Posted by on August 3, 2016
Were “the good old days” really that good?
Memory is a funny thing. We tend to remember good things that happened more than bad, perhaps contributing to the generalization that life in past years was better than it is today. Morgan Housel, of The Motley Fool, examined that idea recently and found it to be inaccurate in at least 3 economic areas.
First, Housel looked into the common idea that past generations were taken care of for retirement with pensions. Workers didn’t have to save their own money – a habit many of today’s workers find difficult – because they had a company pension to fall back on. Housel debunks this myth with hard facts. Only 38% of workers participated in company pensions at the height of coverage in the 1970’s. Today nearly 80% of full-time workers (and 45% of full and part-time workers) are contributing to their 401(k) account.
Housel also studied the idea that our government should have a balanced budget. Lawmakers and laypeople alike talk gloomily about how our deficit will bring down the country. In actuality the government has run a deficit 73% of the time in the past 115 years. Surpluses generally existed in the 1920s and 1990s, both eras that saw big stock market bubbles, and immediately after World War II. Governments, unlike people, go on indefinitely and can run deficits for long periods because the debt doesn’t have to be repaid. It can be refinanced. The problem arises when deficits become too large, not because they exist.
Finally, Housel examines the notion that today’s markets are more volatile than in the past. This too is false, as shown by the standard deviation of weekly, monthly and annual market returns over the past 100 years. For monthly and yearly returns today’s markets are actually the least volatile. Weekly returns are also on the historically low side.
Things today aren’t so bad…maybe in 20 years we’ll look back at today and sigh with nostalgia for “the good old days.”
