Plain English with Derek Thompson - The Four Biggest Myths of the U.S. Economy. Plus, Omicron in 100 Seconds.

Episode Date: December 21, 2021

Morgan Housel, Collaborative Fund partner and author of the bestseller 'The Psychology of Money,' joins the pod to debate what we're getting wrong about inflation, the Great Resignation, robots, and investing. Host: Derek Thompson Guest: Morgan Housel Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

The press box is here to catch you up on the latest media stories. Hosted by Brian Curtis and David Shoemaker, these guys have the insight on the biggest stories you care about. Check out the press box on Spotify or wherever you get your podcasts. Today on plain English, we are busting economic myths with Morgan Housel. Morgan is the best-selling author of the book, The Psychology of Money. But first, I want to do 100 seconds on the Amicron variant. And when I say 100 seconds, I mean literally at this very moment,

I am putting one minute and 40 seconds on my iPhone timer, and when this thing hits zero, I am done. Okay? So three, two, one, go. This thing is a wildfire. The evidence coming out of South Africa, Denmark, Netherlands, New York City, London, it is all pointing in the same direction.

No variant is in anywhere close to this transmissible. You look at the NBA, you look at the NFL. They've had vaccination rates upwards of 90%. They test way more than any other institution tests, and it is everywhere in those leagues. That tells you that two shots of vaccine is not great protection against infection itself. But infection itself is not the only thing that matters.

That leads to a big question of the moment. Severity. If people get infected, how sick do they get? I would characterize the evidence here as optimistic with caveats. I think we're seeing pretty clear evidence from both the studies in the real world data that Omicron is better than past variants at breaking through, but not as likely to cause severe illness. What does that mean?

It's kind of confusing. Here's a metaphor. The vaccines aren't just one layer of defense. Think of them like a medieval castle. You have a wall, that's your neutralizing antibodies that block the virus. And then you have knights inside the castle that can do the killing, like your killer T-cells, which fight the virus even when it gets past the neutralizing antibodies. Amacron is like a medieval army that specializes in scaling walls, but not in fighting knights.

Okay, so it's breaking through all over the place, getting into the castle keep, but then the killer T-cells and adults with vaccines or natural immunity seem to be okay after they get infected. What does it all mean? Number one, I am very worried this is going to be a huge problem for groups without any immunity whatsoever. There's a lot of a vaccineate people in America and around the world, the global south. I think I am mostly concerned for this group.

Number two, if you're not boosted, please get boosted. What the booster shots do is they increase the number and the quality of your neutralizing antibodies. That's kind of like rebuilding your castle wall. So you don't have to worry about the performance of your nights inside of the wall. Number three, COVID presents a much higher risk of disease to older and immune-compromised individuals. So, oh, there we go.

Almost done there. Almost made it. Please take extra precaution when you're mixing with households this holiday season. get your hands on as many rapid tests as you can. Please be cautious about mixing households among those who have the greatest risk from this disease. It's not just about Omicron. It's about Omicron plus Delta. This thing is still killing thousands and thousands of people a week.

Please, please be safe. So that is Amicron. The rest of this podcast is about economic myths. there's an idea in media criticism that journalists like me are just chasing clicks and sometimes that's true but broadly speaking most of my best read pieces

are not about chasing trends at all they're about busting trends they're about exposing popular ideas in the news as Potemkin villages empty vessels total pieces of bullshit so for example my best read article in the Atlantic last year was an article that I wrote about

a phenomenon I called hygiene theater. I said, it's remarkable in this pandemic how many companies and schools and offices are obsessed with scrubbing down surfaces to stop a virus that spreads almost entirely through the air. Like we're waging this multibillion dollar ground war to fight an aerial enemy. This isn't science, it's theater. And like most theater, it is based on a piece of fiction. So today, Morgan and I are going to comb through the economy for mirror. myths, myths about inflation, the Great Resignation, Robots, and finally, retirement. It is a great conversation, and I really hope you enjoy it. I'm Derek Thompson. This is plain English.

Morgan, welcome to the podcast. Thanks so much for having me, Derek. Happy to be here. All right, so today we're going to do economic myth busting. I have two big myths that I want to talk to you about, and I asked you to bring me two of your big economic myths. Did you do your homework? Do you have your myths? I did a little bit of homework. And we're only doing four, but I feel like you and I could do this show for about seven days straight and keep coming up with myths over and over again. Yeah, unfortunately, we're going to talk about supply chains.

