Plain English with Derek Thompson - How to Invest and Be Happy When It Feels Like the World Is Falling Apart

Episode Date: October 28, 2022

We’re in a moment in world history where a lot of big global paradigms are dying. For decades, Europe was basically peaceful. That paradigm has gone up in smoke. For decades, the relationship between the U.S. and China was one of mutual dependency and growth. That paradigm, I think, is changing rapidly as the U.S. moves toward a new industrial policy and China shrinks inside a shell of authoritarianism. And for decades, low interest rates shaped the world—the companies that got started, the growth of the internet, and the ability of governments to run massive deficits. And that paradigm is going away. Global markets are a mess right now, and I wanted to bring back one of my favorite writers to talk about it. He is Morgan Housel, a partner at Collaborative Fund and the author of the bestselling book The Psychology of Money. We talk about what happened to the markets in the last 18 months, the legacy of zero-bound interest rates, and inflation—but that’s just maybe the first 10 minutes. The bulk of this episode is about deeper questions: What is investing for? Does making more money really make us happy? And why do so many rich people seem so miserable? If you like this episode, please leave us a rating on Spotify or a five-star review on Apple Podcasts. If you don’t like this episode, tell us why at [e-mail]. Host: Derek Thompson Guest: Morgan Housel Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

An Instagram post gets an unexpected boost. A TikTok catches in the algorithm. Sometimes that's all it takes to launch someone into internet fame. But then what? This blew up is a new podcast documentary that reveals how social media stardom is made. It's a different kind of fame. That's not always as glamorous as it looks. From Spotify and the Ringer Podcast Network, I'm Melissa Boresnack.

You can listen to This Blue Up on Spotify or wherever you get your podcasts. Today's episode is about money, happiness, and the meaning of life. Hearing that come out of my mouth, I know it sounds a little bit grandiloquent, but I don't know what to tell you. That's what the episode's about. So the first title that I gave this show when I was planning it was how to invest when it feels like the world is falling apart. You might be like, well, what do you mean?

The world is falling apart. Well, to set the stage briefly, I think we're in a moment in world history where a lot of big global paradigms are dying. For decades, it was a point of fact that Europe was basically peaceful. And that paradigm has gone up and smoked in the last 12 months. For decades, the relationship between the U.S. and China was one of mutual dependency and growth. To dramatically oversimplify, we invented a lot of stuff. China made a lot of stuff, and we bought a lot of stuff that China made. China got jobs and money. We got cheap stuff. And that paradigm, I think, is changing rapidly as the U.S. moves toward a new industrial policy and China shrinks inside of a shell of authoritarianism.

Also, for decades, low interest rates shaped the world. They shaped the companies that got started, the growth of the internet, the ability of governments to run massive deficits. And now with interest rates and inflation rates rising, that paradigm is going to. going away. So the world is a bit of a mess right now. And I wanted to talk about it with one of my favorite authors in the world. He is Morgan Housel, a partner at Collaborative Fund, and the author of the best-selling book, The Psychology of Money. We talk about what happened to the world in the last 18 months, what happened to markets in the last 18 months, the legacy of zero bound interest rates and inflation. But to be honest, that's like the first maybe 10,

minutes of the show. The bulk of this episode is about deeper questions. Something like, what's investing for? Does making more money really make us happy? And why does so many rich people seem so miserable? If you like this episode, please leave us a rating on Spotify or a five-star review on Apple Podcasts. If you don't like this episode, we still want to hear from you. Tell us why at plain English at Spotify.com. I'm Derek Thompson. This is plain English. Morgan Housel, welcome back to the podcast.

Hey, Derek. Thanks again for having me. So stocks have obviously been a mess this year. The SEP 500 is down 20%, NASDAQ is down 30%. And it is amazing to me how obvious everything looks in retrospect. Like, you go back 18 months ago, the U.S. approves a record high amount a government spending in an economy that was supply constrained because of the pandemic.

The result was inflation. The medicine, as everyone knows for inflation, is higher interest rates. We know this for a fact. You get inflation, you get higher interest rates. We also know for a fact that higher interest rates tend to increase the cost of borrowing and make it harder for companies that have less cash flow to thrive. That means companies that relied on growth narratives like Netflix and high multiple tech stocks were punished the most when interest rates increased.

Like, that's what's happened. And you go back and you look at all the falling dominoes tipping into each other. And it's like, holy crap, it's so easy to see all of this now. It's so predictable because it happened. And I have lately become obsessed with this paradox that the future always feels so unknowable. And yet the past always seems so obvious. So you're a wonderful thinker at the intersection of investing in psychology. How do you reconcile that paradox?

Well, you're right that it's always felt like that, that the future is unknowable in the past is so obvious. My wife has brought up this point several times that in 2020, COVID completely shredded the global economy, broke everything. And from the investing standpoint in the stock market, there was no price to pay. I mean, the stock market fell for like a month. But then if you look at 2020 in the United States, stocks rose like 20% that year. And when people try to say, how do you explain, like make sense of this market decline this year? my response was like, no, how do you make sense of that? How do you make sense of the fact that in the craziest, most insane year, maybe in the history

of this country, the stock market went up 20%. Explain that to me. So in some ways, I think what we're dealing with now is maybe just, hey, there is a price to pay for the consequences of what happened, both the pandemic and the policy responses that came after that. To your point, though, about it being so obvious that this would occur, I would push back a little bit. And I would say, if you remember what happened after 2008 during the financial crisis, when we had massive stimulus packages and the Fed was printing trillions of dollars, so many people,

