The Case for Rational Optimism

“For 200 years pessimists have had all the headlines, even though the optimists have far more often been right. Arch-pessimists are feted, showered with honors and rarely challenged with their past mistakes.”

Matt Ridley, The Rational Optimist

We all know how pessimistic the conversation surrounding the economy has been lately. Over the last several years, negative stories have been extraordinarily intense. The housing market has been great for sellers, yet nearly impossible for buyers, with bidding wars in almost every market. Covid-19 created economic uncertainty spanning more than a year, with very little predictability. All the while, the stock market has been volatile and political tension has been high. The current world climate has made optimism more difficult than ever. That’s why we recommend rational optimism.

With little good news in mainstream media to stop the negative momentum, we tend to project even more dire conditions in the future. A commentator once said, “The signs of the sinking system are coming on furiously now.”

The Case for Rational Optimism

When the news seems saturated with negativity, the trick to keeping a Prosperity mindset is simple: a little bit of rational optimism.

Matt Ridley is a scientist, journalist, national newspaper columnist, and author of The Rational OptimistHow Prosperity Evolves, a book published in 2010. The Rational Optimist is appropriately named, as its main conclusion is a cheerful one: “life is getting better.”

As the blurb on the book jacket says,

Food availability, income, and life span are up; disease, child mortality, and violence are down—all across the globe. Though the world is far from perfect, necessities and luxuries alike are getting cheaper; population growth is slowing; Africa is following Asia out of poverty; the Internet, the mobile phone, and container shipping are enriching people’s lives as never before. The pessimists who dominate public discourse insist that we will soon reach a turning point and things will start to get worse. But they have been saying this for 20 years. 

Ridley argues that life is always getting better. This isn’t a new or unique conclusion. In fact, other contemporaries have made the same argument. Overall, even with the hardships we see today, things have never been better for more people than ever before. While there are certainly always ebbs and flows in personal circumstances, the overall trend is strongly upward.

On a global scale, we’ve seen societies finding meaningful ways to connect, businesses making industry disruptions, and healthcare workers going above and beyond. It is highly unlikely that we will regress to another Dark Ages or live as the Classical Greeks did. So what does this all mean? It means you can focus on more optimistic perspectives when others focus on economic doom and gloom.

Is Rational Optimism Still Valid?

While Ridley’s book was written over ten years ago, his ideas have held true. Even now, the world continues to get better and better when you look at the data. On a personal level things may depend on your circumstance, yet as a whole, the world is improving. Just take a look around the site, Our World in Data–you can find evidence of the world’s improvement constantly.

Just take a look at this life expectancy chart. Not only has life expectancy increased across the board for the countries below, but many of them have also come close to doubling. As you can see below, the life expectancy of Ethiopia in 1950 was closer to 30 years of age. As of 2019, Ethiopian life expectancy is more than 65 years of age. That’s incredible progress to be celebrated.

Chart showing life expectancy from 1950 to 2019 in different countries. Rational optimism.

If you think that’s amazing, just check out the chart below, which shows literacy rates around the world for people over age 15. The chart has done a complete flip-flop. While only about 20% of the population was literate in the 1800s, now only about 20% are illiterate. We have completely overhauled the world’s access to knowledge. Just think of all the good that can be done because of that, and there’s still progress to be made.

Showing world literacy rates from 1800s to today. Rational optimism.

Bad News Sells

So if rational optimism has so much value, why is the media so dark and gloomy? Unfortunately, bad news sells. And in this day and age, mainstream media needs all it can get to stay relevant. Sensational news gets people afraid and talking, which keeps people in a negative spiral. While it would be amazing for news outlets to cover more positive news, it’s not the kind of material that keeps people in their seats. After all, good news uplifts us and encourages us to go forth and create more good.

While negative news isn’t inherently bad—there are many things worth knowing about the world—it’s important not to consume too much, or allow yourself to be consumed by it. Step one is acknowledging that bad news sells, so you can take in the news with a critical eye. Hopefully, this approach can also help you listen, then move forward with positive action, instead of dwelling in negativity.

We also recommend limiting your intake of news to a small amount a week, so that you don’t get bogged down in hopelessness. This is scarcity thinking, which keeps you stuck. Instead, read or watch enough to be informed, then seek the GOOD news. Focus on stories and data that give you hope, and inspire you to do more.