The supply chain of economic myths is extremely healthy. The myths just keep coming. It is deep. There are no blockages at the Los Angeles and Long Beach ports for that. So I ask you to start by myth-busting the inflation news, because inflation really touches everything that's happening right now. To set the table here, in November, the consumer price. index, that is the official inflation rate, rose 6.8%. That is the highest annual inflation rate in 40 years. Morgan, you believe there is something mythical about this number. Enlighten us.

Here's what it is. I think there is no other economic number that is as controversial as the consumer price index. Whenever it's reported, no matter what the number is, you're going to have a lot of people on Twitter, on the news, on CNN, all over the place who say, this does. doesn't feel right. These numbers are manipulated. This is not actually capturing what people are feeling in the grocery store. It's controversial in a way that, like, other economic numbers aren't. And I think there's actually one very good reason for this. And it's not because the numbers are rigged. It's not because someone is trying to hide something from you. The biggest reason is that what the Consumer Price Index is reporting is the inflation rate weighted on an average household's

consumption patterns. But that applies. to virtually nobody because everyone spends their money so differently. And how I spend my money is going to be very different from how you spend it, which is very different from how a retired widow in Iowa spends your money versus a college student in Los Angeles. But that's not parsed or reported when these numbers come out. It is reported it as one inflation rate. And I think what we need to do that's very difficult and more nuanced is become comfortable

with the idea of my inflation rate and your inflation rate. And I'll give you one stark example of this. 48% of homes in the United States are owned outright with no mortgage. They are particularly for older Americans who have lived in their host for more than 30 years. They've paid it off. That's almost half of all homes. Not because they're owned by BlackRock, not because they're owned by Blackstone, but because people have paid off the mortgage, half of homes.

But in the Consumer Price Index, the measure for shelter that's measuring home prices is one third of the index. That's a third of the weight in the index. And it virtually does not apply to half of the Americans. To say nothing of the Americans who have a fixed rate mortgage, which is a lot of people for whom, even if the price of homes are going up or down, it doesn't impact their monthly payment. So now you can contrast someone who is in the market for a new house or is in the market for a new rental and contrast that to someone whose monthly housing payment is completely stable. They live in two different worlds. And then if you think, about someone who is in the market for a new car or eats a lot of red meat or is buying college

textbooks or is paying for their own health insurance, go on down the list. It's very different from person to person. And we're going to go on down the list. But I think it's useful. It's just pause for a second and play out how exactly the federal government calculates national inflation. So first, the federal government does a survey called an expenditure survey. We use interviews. We ask Americans to fill out diaries. We literally ask Americans to fill out diaries. And then from tens of thousands of interviews and diaries, we build, and you alluded to this, a basket of goods and services that is representative of the typical American. But like if these 60,000 Americans, these 60,000 surveys say that all they buy is, you know, cheese its used cars and dental floss, that's what

the basket's going to be. It's going to be all cheese hits and dental floss. Now, Americans are normal people. They're not weirdos, so they have a more normal basket. And the actual basket is essentially taken by the Bureau of Labor Statistics. And the BLS, records price changes based on whatever is in that basket of goods that we learned from the interviews and the diaries. So they say every month the American basket is getting today 7% more expensive. But this is your point. Everyone has a different basket. Mine would be over-indexed on Greek yogurt, whiskeys, and slippers because my dog is very diligent about eating my slippers every month, but that's just me. So, like, I went down the inflation list. Some of the numbers are

just really eye-popping. Gas inflation was 58%. Rental car inflation was 37%. Hotels 26, steak 25, bacon, 21%. Okay, so if you are a meat-loven American currently on a road trip, driving hotel to hotel in a recently bought car, and your daily breakfast is steak and eggs with a side of bacon, like, holy shit. I am super. So sorry. Your personal inflation rate is like 30% year over year right now, and you are going to notice that. Meanwhile, on the other end, rent inflation is 3.5%. Watches? 1%. Girls apparel, girls' clothing, 0.4% negative. So if you're an urban dad renting in the city buying clothes to your daughter and like getting a watch on your spouse, you are living in a totally different country from our meat, love,

cross-country trip in American. So, Morgan, pick your fighter. What life are you living? Are you, are you driving cross-country this winter, ribby in one hand, slab of bacon and the other? Or are you more like our urban watchdad? Well, here's what's, here's an interesting twist to that. At different points in my life, I've been kind of close to both. When I was in college, I lived in Orange County, but I went to school in Los Angeles. If you're familiar with that, it's not a short drive. And the price of gas to me during this time was really critical. If the price of gas went up, I felt that because I was driving so much. I drive like, I barely drive at all anymore.