including myself, by the way, were warning in 2008, 2009 that, hey, hyperinflation is right around the corner. It is unavoidable. It is with 100% certainty that interest rates are going to spike, inflation is going to surge. And it didn't. It did not come. And we went years and years and years with people warning warning and it never happened. I think that is actually a big reason why in 2020 we did 10 trillion some odd dollars of stimulus and a lot of people, including maybe myself, said, hey, it's probably not that big a deal or maybe it's going to, is there going to be some but like we were so conditioned after 2008 to assume that we could have our cake and eat it too. And so that I think even though it's obvious in hindsight, there are examples, recent examples of when

it did not play out like we thought it would. That's a really good point. And I, I'm already ready to concede a bit on my original thesis that the past always seems so obvious because you've just pointed out that sometimes when we're trying to explain the past, it's almost as if we're predicting the past the same way that we predict the future. We're trying to inscribe explanations on that, which is somewhat inherently mysterious. Like, why did stocks absolutely plummet in March 2020? Like, just totally created for two weeks. And then, like, the global investor community was like, oh, no, like, we're actually fine.

So my answer to that question, and I'm going to see what you think about this theory, and again, it's just a theory, is that it has to do with basically two data points, fiscal response and monetary response. So when the world fell off a cliff in March 2020, the Federal Reserve and the federal government, and lots of fiscal policymakers all over the world, said we foresee a massive crunch to both supply and demand because of this global pandemic, and as a result, we are going to kitchen sink this shit. We are going to throw everything that we possibly can at this pandemic. And as result, investors recognizing that this relatively unprecedented moment in world history was getting a relatively unprecedented monetary and fiscal response said, I think we have more faith that we can muddle through economically than we did before, that we might have a flash freeze recession rather than a kind of global depression. Whereas you look at the paradigm shift that's happened in the last year and a half,

we're going from 20 years of ZERP, zero interest rate policy, to a foreseeable future that is non-ZERP. It is 2%, 3%, 4%, 5% federal funds rates, which is an entirely different paradigmatic climate for the future of business. So that would be my big picture explanation for WTF March 2020 versus WTF right now. I agree with everything you just said, but I think it's maybe 80% of the story or something like that. The other data points that I would give to you is if you go back to the late 1990s, interest rates were 7%.

The budget deficit was in surplus. There was no deficit. It was literally negative stimulus. And the market was as insane and bubble-ish as it ever been. So when people say we had a market bubble because of interest rates and whatnot, I think that's inarguable. But it's not black and white like that. you can have a market bubble with the opposite of massive stimulus, with negative stimulus, a budget surplus, and it was crazier in 1999 than it has been than it was in 2021.

So I do think that there's always just this psychological animal spirit side to what the market is doing that you cannot explain with data. And maybe some of that in 2020 and 2021 was people were locked in their homes. They weren't going to school. They weren't going to work. They weren't going to concerts with their friends. What did they do? A lot of people, literally tens of millions of people opened up a Robin Hood account.

and started day trading. And that was not a small portion of it. That was like literally tens of millions of new investors. Most of them are small dollar amounts, but so much new participation, pushing up the meme stocks and the SPAC stocks, like all this, what we look back on as the crazy bubble of 2021. I think that's the right word for it now, was probably due to some sense of boredom. That was in many ways, I think, displaced from the monetary and fiscal policy that was happening, even if that did, of course, play a role. Right now, the market is way down. It may go down further before it goes back up. And I have friends who talk to me about the market, and I feel like I can sort of bucket them into two different categories. There's one category of friends whose emotional coping mechanism is to say, I'm not going to even look at my 401k. I'm going to be completely averse to the entire idea of checking my net worth. I'm just not going to think about it. I'm going to wait five years in the long run. Equities tend to go up. I have other friends. category number two, who are like, it's time to strike. Like, the bottom is near.

Stocks are cheap. I can find an opportunity right now that's akin to like getting in on Amazon the year 2000. I wonder what you make of a moment like this. When the market's gotten smacked, is this the time to do nothing or is it the time to do something? I think the do nothing aspect is, you know, I check my brokerage account every day, Derek. But I think that's the time, that's okay because I never take an action. I've never sold in any significant amount ever in my life. I check it because I think it's interesting, just following what's going on. I like the tracking of it, but I don't make any emotional decisions because of it. I dollar cost average, which means I invest roughly the same amount of money every month come hell or high water, no matter what the market or

the economy is doing. There's always this anecdote that I love. I've probably referenced the book, The Great Depression, a diary on this podcast before. It was written by a lawyer named Benjamin Roth in the 1930s who kept a diary. There's this one entry where I think in 1930, he's writing about the stock market and he says the market has fallen so much, nobody can imagine it could possibly go any lower. And then in 1932, there is an addendum to that diary entry. And he said, I was wrong. It got much, much, much lower. It felt like another 70% from there. Just because the market has declined a lot and just because you might do some analysis that says stocks are cheap, does not mean you have any insight whatsoever to what's going to happen over the next one year, five years.

Joe Wisenthell, I like Joe Wisenthal's line here, that any given stock can always fall 90% from whatever dollar amount it is, right? It can fall from 100 to 10. All right, we can still fall from 10 to 1. We can still fall from 1 to 10 cents. Anyway, go on. And when you have like pretty good high quality companies whose stocks have declined 75% in last year, like just Facebook for an example, a crazy profitable company, a very good company by any metric. and its stock fell 75%. Obviously, there's things going on in the business and whatnot. But I mean, it's so much easier for stocks to have big declines from levels that you would have never imagined than people think.

