Don’t Worry, Be Happy

A recent article by David Brooks in The Atlantic magazine argues that, despite the heavy shroud of pessimism that envelopes most of our current discourse, there is a surprisingly strong case for optimism about the future.⁽¹⁾ Some might recall the keynote speaker at our (virtual) annual client event in 2021, Matt Ridley, who wrote a well-regarded book on this same topic: The Rational Optimist. It is a theme that we have discussed before and one that we think is important.

We first would like to recognize that what we argue is excessive pessimism actually has its roots in evolutionary biology. As a species, we’re physically and emotionally wired to be sensitive to threats and risks. It’s the survival of the fittest. It explains why bad news sells more newspapers than good news. It’s why we believe someone telling us bad news more readily than someone telling us good news – subconsciously, we think the bearer of bad news is trying to help us; we worry the bearer of good news may be trying to trick us. Instincts cause most people to be pre-disposed to see the glass half empty rather than half full.

For certain, there is lots to be concerned about as we look at the world around us: the Russian invasion of Ukraine, the state of political discourse and the quality of our political leaders, the effects of climate change on our planet, and the inevitable collapse of the Leafs in the first round of the playoffs. However, as Brooks points out, “Negativity is by now so deeply ingrained in American media culture that it’s become the default frame imposed on reality.” A Gallup poll in January 2022 found that 17% of Americans were satisfied with the direction of the country compared to 69% in 2000. Interestingly, the people who are most pessimistic are the affluent and most highly educated. In Canada, the same pessimism is in evidence. A recent Leger poll found that 67% of Canadians agreed with the statement that “everything in the country is broken right now.”⁽²⁾

In reality, every decade in modern history has had its challenges for Canadians and Americans. Pessimism is more the rule than the exception. Brooks points to the 1890s as being a particularly worrisome time: unemployment in America surged from 3% to almost 19% among the working class, and there was “savage inequality, rapid technological disruption, pervasive political dysfunction, and controversial waves of immigration… And yet, the 1890s didn’t lead to American decline – they led to the American century.”

In contrast with the lugubrious mood in society, both Brooks and Matt Ridley highlight the numerous ways in which our current world is objectively better off than that of our forebears. There are big historic trends, such as the fact that from 1980 to 2018 the number of hours an average person had to work to afford the basket of commodities required for a middle class lifestyle fell by 72%. There is also the fact that 75% of adults raised in working class households today have a higher inflation-adjusted income than their parents did. And that 28% of American children lived in poverty in 1993, but only 11% did in 2019 – still too high, but a remarkable improvement.

The future also remains bright despite the obvious challenges that Canadians and Americans face. Brooks believes that “a society can get a lot wrong so long as it gets the big thing right.” In his view, that “big thing” is a culture of creativity and innovation which remains vibrant in open economies and societies such as Canada and the U.S. He points out that America ranks second in the Global Innovation Index, behind only Switzerland. It leads the world in foreign direct investment. Investment in U.S. venture capital has surged to $332.8 billion in 2021 from only $45.4 billion 10 years earlier. And since 2020, there has been a surge in small business formation. The pandemic drove people indoors, but not everyone binged on Netflix or spent their days riding a Peloton. Many started new businesses. For example, there were 28% more Black small-business owners by the end of 2021 than before the pandemic. As well, the collapse of supply chains during the pandemic caused many manufacturers in Canada and the U.S. to realize that outsourcing supply to far away places might be cost effective, but too risky. We expect a renaissance of investment and hiring among many North American manufacturers as supply chains are brought closer to home.

Brooks believes that entrepreneurial energies evident in the world around us will allow our society to deal with most of these existential challenges. Free and open economies have a remarkable ability to adapt and turn challenges into opportunities. He argues that a society declines when it loses energy. Canada and the U.S. are filled with energy.

Why do we think this is so important? It is because an optimistic view of the future is what drives our investment outlook. We don’t think that the world is going to hell in a hand basket. Opportunities abound to reinvent the way our world is powered, how we care for our fellow citizens, and how our quality of life can be improved even further. The stunning development of mRNA vaccines is just one recent example of such innovation. Not every new idea will change the world or prove to be a good investment opportunity. But we are confident that Canada and the U.S. will enjoy continued economic growth in the years ahead. And for wise and careful investors there will be lots of opportunity to grow portfolios and prosper.