Like most of you've listened to this. I work from home. I don't really go anywhere. I hang out my kids at home. The price of gas, if the price of gas doubled, I wouldn't necessarily feel it, which is nothing to do with incomes,

just that I don't buy a lot of gas. And so right now, I told someone the other day, I'm pretty convinced that my personal household's inflation rate is probably something like 2%. When I try to go down the list and look at it and try to back into, here's how I spend my money.

It's probably something between, two to three percent, something like that. Now the headline is six percent, but I don't think that number is wrong. It just doesn't necessarily apply to how I spend my money. Right. It's just a difference between the aggregate American experience, the individual American experience. I think a lot of people sometimes juxtaposing aggregate and individual see this discrepancy and say the discrepancy is a conspiracy. It's proof of a government conspiracy. And you're saying, no, it's proof that America exists as an aggregate of 320 million people and they're all very different. There's a debate within the inflation space that I wanted to touch on. So it centers around this word transitory.

Earlier this year, a lot of economists, a lot of media people predicted that inflation would be transitory. And I think that prediction has been proven wrong to a certain extent, or at least transitory is sticking around for now in a very untransatory kind of way. And I wonder what you make of the transitory argument. What are you looking at to determine whether we're going to continue to see six, seven percent inflation for the next few months and quarters, or whether you think this is something that might dissipate in 2022? It's really interesting. This gets into the semantics of what we're talking about, but it's really important. Words like bubble and hyperinflation and transitory don't have well-defined definitions. So you can define it any way you want. So you just said

something interesting, which is that it was that are we going to have inflation for a couple months or a couple quarters or is it going to disappear? In my personal view, if we had high inflation for a couple quarters and then it went away, in my view, that would be transitory. It just depends on how long you're talking about. So if your definition of transitory is one month, then no, we're already well past that. If it's two or three quarters, then that might be the case. So that's how I think about these things. Do I think we're going to have high inflation for the next five years? probably not, but could it stick around a year or two years? Like, sure, that makes sense to me. The best analogy to where we are in the economy right now is not the 1970s. It's probably the years

immediately following the end of World War II. When supply chains were totally broken, there was a ton of stimulus. The job market was very thing. You had all these workers coming back looking for work. And you had bouts of very high inflation, double-digit inflation. 20% for a couple months. That's right. 20% and then it would collapse and then it would spike again. and it went on like that for a couple years. And then we started getting into the Korean War, which kind of like screwed things up again in the supply chains. That's probably what we're closest to right now. Now, when people look back at that, I think they consider that transitory, as opposed to the 1970s that stuck around for years. We have high inflation from the mid-70s to the early 80s.

That was more enduring. But in the late 40s, early 50s, it was these bouts of, you know, six months of high inflation that would collapse and then come back again. If there's probably a historical analogy to where we are today. It's at that. I think you're probably right. I think 1946 and 1948 probably is the closest analogy. And the analogy is actually really, really close. So during World War II,

just to refresh people, the federal government wouldn't let Americans buy certain stuff. Like, you couldn't buy a car. Ford, General Motors, they transitioned their entire production capacity toward, you know, making tanks and bullets and guns. Then the war ends. The federal government is like, okay, we did it. The Nazis are gone. You can go buy cars now.

And Americans are like, great, Nazis are gone. go buy our cars now, except Ford and GM couldn't transition toward peacetime production fast enough to meet all of that car demand. And so with all of this car money chasing two few cars, boom, you have inflation. And that is kind of really similar to what's happening now. Like last year was not World War II, but it was World War II-ish in that the economy was warped by a shocking external event. And the shocking external event meant that people were afraid to do normal stuff and buy stuff in a normal way. But now you have a lot of Americans that are spending more money than ever. And they're like, okay, the pandemic was awful, but now I have savings. I want to buy a car.

And it's like, well, great, but there's a semiconductor supply crisis in Asia because of their delta wave. And we don't have enough semiconductors to actually finish the cars and sell them to consumers. And so, sorry, like, cars are just more expensive now. And then sometimes they're like, okay, then I want to go to a restaurant and the restaurants are struggling to hire enough people. And so prices are rising there as well. So I agree. I think that the latest, in 1940s is very similar to what we're going through. And I think that for Biden, it's really politically important. We don't have to go too deep into political implications.