And this is why dollar cost averaging for those who look historically and crunch the data, even if you are trying to like reverse engineer it with hindsight bias and you were to say, okay, with hindsight bias, if I added more money to my investments when we were in a recession, if I added more money after the market fell 20%, would that be, would that be, would that, would that, improve my returns. Even if you were cherry picking, by and large, the answer is no. And it's so difficult to beat a dollar cost averaging strategy for the simple reason that you have no idea how much lower it's going to go, even if stocks have gone lower. So if someone had, if someone today said, now is the time to strike and they invested their bankroll, you know, half of their bankroll or 100% of their bankroll, markets could easily go another 30, 40, 50% lower. And then by not having the opportunity to buy those shares, you're just taking away from your future returns. It is so easy to become bored with dollar cost averaging and think like, oh, no, I can use my big brain and do better than this.

If you actually crunch the data, it is so difficult to actually beat it. You think really deeply about investing strategies and about psychology. And I wonder what you make of a paper that I know that you know about. James Choi, professor at Yale University, wrote this paper. After teaching a personal finance course at Yale, he poured over 50, different popular personal finance titles, not yours, I think, but others that had sold millions of copies like yours. And he got really interested in this idea of what's the difference between the way that economists think about investing and the way that the most popular personal finance

advisors and writers think about investing. And his conclusion was that economists tend to offer more rational advice because they're dealing with numbers, while the best-selling books tended to offer more practical advice that wasn't always specific. specifically rational. So just quick example, Dave Ramsey is famous for suggesting that people pay off their debt with a, quote, debt snowball method. That means you pay off debt from the smallest debt that you have to the largest debt that you have, because you want to close out the smaller accounts, get all the momentum from feeling like, yeah, I checked that box. I closed one of its accounts. I paid that debt down before moving on to the larger debts. Whereas in just classic macroeconomic

thinking or microeconomic thinking, you should want to. to try to pay off the larger debts before the smaller ones because they are the bigger hit on your monthly statement. I wonder what you thought of this paper. I thought it was really interesting, but it basically sort of pushes on this tension between our rational mind and our cycle and our sort of mammalian mind when it comes to investing. I think James Choi is a brilliant individual. I have communicated with him since the paper came out. I think he's a very nice guy. I mean, this is nothing personal. But I think what he put forth and so many other academic economists have put forth as well is the idea that they have the right answer and the pundits

and the writers and the authors don't really know what they're doing. So then the assumption is that you can compare the quote unquote correct answer to what everyone else is putting out there and find the difference. And I just found that so arrogant to think that that a person with a PhD and a chalkboard and is good in Excel knows the right answer. And the financial advisors who are in the trenches actually working with people, actually getting stuff done in the real world, don't know the right answer. If anything, it is the opposite that the people like Ramsey, who, by the way, I'm not even like a full-blown fan of it. But I mentioned recently, I said, how many people has Dave Ramsey helped out of debt compared with academic economists. And I said, look, it's a million to one. I'm making that up,

but it's got to be a million to one. No, you're not making it up. It's probably roughly a million to one ratio. So the idea that someone could say, well, he's wrong. He's not doing it right. And I, the academic has the right answer. I'm just like, ah, that's just not how it works. And the idea that, well, the academics have the rational answer. Yeah, but people are not rational. They're not machines. They're not spreadsheets. They're not chalkboards. They're emotional, hormonal people who make financial decisions at their dinner table. Not in Excel. They make them at the dinner table where all these weird emotions and dynamics and family, your spouse's risk tolerance is different from your risk tolerance and your social goals, your aspirations. They all come together into this big pot that just makes it impossible to make

a quote unquote rational financial decision. That was my big takeaway from it. I thought the best point he made in that paper was about smoothing consumption versus smoothing your savings rate. So in plain English, what most, what a lot of best-selling personal finance books advise people to do is to smooth their savings rate. That is to say, rain or shine, stock away a consistent share of income to build a savings habit over time. Somewhat similar to your strategy of putting away a similar amount of money every single month. The reason to do this is because habits are sticky, saving money is hard, and it's important to clock that habit of saving so that no matter what happens, you still have it. The argument against it is that life isn't smooth.

Life is spiky. You know, many people who barely earn enough to afford rent at 25 become rich enough to afford a home at 40 or 50. Some parents find that they are, you know, totally delused with daycare expenses for their very young kids, and then realize that a huge chunk of cash is freed up when their kids move on to public school because they no longer have to pay $10,000, $30,000 a year. And so for this reason, he said academics who are more likely to encourage people to smooth consumption will say, look, you don't have to save the same amount of money every single year. You can be responsive to the world.

You can respond to whatever your situation is and change your savings rate in order to make yourself comfortable in the short run. I wonder what you think about that question, about whether savings smoothing is smarter because it is psychologically intelligent or whether consumption smoothing pays homage to, like, a larger reality that it's important to be happy in life even when life is like really, really squeezing you. I first have to point out my contradiction that I've just put forth in the last five minutes, which is I said dollar cost averaging as an investor is the right way to do because if you crunch the numbers, it is impossible to beat. But then I went and said people are not rational and it's not made on the chalkboard.

