers who fundamentally transformed this nation into what it is today: the best in the world. Yes, we have problems; nothing is perfect. Politics are working overtime to divide us, even though our greatest opportunities are as a united country.

All this data suggests to me that the pessimism we’re seeing is nothing more than emotional baggage brought on by a perpetual negative news cycle. While I agree that planting our heads firmly in the sand isn’t the best course of action, I question the necessity of constantly tuning in. At what point does good information start to become toxic? Do you recognize that point? Can any of us?

If the news were limited to only a few hours a day (as it was 20 years ago), would sentiment still be negative? Where would the markets be if people instead considered everything going right for our country? People have a tendency to believe pessimists, after all, their message is typically one of “protection.” On the other hand, optimists sound like salesmen, always preaching reasons to be open to new concepts and ideas.  In the long run though, the optimists tend to be right.

Optimism is a choice, and a reality for winners. Historically it has been an unfair advantage for those who choose to see the good, and I think it will remain that way in the future.

What are you choosing?

Sources

• https://news.gallup.com/poll/470888/americans-largely-satisfied-personal-life.aspx
• https://www.mckinsey.com/mgi/our-research/rekindling-us-productivity-for-a-new-era
• https://www.capitaleconomics.com/q2-us-economic-outlook-banking-stress-adds-downside-risks?_gl=1*mpdirz*_up*MQ..&gclid=EAIaIQobChMI0sLExuKEgAMVzAKtBh3aWQTNEAAYASAAEgLx5_D_BwE
• https://www.wsj.com/articles/workers-job-satisfaction-survey-c42addba
• https://www.economist.com/briefing/2023/04/13/from-strength-to-strength