But for Biden, I think it's really important because he came into office saying he was going to be FDR and he's governing his early Truman, right? People thought that we were getting this sort of heroic figure coming into the aftermath of a Great Depression who's going to transform the economy with a liberal agenda and remakes, you know, American social democracy for the next generation. and instead, he's just been early Truman. He's been thwacked by a lot of global circumstances that are outside of his control, and he doesn't seem to be on top of it.

So the fact, if inflation does last for another year, it's not great for the White House because it continues to suggest that they don't have their hands in the till. Do you have any advice for the White House in terms of what to do or just how to talk about what they can't do when it comes to inflation? Well, if you want to manage expectations as a president, that don't ever compare yourself to managing like FDR. That's the first thing.

You got to manage your expectations a little bit. I'm not sure there's that much they can do. There's no quick policy. There's no lever to pull in the way that you can pull a lever with monetary policy to ease financial conditions. I don't think that exists to fix supply chains right now. I think it's working through and it'll take time to work through. But there's not much that we can do in order to do that.

Just like in the 1940s, you can't switch a Ford factory from making tanks. to going back to making car. You can't snap your fingers and do that. It took a couple of years to figure it all out. And I think it's the case here. It's always the case that whenever there's a big economic shock, a big economic crisis, there's going to be a period of a couple years of just figuring out

where everything fell and had a piece of yourself back together. That was true in 2008, where it really wasn't until 2010, 2011, 2012, that we started figuring out like, okay, we've healed enough that we can start getting back to business. And I think it's true right now. I'm not sure there's that much we can do, but this is where I don't envy politicians who are on a two-year campaign cycle. It's a really tough thing to do when a lot of economic cycles will last many years.

Okay, let's move on to myth number two. If myth number one was about inflation, myth number two is about the Great Resignation. So the Great Resignation, one of the busiest economic stories of 2021. But I feel like the more people talk about this term, the more I wonder whether or not they know exactly what they're talking about. So let's start with what's true. It is true that a lot of Americans are leaving their jobs, and the government calls these departures quits. We broke the all-time quits record in April. Then we broke that record again in July.

Then we broke that record in August. Then we broke that record in September. There are a lot of people, quote-unquote, quitting their jobs. But here's what's not true. The Great Resignation is not really about resignations. It's about what is colloquially called job switching. So you look at, say, the restaurant and hotel industry. This is a sector that has seen more quits than any other part of the economy.

This is ground zero of the Great Resignation. And if you use a sort of colloquial idea of what resignation means, you're like, oh, my God, they must be bleeding jobs. They're not. This sector, which the BLS calls accommodation and food services, added two million employees in 2021, more than any other subsector I could identify. Like one out of every three net jobs have been created in essentially restaurants and hotels. So does it make any sense that the industries hit hardest by the Great Resignation?

Also added the most jobs? It does not, if you only think of it as a great resignation. It does make sense if you think of it as a great reshuffling, because here's what's actually happening. Someone works at a small restaurant in Utah. They work for 12 bucks an hour. They're driving to work and they see a hiring sign. It says, work at this restaurant for $16 an hour. So what does she do?

She switches jobs. That's what the great resignation is. And what it means is this isn't really a great resignation, like a big quit. It's more like the big switch or the great reshuffling. How do you feel about great resignation myth number two? I feel like it's difficult for a lot of people to comprehend because for basically all of our lives, Derek, workers have not had that much bargaining power. And for most of the last 40 years, the bargaining power has been with the boss.

And if you don't like this job, go somewhere else too bad. There's been an assumption in the American labor markets that there is an abundant supply of cheap and willing labor lining up at your door and you can snap your fingers and tell them to come in and pay them bare bones wages. And that's how it's worked for most of the last 40 years. And I think what we saw in the last two years with COVID is very quickly that pendulum swung to the other side. And now it is the workers who have the bargaining power.

And I feel like a lot of bosses, a lot of CEOs, a lot of managers have not come to terms with that fact. And it seems crazy to them that they're going to have to keep jacking up wages in order to attract the amount of labor that they want. So you have this reshuffling of people saying, oh, if you're not going to pay me $15 now, the guy down the street is paying me 17. And that dynamic has not existed in probably 40 years. And it might take a couple years for people to come to terms that this is the case.

But obviously, if you're a worker, this is great news. There's a long history of a pendulum swinging between workers and managers, labor and capital, swinging back and forth. In the 1920s, it was capital that had all the power. And then in the 30s, 40s and 50s, it kind of swung back towards labor. And then, you know, they kind of swung probably a little bit too far in the 1970s with, and then in the night from the 1980s and through until the dawn of COVID, it was capital that had most of the power, not all the power, but a huge portion of it. And I think it just swung very quickly back. in the last two years.