So I think there is that contradiction there as well. So even when people are not dollar cost averaging in their investments or not smoothing their consumption, not smooten their savings, there's so much where it's just like it just comes down to the individual. And there are some people whose income and whose income is so lumpy, not even necessarily high-income workers, but if you are a gig worker, your income might be incredibly lumpy. If you're an Uber driver, your income might fluctuate by thousands of dollars by the week. And therefore, the idea that you can have a smooth savings rate or a smooth consumption, I just think it just kind of gets disconnected from reality.

I do think what's definitely true that we know from behavioral finance is that people are very sensitive to declining their lifestyle. If they were used to spending $3,000 a month and they were used to spending or to driving the fancy car, and then they are forced to go down, even down a little bit, the loss ofversion from that is devastating. If you go from a Honda Civic to a BMW and then you're forced to go back to the Honda Civic, even if it's a nicer Honda Civic, like with the Moonroof, you're like, this is terrible. It's very difficult to do that. So if you can manage your savings and you're spending, your consumption, to a degree that even with your lumpy income,

you're never going to be forced in a major way to decline to pull back your lifestyle. That I think has a lot of validity to it. One other thing I would say about these contradictions, a story that I think is so powerful. John Bogle, who is the late founder of Vanguard, he is the pioneer, the godfather of index fund passive investing, passive where you're just owning a broad basket of stocks. You're not picking stocks per se. His son is an active fund manager. His son is a stock picker. And so many people, And John Bogle invested substantial amount of money with his son's fund. And a lot of people pointed out, they said, John Bogle, you are the, your whole life's work is saying, don't have an active fun.

You should be indexing. But here you did doing it with your son's fund. Isn't that inconsistent? His answer was something along the lines of, yes, but life is inconsistent. That's just how it works sometimes. And I think that is the realistic solution and answer to all these problems. Even if you can say, shouldn't you do X? Shouldn't you do Y?

It's like, yeah, but life is messy. Life is messy. I also kind of love the idea that the founder of Vanguard in his own personal life portfolio has a position in active managing, right? Because he's invested most of his money, most of his attention, most of his philosophy of life in the idea that index funds are better than active managing funds. But then he's invested like, you know, whatever, a small portion of his life, of his income, of his savings in the possibility that, hey, maybe some people can actually beat the average. I think, I think, you know, I am, I don't. I don't. don't think about investing as much as you do, but sometimes I use the portfolio analogy to represent

the fact that we are willing to accept a degree of hypocrisy in the context of investing a portfolio of money, right? When people invest in a portfolio of money, we think about hedging as being a good thing. You should bet on some high growth companies, but also you should bet on some whatever, commodities or options that are likely to move in the opposite direction. But it's funny that outside of the context of investing money, we tend to think that that sort of hypocrisy is a bad thing, right? We tend to think like, oh, all of your positions need to be 100%. Whereas most people, even in the things they seem to think most deeply, have a portfolio of opinions, right? They think that a high tax rate on rich people is the best thing to do. But a small part of them is like,

wait, maybe if we cut taxes on the wealthy, they would have more money that they would save, higher savings would go into invention and innovation, and that might be better in the long run. Like, it's just people, people are messy in that way. And it's, what a fascinating story that that you could, I can now go forth and tell that story with the, with the founder of Vanguard. And I think there are so many areas in life where people are, are okay with the contradictions if they know that the topic is subjective. If you're talking about your taste in music or your taste in food or something like that. If I said, I hate country music. But then if you heard me like humming along to a Tim McGrath song, you'd be like, wait, what about that? And I'm saying, well, yeah,

like, I hate country music, but like that, that one's okay. And then people are okay with that because they know it's subjective. But they view investing in finance as not subjective. They view it as a hard science, like physics or chemistry or math. And therefore, any subjectiveness that you have in, it seems like it should not be there. You want to remove all subjectiveness to it. But it is subjective. It's always, it's always subjective. And I think that's what throws people off about this. The question of what to do in inflection moments like this, should you act, should you invest, or should you do nothing and just not pay attention to your 401k, it kind of gets it a deeper philosophical question about whether or not there are differences

between getting rich and staying rich, right? Like getting rich and staying rich are two different things, right? What do you consider the difference? They're two completely different skills, and they are conflicting skills, which is what throws people off. Getting rich requires being an optimist and taking a risk and being optimistic about your own abilities and the economy's abilities swinging for the fences is what you need to get rich. Staying rich is almost the exact opposite. It's a degree of pessimism and paranoia and conservatism and just an acknowledgement that as you talked about, like the future is always so uncertain and we have no idea what the biggest

risk is going to be over the next one year, the next five years. But then acknowledging that if you can get those two things to coexist, those two personalities to coexist, that if you can endure all of the short-term nonsense and unpredictability, and risks and threats in front of us, if you can survive those financially and stick around long enough for your long-term optimism to actually pay off,

the rewards can be incredible. One other way to think about that is the idea of saving your money like a pessimist and investing your money like an optimist. I think that's the way to do it. You want to save with the idea that what's in front of us

is just a big, unknown black box of surprise and decline, but if you can endure all of that and stick around for long enough, it can be amazing. Now we're getting to my favorite subject, which is the interplay between money and happiness. Let me start with the moment,