Prosperity: When Everybody Works For Everybody Else

Ridley points to the long history of exchange and specialization when making his argument for optimism. The idea that each person can be completely self-sufficient is false. Complete self-sufficiency will always be mere subsistence. In order for human beings to live in an advanced civilization, we must have economic interdependencies.

Instead of building our own shelter and catching our own food, we have created social and economic systems in which everyone can specialize and trade with others who specialize in other fields. With specialization, people who are best at making food make food, those who are best at building houses build houses, and so on. We use interdependence and trade to make sure we all have access to the fruits of our labor. With this kind of economy, we can enjoy superior living standards.

Ridley explains, “Prosperity comes from everybody working for everybody else.” Not only do exchange and specialization result in greater prosperity, it also can create society-strengthening virtues like “mutual dependence, trust and sharing.” This is also a great incentive for people to stay in service longer, and remove retirement from their vocabulary. After all, it’s more fruitful to contribute and be a part of the larger community for as long as possible.

Of course, the evolution of prosperity has not always been a steady ascent. There are always people who reject mutual dependence, trust, and sharing. While there has always been an upward trend in living standards overall, there have always been moments when progress has been stymied by destructive behavior. We see this in war, oppression, theft, and conquest. The thirst for power in people and governments has occasionally destroyed generations of Prosperity. For some, this is the fear: that centuries of progress can be irretrievably undone by the malice or incompetence of bad people, bad leaders, and bad governments.

The Economy in the Public Eye

Fortunately, there is evidence suggesting that specialization and exchange offer benefits that not only make life better, but may also mitigate against destructive behavior in the future. We see one example of this effect in smartphone technology. Most of us have noticed in recent years how almost everyone having a smartphone has allowed people to stay connected and informed. We can transmit images and videos to the rest of the world in an instant.

It has become harder for tyrants to cover their misdeeds or suppress dissent. It’s more difficult for elected governments to control their constituents by stifling opposing views. When the economy is truly global, it is harder for countries to impose restrictive tariffs or maintain artificial trade advantages. Progress has not only resulted in more wealth, it has also made it harder for wealth to be destroyed. 

Even with this clear trend of improvement in how we live, public sentiment on the economy remains bipolar. If the economy is booming, we experience an abundance of over-exuberance (as ex-Federal Reserve chairman Alan Greenspan famously said). When conditions turn negative, however, each new bit of information is perceived to reinforce a sense of economic doom and gloom.

When we look at these things objectively, we see that many of these collective mood swings are often overreactions. Yes, there will always be trials, yet things are usually neither as great—nor as terrible—as they seem. We must always stay aware of our tendency to overreact. Given this reality, how should we realistically view today’s economic storm clouds and respond to those who forecast an even darker future?

What Can We Learn From the Past?

When we examine economic history, we see bad times may disrupt trade and slow innovation. Fortunately, however, they won’t destroy them. And Prosperity surges forward once again as soon as things improve, even a little bit. The Great Depression was the first global meltdown for developed nations in the modern age. The previous two decades introduced many innovations that improved everyday life, including automobiles, radios, indoor plumbing, and electricity. All of these survived the Great Depression.

People endured great financial hardship during the Great Depression, but they did not return to pit toilets and horse-drawn carriages. Even in the darkest depths of the Depression, most people in Western civilization enjoyed a safer, healthier, and more prosperous standard of living than that experienced by previous generations. The rational optimist would view this with hope, and take that knowledge to continue to innovate when things seem hopeless.

We’re Still Improving

The capacity for trade and innovation has survived even the worst economic disasters. We have seen this phenomenon at work even during the Covid-19 pandemic. This truly unprecedented situation seemed to bring the world to a halt. Yet there was real innovation of technology that has already improved our lives in a post-Covid world.

Even at the very beginning of the crisis, experts could already see the opportunities for innovation. We have all heard the expression, necessity is the mother of invention. This has never been clearer than in the last few years. During lockdowns, people moved their businesses to virtual operations and created value like never before. Everything from food to financial services saw an overhaul.

Looking for Optimistic Strategies to Financial Problems?

We approach the field of finance from a lens of positivity. We choose to dwell in rational optimism and create good from good. If you’re looking for an optimistic approach to your money and financial life, we’d love to help you.

Contact us or email us at we*****@pr****************.com to find out how things are looking up for those who want an optimistic approach. 

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