Let me interrogate that because I think I somewhat agree with you, but I also, I talked to Jason Furman, the former Obama chief economist, and I gave him my optimistic theory about the future of working arrangements. I said this could be not just a great resignation and a great reshuffling. It could be a great reset where labor for the next few years, maybe even the next few decades, enjoys more power, more bargaining power. They get higher wages. They get better benefits.

It's just a better time overall to be a worker. And he said, maybe that's true. But what I really look at, the two things that I really look at to determine the power of labor in this country are number one, productivity rates and number two, unionization rates. And neither of those seem to be moving in a way

that is clearly beneficial to American workers. it's not obvious that productivity is soaring, and it's definitely not obvious that unionization rates are reversing what's basically a 40, 50, 60 year steady decline, especially in the private sector. So how do you weigh the evidence from unionization and productivity with the hope for or other evidence for this moment being some kind of great reset? That's a fair interrogation of it. I would say two things, though. One is that productivity has become much harder to measure in the age of technology, harder to measure than it was in the age of widgets during the factory age for most of the 20th century, way harder to do at a

technology company. The second I would say is if you are a worker and you have seen your wages go from $10 an hour to $15 an hour or $15 to $20, do you necessarily care whether you are unionized or not? I don't mean that rhetorically. The answer might be yes. There's much more that you could gain in terms of better health insurance, keep on going down the list. But I have a feeling that a lot of workers in the last year feel like they do have control and power over their careers in the way that they didn't for the most last 40 years. So even if they're not unionized, if they have power to raise their wages, power to get a better job, power to move on to another job that provides better hours, better wages, whatever it might be, they probably feel empowered in a way that they haven't in a very

long time. But it's both a fair criticism. And it's possible that if you and I are talking in five or ten years, we will be looking at a new boom of unionization. Yeah, I just think it's so, what's happening to work right now, I think is so interesting. We're in such a liquid moment for work between remote work, what's going to happen in corporate offices, what's happening to sort of labor's power versus capital. I just think it's so interesting that possibly one of the most long-term impacts of the pandemic could be in our working arrangements. And it's just a really fascinating, I think, historical reminder that crises have unpredictable

ripple effects. Like, if you were in Chicago in 1872, like six months after the fire destroyed everything, would you say, I think that when we build back, we're going to design a new kind of construction called steel skeleton construction and invent skyscrapers and the largest buildings and monuments that have ever been built in human history will be right here where the ashes are still smoldering? No, but like that is what happened, like arguably the single most significant result of the Great Chicago Fire of 1871 was the construction of skyscrapers in the 1880s and 1890s. And like we just could, optimistically, now I'm maybe huffing my hopium here, but optimistically, I think, we could take a lot of positive lessons for the labor force from this pandemic.

That somewhat builds me a bridge to myth number three. We've got inflation. We've got the great resignation. I wanted to talk about a myth that I am guilty. of propagating, and that is the idea that we should be worried about robots taking our jobs. So a few years ago, I was very worried about automation and AI. I wrote a big cover story for the Atlantic called The End of Work about the fear that automation and AI would eat into a huge part of the labor force. This was during a time, Morgan, I'm really glad you mentioned this,

that we had a kind of glut of labor. We had really high unemployment rates. There were a lot of people looking for work who couldn't find work. We had more unemployed people than we had jobs we could put them in. And as a result, I was terrified that automation could come in and take even more work away from Americans. But what does the world look like in 2021?

Is it a glut of labor? No, it is a labor shortage. We cannot find enough workers to staff restaurants, to teach, to drive trucks, to work ports, to work in factories. a huge reason why the economy is dealing with the problems we've talked about. Like inflation and supply chain snafus is that we cannot hire fast enough to fix these problems.

This is partly because a lot of older Americans seem to have retired early in the pandemic and they're delaying their return to the economy, partly for the very understandable reason that they don't want to get into a job that's going to make them sick. But it leads to a world in which we need more total work. And if that work cannot come from people, because of a labor shortage, then we should welcome that it come from robots. We should welcome that it come from automation and new technologies of productivity. And so whereas like maybe seven years ago, I would look at like the automated checkout machine and say, oh my God, this is replacing the most common job in America, the cashier. Now I look at these automated checkout machines and I say, we need more of these.