most basic question here and then latter up to somewhat harder questions. What do we know about the relationship between income and happiness? If you really dig into the studies of what it shows, it's not that rich people are necessarily happier, but they tend to be more content. And being content, contentment and happiness are very different. Happiness tends to be a very fleeting emotion. And are, as Elon Musk and Bill Gates and Jeff Bezos, are they happier than you and I? Probably not. they might have fewer bad days than you and I, but I truly doubt they are happier than you and I. But would someone who is successful, and let's leave aside the deck of billionaires, would a dentist have a more feeling of contentment in their career than a lower income worker? By and large,

the answer is yes, more likely to get to your later years in life and look back and say, I'm pretty proud of what I've accomplished. That is very different from happiness, but it is worth striving for as well. So whenever people say more money doesn't bring more happiness, it's usually a black and white of, and therefore you should not go out and chase more money. To some degree, I think that's okay advice. But it's not that more money does nothing for you. It does something for you. It's just not exactly what you thought it would be. Can I ask a little bit more about the difference between being content and being happy? I absolutely understand the idea that happiness is fleeting, that no one exists fully suspended in a permanent state of absolute happy

to see. At the same time, precisely because life is messy and it is emotionally unstable and there are happy moments, disappointed moments, and rumination and anxiety, I'm trying to figure out where contentedness sits in there. The way that you're using it, are you saying that it's almost as if there is a higher floor to their emotional experience or like a higher sort of average temperature of contentedness? Like their happiness thermostat has turned up just a little bit higher than someone that makes 10 times less than them? How are we defining the concept of being content versus happy here? As I would define it, and this is my interpretation of the studies that have been done,

it's a lower propensity of regret later on in your life. And I think that is a major cause of things like midlife crises, is having a sense of regret that, oh, I'm now in my 50s. I wish when I was in my 20s I would have pursued this different career. I wish I would have taken a bigger risk. I wish I would have tried to get the promotion that, if you have a higher income, you are less likely, not fully, but less likely to experience those emotions. Now, there are other things that you might regret. If you are a very successful

entrepreneur, you might look back and say, I regret not spending more time with my children. I regret not spending more time with my friends and family. There are other things, but a lower susceptibility to be plagued with regret later in your life as your income goes up. If you could take the very extreme levels of this, if Bill Gates were on his deathbed today, I imagine, maybe this is not true, I don't want to speak for him, but I imagine he would look back and say, I built an amazing company, I made a lot of money, I gave the majority of money of that away towards helping society. It wasn't perfect. I did not have a perfect life by any means, but I'm pretty proud of what I accomplished. And I think that would just be a very low level of regret that he would

have. That's my assumption of it. It might be completely different what actually happens. But I think at the broad level, that's what happens. All of these things, too, the changes in whatever feeling you're going to have, whether it's happiness or contentment, are pretty marginal. There really is not that much of a difference. And I do think, too, that there is a sense that what money does for you is not necessarily bring more happiness, but it can remove levels of unhappiness, which is about as good as you can hope for. And it's worth striving for. So back to the Bill Gates and Jeff Bezos, do they have more happy days than you and I? Probably not. Do they have fewer bad days than the average homeless person, the average low-income market? Yes, yes, strictly as a function of their wealth.

So I think that is worth striving for. It's just very different from what most people assume that you will get for more money, which is they assume it's going to bring happiness. It's interesting to think that wealth is more like a vaccine than a performance-enhancing drug. Yes. Because a vaccine prevents illness and malady. The performance-enhancing drug makes you superhuman, right? It turns you into Barry Bonds.

Not that we need to go back into that whole thing. I already debated Bond's legacy with Bill Simmons. But that's an interesting and interesting thought. What I keep coming back to when it comes to happiness is that, to me, the denominator of everything is time. It's all about experience in time. And when I'm giving advice to my friends, family members, about what they should do, whether they should go for a job that they think they'll enjoy more versus a job that they'll make a lot more money in, I say, well, cash it out in time. Okay, you make an extra $10,000. It makes an extra $100,000.

You make an extra million dollars, right? Okay, that's a number. That's a number in a spreadsheet at a bank. What experience does that buy you in time? Does it buy you a vacation that you'll love? Okay. Does it buy you a house in a safer neighborhood near a better school with a pool that's going to make you really, really happy

because floating in a pool is the thing that brings you like the highest joy in the world? But like it's shocking to me how few people actually like do this calculation. The money is just a number in a spreadsheet, in a bank. You can reflect on it and be prideful, but like, I don't know, who cares? Even that pride is just a moment in time. It lasts five seconds. Then it's, you're done and you're worried about your kids. You're worried about your partner. You're worried about whatever the thing that's coming down the pike at work is. So understanding that wealth is just this thing, the cash is out in time.

Like, how do you think about, I guess, the interaction between money and time in this way? I've often thought of it just in the simplest terms. Every dollar of savings you have is a piece of your future that you own, that you have a claim to. And in the inverse, every dollar of debt that you have is a piece of your future that somebody else owns. The knee-jerk reaction of what money is going to bring for you is more stuff and nicer stuff. And that's great. That's true. I enjoy that aspect of it as well. It is so easy to overlook, though, the power of using money to control your time, to be able to live where you want, do where you want, to wake up every morning and do what you want with whom you want for as long as you want and taking control over

your calendar is one of the areas that you can use money and hire wealth to actually give yourself a better life. I'm going to avoid using the word happy, but a better life. And the irony is that there are so many people, particularly very wealthy people, who their wealth comes from the fact that they have no control over their time. They're completely scheduled down to the second from 6 a.m. to 10 p.m. in their job as an investment banker or a lawyer or whatever it might be. And that in itself is a unique form of poverty, having no control over your time, having being forced to work six or seven days a week and being at your boss's mercy 24 hours a day, that is a unique form of poverty that is so easy to overlook when you are just measuring wealth by how many dollars

