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
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We all know how pessimistic conversation surrounding the economy has been lately. Over the last several years, negative stories have been extraordinarily intense. Covid-19 has created economic uncertainty spanning more than a year, with very little predictability. The housing market has been great for sellers, yet nearly impossible for buyers, with the bidding wars to move to less densely populated areas. Meanwhile, the stock market has been volatile and political tension has been high. The current world climate has made optimism more difficult than ever.

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

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How can we keep a positive mindset when so many so-called experts declare that “the end is near”?

The answer 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,

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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 upwards. On a global scale, we’ve seen societies finding meaningful ways for connection, businesses make industry disruptions, and health care 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.

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 does exchange and specialization result in greater prosperity, it also can create society-strengthening virtues like “mutual dependence, trust and sharing.”

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 bad 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 (and its video capabilities) at hand has exposed inappropriate behavior by powerful people. We can transit images and videos to the outside 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 but 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 bi-polar. When 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 over-reactions. Yes, there will always be ups and downs, yet things are usually neither as great—or 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 that 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 had 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.

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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 has brought every country to a grinding halt. Yet there has been real innovation that will help improve our quality of lives in the coming years. Consider a March 25, 2020 article published at Industry Week.

“Tale of COVID-19: Crisis Inspiring Innovations” 

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 year and change.

These are extraordinarily difficult times, yet we are seeing a light at the end of the tunnel. And we will move forward with all the innovations that have been created to cope during the pandemic. Contrary to prevailing commentary, there are rational reasons to be optimistic about your financial future. If this is true, shouldn’t you be making plans to survive and thrive in the days ahead? 

LOOKING FOR OPTIMISTIC STRATEGIES TO TODAY’S FINANCIAL CHALLENGES?

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

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