We need more total work done in this country. And if that work is done by automation and can free some people to do more interesting jobs, it's a future that I now find myself rooting for rather than rooting against. So, Morgan, do you agree more with 2014, 2015, Derek, or 2021, Derek? Derek, let me read you a quote that says, quote, there's also considerable discussion about the new science of technology, which holds that new machinery has replaced many men in industry who will never find a job again. That quote was written by a lawyer named Benjamin Roth in 1932.

And I just bring that up because this idea of technology stealing your jobs is nothing new. It's been around for centuries. It first really started going when we move from an agrarian economy towards a mechanized economy with manufacturing. And as people started moving into the manufacturing jobs, you had a whole generation of farmers who's kind of said, I don't know. how to do, I don't know how to work in a factory, I'm a farmer. And they kind of fear that they were left behind. And then you had it again when you move from the factory economy towards the information, knowledge economy. And you had a whole other generation who says, I don't know how to do that. I don't know how to code. I'm going to fear I'm left behind. In many ways, that fear that you

have had in the last couple of years is nothing new. I think there's two little quirks behind this that's true, is that it's one thing to say, well, look, what happens when you have innovation is people find new things to do. They find new jobs. And that is true if you are of an age in which you can go out and find new training and new education and learn a new skill. But if you are a 58-year-old factory worker, it's just not practical in the slightest to say, go learn how to code. That's just not a practical, realistic way to expect most people to make that transition at that phase in their lives. So it is true that over time, that these people find new things to do over time. That's That's the key word.

And in all those situations, whether it was farming in the 1930s or manufacturing workers in the 2000s, there always is a group of people who do feel like they are. Even in aggregate, in aggregate, over time, those people do find new, creative, better jobs to work in. And overall, you know, looking, sort of casting your eye over the history of work in America, work is just more or less gotten better. I mean, you look at the kind of jobs that people were doing in, say, the late 19th century. country, most people were farming on local farms. If you were lucky, quote unquote, you got to work in a city. But like a lot of these jobs, like, the job of like whaling, for example, was one of the most common professions in New England. Whaling is ridiculously dangerous. And then if you're lucky that you catch a whale, you're, you cut open its brain and crawl into it to pull out the valuable stuff.

Like, this was a shitty, shitty job. And I think, you know, finding ways to essentially automate whale blubber, which we did thank God with electricity, is a mitzvah. The fact that it replaced some of the Ishmael and Captain Ahab jobs is a good thing for workers, not necessarily a crisis for them. So I suppose we are in agreement

when it comes to rooting now for robots to take more work. And this is a subject that I want to talk about more on the podcast because I think that automation and AI have always stirred up, as you just pointed out with the 1938 quote, they've always stirred up these fears that the next wave of technology is the one that will finally

disemploy half the country or all of humanity. And it just never does. In fact, for the most part, when you can find ways to compensate people for the short-term trade-offs, the short-term complications of leaving an industry that's being revolutionized, it turns out better for most people. All right, I want to move on to myth number four. This is a retirement myth you write so much and so well about investment and retirement, what is your myth number four? The myth that I've always found interesting is this idea, this nostalgia, that we used to have a better retirement system back in the 1950s, 60s, 70s when, quote, everyone had a pension. The golden age. The golden age of retirement. And if you dig into the data, you don't have to

dig very far either. It is so clear that that nostalgia is fake. And there was no golden age of retirement. There's two things that really summarizes. One, is that up until about a decade or two after World War II, the vast majority of workers worked until they died. That was the expectation. That was the reality. The idea of having spending a decade or two in a dignified retirement did not exist. The other thing is that when we talk about the age of when we flippantly say everyone had a pension, you dig into those numbers, and that was never the case either. It really peaked in the early 1990s. That's when the percentage of retirees who had a fixed income pension peaked in the 1990.

And it was about four out of 10 workers, which means 60% of retirees did not have this pension. And then we have to think that things like the 401K really did not come into use in any significant way until the 1990s. The Roth IRA did come into use until 1998, like not that long ago. So the whole structure that we have, both the expectation that you are going to have a retirement, that you deserve a retirement, and the way that we pay for it is like one generation old. And if you go back to our parents' generation, it just did not exist. And there's some really interesting stats behind this. If you go back into the 1950s, 57% of men over age 65 were still working. We're still in the labor force. And this gets back into the vast majority of people just working until they died.