you have in the bank. And if you can use what little money you have to control your time and not necessarily say, I want to use this thousand dollars to buy more stuff, but I'm going to use this thousand dollars to or whatever wealth you have accumulated to live where you want, to retire on your own terms when you want to do. That I think is going to be such a more, a bigger stimulus to your well-being than using money to have nicer stuff. It's just using it as a measure to control your time. why do you think so many people make this mistake? Like, let's assume for the moment that you and I are right. Maybe we're not, you know, once again,

we're just making a prediction about life. We might be entirely wrong. But let's assume for the moment that we're right and that lots of people who are very privileged, who are really, really lucky to be able to make choices about their life, choose time poverty in order to grow the number in the spreadsheet at the bank. Why do you think this is such a popular mistake? I think there's two reasons here.

One is that for a lot of high-income people, the money is not to fuel their lifestyle. It's just the scorecard of how well they're doing in life. And when they've tied so much of their identity and their entire life since they've been teenagers to that scorecard, the idea of letting it go and retiring from the game is impossible. The scorecard has to keep going up.

And if it doesn't go up, they are a failure in life because that's their entire personality. I am so impressed with pro athletes who have to retire when they're fair, young just because their bodies don't work anymore. And therefore, they have to leave behind the identity. Their bodies still work much better than yours and mine. They just don't work at an elite level. But they are forced to give up the identity that was so recognizable and so important. They just have to walk away from it. That's amazing. But if you are a lawyer or an investment banker,

by and large, you can keep going for decade after decade after decade still playing that game. And the more you do it, the more addictive it becomes. That's one reason. The other reason that I read in Will Smith's biography that I thought was so insightful was Will Smith said when he was poor and depressed, he could tell himself, oh, if only I had more money, all my problems would go away. But then when he was rich and depressed, he couldn't say that anymore. He was like, I've got all the money I could ever need, and I'm still sad. And he said that one of the things that wealth did for him is it removed his sense of hope that he had when he was poor, that if he only had more money, his problems would go away. And when he was rich, he lost that. That is an amazing recognition

that he had, but I think most people, no matter their income, never get to that recognition. And they still, no matter their net worth, no matter of their income, they have an assumption that if they had a little bit more, their problems would go away. And it's never true. It's never true, but they keep chasing it. It also speaks to the asymmetry of success that becoming successful, feeling like you're becoming successful at any level within a company, within a project, within a group of friends, feeling like you're becoming popular. That momentum is so joyous. Holding on to it is tenuous and losing it sucks. And losing it might suck more than getting it is good. I'm not sure if that sentence was very well-constructed. Totally makes sense. And let me quote the great philosopher

of Will Smith again to go off of this. Another thing you said in his book that I thought was so insightful. These are probably like the two only things that I really took away from his book. He also had this quote where he says, becoming famous is amazing. It's one of the best feelings in the world. Being famous is okay. Losing fame is is torturous. It's a terrible feeling. And his point was like most people want, they don't want to be famous. They want to become famous. I think it's the same with money that most people enjoy getting rich more than they would enjoy being rich. It's just the change in expectations that they are after that they really enjoy. And that's troublesome too. It's like people don't want to have a million dollars. They want to go from zero to a million dollars. It's the change that they want. In an economy,

especially in a stock market that is so volatile, that's a dangerous feeling to have because you are guaranteed with 100% certainty that there are going to be periods, even long, multi-year periods when you lose money. And if you are just addicted to the delta, to the change in your net worth, you're setting yourself up for some disappointing times. Does it ever disturb you when you think about just how tenuous fame is, how horrible it is to lose it, that we tacitly encourage millions, tens of millions, maybe billions of people, to chase a prize that is so fundamentally unsatisfying? Not only is the answer, obviously, yes,

but I think it is way more accentuated now than it was even for you're in my childhood because now the famous people are YouTube stars and TikTok stars. And when you and I were kids, the idea of becoming a Hollywood film star was like so far out of reach. But for the kids today, and by kids, I mean anyone known to the age of like 30,

the idea of becoming a TikTok star actually feels like it's without. and reach. You could actually be like, oh, I could do it. And I actually know this guy down the street who did it too. That's what everyone's thinking. And therefore, the idea of fame seems like right there. You just got to reach out and try to grab it. Whereas for us, it was so, such a distant dream, that I think it's just setting up an entire generation for disappointment. And you've probably seen the studies, too, that basically show the surveys, if when you ask a young person today, what is your dream career or something along those lines, a major percentage of them say social

media influence or something along those lines. That's what they want to be. And they want to do that for the fame, the recognition. That's a tough thing. Well, the other survey that really strikes me is the CDC does this survey of American teenagers asking them how many of them are consistently hopeless or sad. And just last year, found that the share of teens in high school who say they are consistently hopeless or sad rose to 44 percent, its highest level ever recorded. Just 12 years ago, it was 26%. For girls, it's more than half. For LGBT students, it's more than 70%. And in thinking about just, you I'm fascinated with this concept and want to do a lot more podcasts about it, this phenomenon of anxiety in America where, you know, I don't want to be too much of a progress booster here, but just in terms of both material and moral progress, things are a lot better than they used to be. We are richer than we were 20, 30 years ago, no question. If you look at race relations, you look at attitudes toward gay marriage, look at attitudes toward interracial marriage, I'd say morally we've made a lot of progress. And yet, despite all of this material, and moral progress, people are sadder than they have ever been, at least according to these surveys.

