Citizens throughout the western world have been coddled into believing economic growth and improved prosperity are their birthright. It’s the elephant in the room. When historically prosperous people go to the ballot box, they routinely punish incumbent governments for what they believe are economic hard times. The old adage of “a car in every driveway and a chicken in every pot” has given way to a clear sense of entitlement regarding an improved quality of life. For the past 200 years or more, since the beginning of the industrial revolution, every generation has had it better than their parents. Never mind that there were entire centuries prior to that where peoples’ quality of life was all but unchanged. Civilized societies have come to expect that this trend would continue indefinitely.
In fact, people in North America, Western Europe, Japan, and Australia now seem believe that it is reasonable to expect things can and will only get better for their quality of life. Accordingly, even modest setbacks are treated like affronts to the sensibilities of ordinary citizens, who just want what they believe is rightfully coming to them. As a case in point, western societies did a remarkably good job of dealing with the COVID crisis. What could have been a major economic shock was averted. What could have been a global health emergency was also averted. Citizens should have been relieved, if not jubilant. Instead, they chose to react as though the modest sacrifices required to overcome what could have been existential threats were simply too much to forgive.
The psychological cost of the public policy success of the COVID response is perverse. The playbook was the same all over the world: cut interest rates to zero, send people home with checks, keep them home until the storm passes… and then deal with the inflationary repercussions later. Well, today is later. Even though inflation is largely under control and economies are objectively strong, people seem to feel justified in being put out by an interim reduction in welfare. In the United States, we’ve had three consecutive elections now where the incumbent party in the White House was replaced by the opposing party. If the test is: “are you better off today than you were four years ago?”, we’ve now had three consecutive elections where the voters have said “no”.
As an example, US vice president-elect JD Vance has stated, “After the greatest political comeback in history, we’re now going to have the greatest economic comeback, too”. That quote says it all. The US economy has grown faster than any major developed economy over the four years leading to the 2024 election. On election day, unemployment stood at 4.1% and inflation was 2.1%. The American stock market was booming. What exactly does a comeback from that look like? Voters seem to be overwhelmingly nostalgic about what they believe to have been the good old days. They may be right – just not the way they expect. To hear them tell it, even maintaining their quality of life feels like they’re losing ground because of having made progress for multiple previous generations – until now. I predict the Democrats will regain the White House in 2028 simply because the Republicans will be unable to fulfill their promise of renewed economic prosperity. That’s not a commentary on future Republican policies, it’s a commentary on society’s natural unwillingness to confront hard realities.
The culprit in all this is something I call bullshift. People in both finance and government have a vested interest in shifting people’s attention to making them feel bullish. Evidence be damned. No one wants to be the bearer of bad news, and a feeling of optimism is good for capital markets and political fortunes alike. Investors don’t give new money to advisors who are bearish. Voters don’t give their votes to politicians who actually aim to confront current challenges. These include high debt levels, demographic challenges associated with social programs, slowing economic growth and productivity and climate change.
It’s just easier to blame whoever is in charge than it is to tighten your belt, make sacrifices, and recognize that our children might not have it as good as we had it. For investors, it’s just easier to believe markets will continue to rise despite historically high valuations and debt levels. No one wants to hear bad news… so people look the other way… as if the problems will simply disappear if they don’t look. According to Soren Kierkegaard, there are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.