There was no retirement at age 65 for the majority of people. You just kept going as long as you could. And if you look at the average inflation-adjusted social security benefits, not that long ago in the 1960s and the 1970s, adjusted for inflation. The average social security check was about $640. That's adjusted for inflation. Today, it's more than $1,200. So it was not that long ago that even when you had Social Security, that was not providing anything close to a dignified life. that was just kind of like a bare bones like break the glass emergency in case you need this money, but it was not anything close to a pension. And the best way to actually measure this in terms of how people were doing is just looking

at the poverty rates of people over age 65. And back in the 1970s and 1980s, you had 15% of people over age 65 in poverty. And it's well under 10% today. So it's just a dramatic decline in how older Americans are living. these days. And so when we have this nostalgia for what it used to be like, it's just that. It's remembering a world that actually never existed. One of the big takeaways from this that I think is most important is that there's a lot of criticism that people are not saving enough for retirement. They're not doing it well. They're not investing properly, which can be accurate criticism.

But I think we have to reflect and remember that the idea of saving for your own retirement and investing your own money on your own, that idea is literally like 25 or 30. years old. And there's been no generational knowledge transfer about how to do it and how to do it properly. Most people, their parents teach them how to drive a car and their parents taught them how to drive a car. There's a generational knowledge transfer about how to be an adult. And for saving for retirement, that does not exist. Baby boomers were the first generation that had this idea that I'm going to retire at 65 and invest on my own to do it. And they just kind of stumbled their way through it, trying to figure it out as they go. And so I think it's not a surprise.

that we're not very good at it and we're probably ill-prepared for it, given how new this is. So let me try to break down what I think you're saying. It's a compelling point. So there's a lot of people today that have sort of, that suffer from golden age syndrome. They look into the past and say, oh, the 1950s, that's when things were really better. The 1960s, that's when things were really better. And you're saying, let's look at all the ways that retirement has gotten better over time rather than moving away from some make-believe golden age. Social Security, number one, has clearly reduced poverty rates of seniors.

Number two, you've had more options for retirement vehicles, like the Roth IRA is an invention of like, you know, the end of the Clinton administration. This is a very recent invention. And boomers who are, ironically, the most likely to look back to the middle of the 20th century and say, ah, that's when I could retire with the golden Rolex watch, are interestingly the vanguard of a new movement of retirees who, have more options to invest their money the way they would like to,

but that there might be sort of complexities about that freedom, that that freedom might come with anxiety, because they have money that they can invest, or at least more than previous generations, they have way more anxiety about how exactly they should do so. So to, you know, some people might hear your case

and hear your myth-busting and say, you know, is this moving toward happy talk? Are you saying that there's like no retirement crisis that everyone's just basically fine? How do you sort of weigh the anxieties that people have about making sure that they have an estate they can retire in with the fact that, look, there is decade over decade progress in terms of people having more control over their money and having just more assets in general. I definitely wouldn't call it happy talk because the criticism

that most Americans are ill-prepared for retirement is accurate. Most of the stats is that a retired couple at age 65 will need $300,000 during their retirement years just for health care, just to pay their health insurance bills over and above what Medicare will pay for them, $300,000. When you compare that to what they actually have set aside in their 401k, in their IRAs, it's completely inadequate. So it's definitely not to say, oh, everything's fine and happy talk. It's not that in the slightest. You can say that there is a retirement crisis today. I think that's an accurate statement. My point is, that's always been the case. And even if we are still in crisis mode today, we are a fraction of the crisis of what it used to be. And if it felt better in the past, to

extent that that statement is true, it's just because our expectations were so much lower in the past. And the idea that you would work until the day that you died was true in our parents' generation and their parents' generation. This is not ancient history that we're talking about. So I think one big thing that's happened in the American economy in the last 80 years is that expectations have risen faster than results. So even if the results have gotten much better, and we by and large have higher incomes, higher net worth, we are more prepared for retirement, better health, going down the list, our expectations for those things have risen by even more. And it's easy, therefore, to look back and think that we were better off back then in the 1950s and

the 1960s, even if we were so clearly not. But since our expectations were lower back then, relative to where they are today, it feels like we're worse off. And I think that's where a lot of economic pessimism and cynicism comes from today. Yeah. So let's say someone comes to you and they say, look, I agree that expectations are rising faster than our ability to fulfill them. But at the same time, I also believe in all of the retirement crisis elements that you've pointed out. What is something that can be done at a policy level to begin to rectify the retirement crisis of 2021? And what's something that individuals can do to begin to prepare themselves for what's likely to be, you know, a longer retirement than is historically normal because people are not working until the day they die. And they're also overall, and hopefully this continues, living longer than they used to be.

