Newsworthy: How This All Happened - Marty Moore, CFP - Carroll Financial
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November 26, 2019

Newsworthy: How This All Happened

Author: Marty Moore, CFP®

How All This Happened

I have often mentioned Morgan Housel, one of my favorite financial writers.  I can learn more on a topic in minutes reading one of his articles, essays or blog posts than I can from most books on the subject.

About a year ago his essay “How This All Happened, The Story of How America Evolved from 1945 to 2018” presented his view on how WWII shaped much of what has happened in the U.S. economy since that time.  From his essay:

Sixteen million Americans served in WWII – 11% of the population – eight million of which were overseas.  When the war ended in August 1945 the big question was: What would all these people now do?  Most of the troops would be returning home without jobs.  Those here at home building ships, planes and tanks and others working to support the war effort would no longer be needed. 

Sure enough, shortly after the war ended inflation began to spike.  Unemployment was rising rapidly.  In 1946 the Council of Economic Advisors warned President Truman that a full-scale depression was likely to hit within four years.

But a depression never came.  Housel’s essay chronicles the policy decisions and market forces that not only helped us avoid a severe economic downturn but led to a surging economy and an economic boom in the 1950’s.  Trends that began to take shape after the war continue to affect our economy today.

It’s a fascinating read and I cannot recommend it highly enough.  Here’s the link; It will take you no more than 15 minutes to read:

Housel’s article should also remind us that when it comes to the economy, and investing specifically, we can’t be too sure about anything.  Predictions about what the market is going to do capture our attention because we so desperately want to know, but as Warren Buffet once said:

“The only value of stock forecasters is to make fortune tellers look good.”


Three Big Things

It’s not specifically a follow-up to the article noted above, but it could be.  In a recent essay, Three Big Things, The Most Important Forces Shaping The World, Housel presents his view of what trends might be taking shape now that will affect world economics in the years to come.  Any one of them, or all of them collectively, may not have the long-term impact that WWII did but each will no doubt be an important trend that is likely to affect our economy and, ultimately, how we invest.


What are those three big things?


 1. A demographic shift that reconfigures modern economies

From the article: Demographics* will slow America’s economy, but they’re a five-alarm fire for other countries.  So even assuming equal levels of productivity growth, the U.S. is head and shoulders better off than other developed nations, just given its demographics alone.  America could drop the ball on technology while China/Europe make all the right moves, and America could still remain a much larger and more powerful economy.  People like to talk about new technologies and innovations, because that’s fun.  Demographics aren’t fun.  But they’re going to be as important, if not more, to overall economic growth than most innovations over the coming decades.

(* Demographics here refers mainly to how population growth of working-age adults in the U.S. is likely to slow but will continue growing while other nations, especially the developed nations, will see little growth, or in many nations, total working-age population will actually decline.)

Again, from Housel’s essay: It’s hard to overstate how big of a deal this is.  When people talk about what nations will own the next century they point to leadership in AI and Machine Learning., where China looks so competitive.  But it’s staggeringly hard to grow an economy when you lose a fifth of your working-age population in a single generation.  China could invent something as big as the next internet, but when mixed with its demographics have an economy that muddles along.  Europe, Japan, and South Korea are the same or worse.


2. Wealth inequality that’s grown for four decades hits an inevitable breaking point

No doubt the growing wealth disparity in our country will be a main focus and topic of discussion during the upcoming presidential election.  It is one of the most divisive topics of today.  More and more people are looking at this disparity and beginning to feel that they are doomed.  They see the only answer as more government regulation and control over our economy.

Housel’s article points out that this is not a new phenomenon.  We have historical precedent.  In his words: To grossly simplify, here’s the historical path of how the balance of economic power toggles between social poles:

  • Person creates a great business, gets rich.
  • People say, “That’s great!  They created a great business.  They deserve to be rich.”  Genuine admiration.
  • Wealth begets more wealth as the business compounds.
  • More wealth enables power, including regulatory influence, corporate governance deficiencies, and wage negotiating leverage.
  • Those powers create super wealth, and lower-income workers begin to say, “Hey, the reason you’re super rich is because you got all these powers from being merely rich, and some of that super wealth looks like rent-seeking rather than creating value.”
  • People say, “This isn’t right.  You can’t do this.”
  • Super wealthy person says, “Too bad, this is how things work.”
  • The process keeps compounding.
  • People feel demoralized, undignified, and like the whole system is stacked in favor of a few.
  • They eventually have enough and coalesce as a group to become powerful enough to force change, typically with taxes, minimum wages, and labor unions.
  • Super wealthy person says, “This isn’t right.  You can’t do this.”
  • The people say, “Too bad, this is the way things work.”

This cycle seems messy, and it is to a certain extent.  But it is also a correcting mechanism that can only occur in a free society, and a free-market economy.  This is not the economic correcting mechanism of a socialistic society where only a select few have the power to make change. And seldom is positive change done for the benefit of the masses, much less those at the bottom of the economic ladder.


3. Access to information closes the gaps that used to create a social shield of ignorance

Housel’s third force may have less direct financial and investment implication than the first two but perhaps we’re only just beginning to see how this trend impacts us as investors.  In a recent article by Ben Carlson (Trends That Matter in Asset Management) he points out that improved technology and greater access to information has had some very positive effects over time for investors.  He notes that investors have benefited greatly from lower investment costs, improved investment options, and a more equitable and widely available investment advice model.  This is a trend that will likely continue.

From the essay: The greatest innovation of the last generation has been the destruction of information barriers that used to keep strangers isolated from one another.  The telephone eliminated the information gap between you and a distant relative, but the internet has closed the gap between you and literally every stranger in the world.


Speaking of the growing wealth gap…

Living standards have grown exponentially over time, and some people might dismiss the wealth inequality gap by stating that even those in the lower economic strata enjoy a lifestyle much greater than ever before, even better than the well-to-do enjoyed in the not-too-distant past.  And they would be right.  But people don’t view their financial well-being in isolation.  It’s all relative to the people they see around them.  Comedian Chris Rock makes light of the situation:

“If Bill Gates were to wake up one morning with Oprah’s money he’d jump out the window.”

And just imagine how the owner of this luxury yacht feels as he cruises into harbor:

It’s all relative, of course.  We know we shouldn’t compare ourselves to our neighbors, but it’s hard not to do.


Happy Thanksgiving!

So, let’s all drop the financial and social comparisons and enjoy the Thanksgiving holiday.  Maybe you’ll be relaxing quietly over the holiday or you might be smack dab in the middle of the mayhem of a large family gathering; either way, we can all be thankful for all we have been given, and the many blessings we enjoy today.

I hope you have a wonderful holiday.




P.S. When WWII ended one of the largest shipyards in San Francisco was shuttered.  Out of the partially built vessels and leftover steel the Sausalito Houseboat Community was born.  Returning veterans, along with out-of-work artists, maritime workers, musicians and others took the available materials and fashioned the scraps and materials into living spaces.  The community exists still today and is made up of over 400 floating houseboats, some of which are valued well over $1 million.  Sausalito is a quaint, picturesque town across San Francisco Bay.


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