And I'm obsessed with this question of why. And I don't think there's any one explanation, but I do think that one little nugget that you just mentioned is something that I've never quite put my finger on, which is that disappointment is such a downer drug. Like, to lose the feeling of success or the feeling of micro fame is such a downer drug. And if we are allowing, encouraging all of these young people to be online and seek out this feeling of micro fame, these 15 seconds of fame that they can find on Snapchat and Instagram and TikTok, and they are feeling that only these bursts of success, but also these little micro doses of disappointment when whatever, their video or their post doesn't hit the same all-time high that last week or last month's video were posted, they're all experiencing. At a, at a nano level, the very thing that the philosopher William Smith was talking about, that achieving fame is beautiful and losing it is torture. I'm not really on TikTok that much.

We have a TikTok channel. People should subscribe to it. But I'm not like a consumer of TikTok. I'm not on Instagram. So I'm not as in these environments as a lot of other people are. But I do wonder if that's a small part of the, is this sort of, tsunami of negative vibes that seems to be overcoming the younger generation. I was going to mention when you talk about the explosion in teenage depression, have you seen

an explanation that is not tied to social media? Or is that part of it or that is everything? It's definitely not everything. And in fact, the studies about the effects of social media are not as persuasive as I would expect them to be. The effect sizes are pretty small compared to the enormous change that we've seen in teenage depression. But I think there's two other factors that are worth talking about, maybe three.

I'll try to see if I can remember all of them by the time I finished this answer. Number one is that social media use is not just about the time that people spend on the phone, is about the time that they don't spend in the physical world. According to T and self-reports, have fewer friends than they used to. They spend less time they used to outside. They spend less time

playing sports than they used to. There's just less engagement with the physical world, which just biologically, evolutionarily speaking, has to be pretty good for well-being because we've been in that physical world for millions of years. Number two, there's been some changes in parenting that are pretty important, a shift toward accommodative parenting, which is about making sure that young people feel as little distress as possible, which is difficult for a world that will routinely deliver distress to you on a daily basis. And so young people are essentially less emotionally prepared for being an adult. And then finally, and this I actually put quite a lot of emphasis in, even though it's slightly

an elite explanation, I think that the change in the way that parents treat college expectations has really changed. And that young people have much more pressure to totally fill their lives with all these extracurricular activities and don't have a lot of time to lift up and think, you know, You know, it's okay if I don't get into Williams College and only, quote, unquote, only get into like a good state school in New York in New York State. And the pressure that's been put on young people in terms of the college rat race has really changed.

That's not everything, but those are a couple of the non-social media variables. That all makes sense. And what's interesting about all three of those plus social media is just my inability to see how many of those change in a significant way. You can imagine a world which all those things get worse. maybe the part about college you could see kind of diminishing. There has been a fairly substantial drop in college applications in last two years. Maybe like the importance of where did you go to school will lower in importance.

But all the other things, it's hard to imagine how those things take a serious turn. And if anything, you see people like by the month, by the year, becoming more addicted to social media, including myself. And it's really hard to see how that turns. I think, you know, in the last week, I would have serious doubts that this will ever occur. but there's been rumors shattered, I think all unfounded, that the United States will ban TikTok. Again, I don't think that's going to happen.

But I think a lot of people loved the idea of it, and you could see them getting gleeful at the idea of it because I think the only way to break the addiction is to have somebody like forcibly taken away from you. The idea of like, oh, I'm going to regulate my own social media use. It's just impossible. And you know it's bad for you, but I'm like, there's no way I can put this down.

Impossible. I need someone to take away the keys from me. Yeah, it's like we're all kids, hitting ourselves in the face with a plastic hammer, waiting for mom and dad to take the plastic hammer out of our hands. It's like, please take it away. That's okay if you're five years old, but it's like kind of pathetic when you're talking about a society that like involves adults.

And like I am, I'm calling you pathetic. I'm calling myself pathetic. I think there is a, I wish, I think in part one of the solutions here is that we need a new way to talk about educated discipline, that we need like clearer language, including from the media about what discipline is. and how much power and agency we have over our lives to fix the things that are bringing us to stress. This, frankly, is probably another podcast episode,

but I do think that, again, nothing is monocausal here. Social media isn't monoccal. Accommodative parenting isn't monocausal. But I do think that another variable in this jambalaya is that there is a lot more reading of negative news that makes people feel like the problems in the world are too large to be solved and that it therefore encourages a sense of almost learned helplessness in doom. And I think that in all of these things that we're talking about, whether it's parenting styles or social media use or the way that we talk

about the future or climate change and news media, this is all culture. And the tough thing about culture is that there's so many inputs, we're all responsible for it. But the good news is it's not like some physical reality. It's not like gravity. Like, this is something we actually can change because it's just coming from us. Yeah. And there's sometimes, I think, too, where it's not just people are reading more negative news. They're just reading more news in general. It used to be 30, 40 years ago. Maybe your parents read the morning newspaper. You as a teenager or young adult probably didn't. Maybe you watched Walter Cronkite for seven minutes in the evening. And that was kind of your exposure to news.