So the public policy answer and the individual answer. I love the idea that's been passed around by several people of something like for every child that's born, they get $1,000 put into a Roth IRA. Baby bond. That is left there. A baby bond is left there. They can't touch it until they retire. They can't cash it out to buy a PS5. They can't.

It's not for spending. You have to, it has to compound over the years. There's a bunch of complexities in that in terms of like, well, who gets that money? Where is it invested? Everyone in Wall Street is going to line up to want your baby bond. So there's some complexities there. But I think just getting that tiny head start makes so much of a different. If someone has $1,000 invested in their name at birth, by the time they're 65 years old,

it's going to be real money. When you compound for that long, it's real money. I love that idea from the policy perspective. I also think, you know, at the individual level, we've probably under, we've probably under-informed people about what is an adequate savings rate. And for a lot of people, it has been put forth that, oh, if you can say 5% of your income for retirement, if you can say 10%, that's incredible. For a lot of these people over time, given when they start saving, when they come into some extra money in their 30s and 40s when their income starts rising, the numbers really just are not going to add up to that much.

And I think there is a lot of big number shock in retirement too to where if you are in your 50s and you have $200,000 safe for retirement, on one hand, $200,000 is a lot of money. relative to anything else in your life, $200 grand is a lot of money. Relative to supporting yourself for 25 years in retirement, during which your health is very likely going to be in decline, it's not a lot of money. And therefore, I think a lot of people feel like they are adequately prepared for retirement. And once they hit their 70s and 80s, they realize, oh, shit, this is actually not going to last me what I thought it would.

Morgan, I have one last question for you. This is about New Year's resolutions. do you have a New Year's resolution for next year? Do you make New Year's resolutions for yourself? I'm always thinking about things that I want to do better. I don't know if those become more prominent on January 1st, but I'll tell you one that I've wanted to do for a while that I've kind of struggled with. I want to spend less time on Twitter and more time with books.

In my perfect life, it would be so clear that I would check Twitter like twice a day and I would spend the rest of the day reading books. That's my ideal because I get so much more insight, so much more value, so much more deep thinking from the books than I do from Twitter. I love Twitter. I think it's wonderful. But the algorithm is so persuasive to me. And I am so hooked and the dopamine just floods my brain every time I log in.

That's probably been my resolution for a while. I was going to say, I think there's a resolution back in 2016 and 2018. I've probably gotten a little bit better at it. But it's still not to the extent that I would like. That's what I'd look forward to trying to do again for the fifth year in a row in 2022. All right, before we go, why do you give us, and hopefully this helps accelerate your advancement toward the resolution, one book recommendation? Yeah, let me think about this for a sec, so I get a good one for you.

Okay, okay, I got one. So much of history is focused on the big men, the presidents, the generals, the big names. So if you're looking at modern U.S. history, FDR and Truman and Eisenhower, there's actually like the second and third tier of leaders in America that I think are the most. fascinating. They don't get very much attention, but they were so consequential to history. So I just read a book on George Marshall, who was chief of staff of the army during World War II. He went on to become Secretary of Defense, Secretary of State. He's not, it's not that he's a recluse. Like, a lot of people know about it, but he did not get nearly as much attention as the big names during this period,

but he was so consequential to America during World War II and after it and the Marshall Plan Rebuilding. Rebuilding Europe. And I think what's sticking, out from George Marshall is I don't think there was anyone else in modern history who was completely selfless in his willingness to just want to protect and serve the United States and completely eschewed all personal gain. Never wrote a memoir, never gave a paid a paid talk, never took a big endorsement deal after his political career was over. He thought, and he has these quotes where he says, look, it is the solemn duty of people in the military to prove to the American people that they are there to protect them and they are not there for any sort of personal gain.

And it's just such a refreshing and great look at someone who did not get that much attention by his own, by his own will. You say, it sounds like a Spielberg movie. Like one of those movies that's like it's almost too perfect to be true in terms of it's, it's arc in conclusion. And the fact that he was so selfless in it, it means he did not give that many interviews. He didn't write memoir. So there's not that much that's necessarily known about him.

So this biography that I read by David Rohl, It's called George Marshall Defender of the Republic. That's one of the best books that I've read recently. I love it. Morgan, thank you so much. Happy New Year, and we'll talk to you soon. Same to you. Thanks, Derek.

Planning this with Derek Thompson is produced by Devin Manzi. Thank you so much for listening. If you like this show, please follow us on Spotify, rate and review us on Apple Podcasts. We will be back on Tuesday. Enjoy your holiday. Merry Christmas. And we'll talk to you soon.