Whereas today, a lot, a huge percentage of people, even if they don't really know it, are bombarded with news headlines. They're not necessarily going to CNN.com or FoxNews.com, but in their Facebook page on Twitter, people, other people are posting news. They're just constantly, almost all day long, are being hit with news stories in a way that would be so foreign to somebody 30 or 40 years ago. I think 30, 40, 50 years ago, there was a lot of negative news. There were a lot of problems in the world that was accurately covered by the media. People just didn't, weren't as exposed to it as much as they are now. And maybe it was, even if you were a news junkie 30 years ago, you read the morning paper and you watch the evening news,

and that was kind of it. Whereas today, it's like a slow drip all day long, all day long of news headlines. That's my own experience. Yeah, I want to off-ramp this back into investing at the end. But, you know, one way in which this connects the investing conversation

is that it raises the question, you know, is more information always better? You know, the fact that young people today have access to more information about the world and also are the most depressed, most anxious generation in recorded modern history might not be a coincidence. And it makes me wonder about the fact that, like,

you know, you have a lot of people who learned in the last few years to be these day traders who had access to, you know, headlines that are coming, though, through the over-the-transom on, you know, Wall Street Journal, Bloomberg and CNN,

and thinking, oh, you know, I can play with this. But sometimes, I don't know, it seems to me, like, more information, more of the flood doesn't necessarily make you a wiser person or a wiser investor. It's, you could definitely say, I don't know. I would take that back. I don't know if you can definitely say. But to me, it seems fairly likely that the average person in the last 15 or 20 years is not more informed, but they are angrier. There's this great quote from Benedict Evans where he says, I'm paraphrasing. He says, the more that people discover new opinions online, the angerer they become that different opinions exist. And that's that I think is really true. And a lot of time that's spent online is not gleaning more information to learn about the world. It's you. are learning about the world, but you're learning that other people disagree with you, and that

makes you very angry. So I think if you were to flip it and say, would we be better off in a time machine going back 30 years ago and killing the internet, killing social media, would people be better today? The answer is obviously no. I think it's no way. It's not even close. But does that mean that it is like purely net positive or that it is purely positive in every aspect? And there aren't other areas of it that have led to depression and bad thoughts and negativity and tribal affiliations, of course. And then you start to wonder, like, where does that end? Does that keep compounding for the next 50 years? Is it compound for the next 100 years? It's definitely compounded over the last 10 years and it's compounding exponentially.

So then you just, you know, if you have an appreciation for what compound growth can do and then what it can do over a generation or two generations and you see what's happened with the divergence in people's opinions and the increase in tribalism, that's a pretty terrifying thing to contemplate. Yeah, I think, you know, discipline and self-regulation is one of the hardest things to teach at a cultural level.

It has to be cultivated individually, and that's one of the topics, frankly, that I'm trying to write about, trying and struggling to write about, is finding a way to merge two philosophies that I have that are somewhat intention. On the one hand, I think, you know, thinking globally, I care so much about human progress,

about recognizing and identifying the problems that exist in the world and figuring out the most effective solutions to them, which requires one to be really fixated on structures that you don't control very much. Like, you know, capitalism and globalization and, you know, the pace of decarbonization and the electricity grid. And meanwhile, like, happiness is dependent upon

an entirely different set of factors, a set of factors that you do control, your thoughts, your emotions, your behavior. And so there's this tension that I'm thinking about between sort of being progress-minded on the one hand globally and being stoic-minded individually. And, you know, braiding those two perspectives together, I think, is a really, it's a really difficult and, you know, potentially important project. So last thoughts, if you have any direction for me as I tried to sort of, as I'm struggling through this piece for the Atlantic, I would, I'd be happy to hear from you. Yeah, I totally agree with that. I think for most people, not everybody,

but most people, including myself, if you really wanted to increase your happiness and well-being, the solution is probably like move to the countryside and take up painting and meditation. It's something like that. Like cut yourself off from the world, right? Like almost hermetically seal yourself off from the world. Right.

And focus on things like meditation and things like that. But then if you said, okay, like Morgan, go do that. I'm like, no, no, I want to keep working hard. I want to keep making progress. I want to keep pushing ahead. So there is, I mean, there is some sense in like the cliche of like, you gain the pleasure, like the is from the struggle. That's what we're going for is, and that's where that's where all the good stuff comes from. There is this thing in economics called the tragedy

of the commons, which is when a whole society exploits a resource like oil in a way that is bad for everybody, but at the individual level, it makes sense for you to go take more oil and burn more oil because everyone else is doing it anyways. That's the tragedy of the commons. And I think at the economic level, at least like in the United States, there's almost the opposite of that, where people are benefiting the whole of society by working so hard and creating new technologies with more innovation, but they're doing it at the expense of their own life. It's like people are waking up and they're like, I need to go innovate and do more and work harder and make the world better with these new products, but I'm going to do it at the expense of my own sleep and my own well-being and my own

satisfaction, my own happiness, which is amazing on one hand. And I think that's why we live in a world of so much abundance and such amazing technology and medical innovation, etc. But it's pretty sad at the individual level. It's pretty tough. And I think it's hard to get out of that race if everyone else is playing that game. If everyone else is playing it and you want to compare yourself to them and your sense of well-being and identity is relative to everybody else, it's hard to step away and move to the country and take up painting and meditation. Morgan Housel, thank you very, very much. Thanks, Derek. Thank you for listening. Plain English is produced by Devin Manzi. If you like the show, please go to Apple Podcast or Spotify, give us a

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