About Investments Blog

Getting the Goalpost to

Stop Moving
Jun 7, 2021 by Morgan Housel

T
here aren’t many iron laws of money. But here’s
one, and perhaps the most important: If
expectations grow faster than income you’ll never
be happy with your money. One of the most
important financial skills is getting the goalpost to stop
moving. It’s also one of the hardest.

First, a little story about the 1950s.

“The present and immediate future seem astonishingly good,” LIFE

magazine’s January, 1953 cover story begins.

“The country has just lived through what was economically the greatest year
in its history” it wrote. It had done this with “10 straight years of full
employment, through new management attitudes which include an
increasing realization that the well-paid worker, who does his job under
healthy and agreeable conditions, is a valuable worker.”

Wealth came so fast to so many it was jarring. “In the 1930s I worried about
how I could eat,” LIFE quotes one taxi driver. “Now I’m worrying about
where to park.”

If these quotes don’t surprise you it’s because the 1950s are so often
remembered as the golden age of middle-class prosperity. Ask Americans
when the country was at its greatest and the 1950s is usually near the top.
Compared to today? Different worlds, no comparison. The overwhelming
feeling is: It was better then.

George Friedman, a geopolitical forecaster, summarized the nostalgia a few

years ago:

In the 1950s and 1960s, the median income allowed you to live with a
single earner — normally the husband, with the wife typically
working as a homemaker — and roughly three children. It permitted
the purchase of modest tract housing, one late model car and an older
one. It allowed a driving vacation somewhere and, with care, some
savings as well. I know this because my family was lower-middle
class, and this is how we lived, and I know many others in my
generation who had the same background.

There are two ways to debate a position: Asking whether it’s true and asking
whether it’s contextually complete.

This version of the 1950s lifestyle is true in the sense that the median
American family indeed had three kids and a dog named Spot and a
breadwinning husband who worked at the factory and so on.

But the idea that the typical family was better off then than now – that they
were more prosperous and more secure, by nearly any metric – is so easy to
debunk.

That doesn’t mean those yearning for the 1950s are necessarily wrong. It just
shows that something else changed in the last 70 years that created a gap
between what happened and how people feel about what happened.

And that something else is not complex: America’s wealth grew but its
expectations grew more.

The numbers are not close. Median family income adjusted for inflation was
$29,000 in 1955. In 1965 it was $42,000. In 2018 it was $63,000 (last year
was higher but stimulus checks skew the data). Higher median income
wasn’t due to working more hours, or entirely due to women joining the
workforce in greater numbers. Median hourly wages adjusted for inflation
are nearly 50% higher today than in 1955.

LIFE described the 1950s as prosperous in a way that would have seemed
unbelievable to someone living in the 1920s. The same is true today – a
1950s family would have found it unfathomable that their grandchildren
would earn 50% more than they did.

Some of today’s economic worries would have puzzled a 1950s family.

Healthcare costs have indeed exploded in the last 20 years. But half of
Americans didn’t even have health insurance in 1950, and two-thirds lacked
“surgical insurance” to cover a major incident – which partly explains why
4% of Americans didn’t live to see their fifth birthday in 1950 vs. less than 1%
today.

Saving for retirement is a burden today, but in the 1950s the entire concept
of retirement was a luxury reserved for the upper classes – 47% of men age
65+ were still working in 1950 vs. 23% today, to say nothing of how much
more physically demanding a typical job was back then. Average Social
Security checks adjusted for inflation were half what they are today; poverty
among those age 65+ was nearly 30% compared with less than 10% today.

The homeownership rate was 12 percentage points lower in 1950 than it is

today.

An average home was a third smaller than todays despite having more
occupants.

Food consumed 29% of an average household’s budget in 1950 vs. 12.9%

today.

Workplace deaths were three times higher than today.

That’s the economic era we long for?

Yes. And it’s important to understand why.

Ben Ferencz had a hard childhood. His immigrant father didn’t speak
English, was unemployable, and settled in an area of New York controlled by
the Italian mob where virtually everyone faced violence.

But Ferencz said none of it seemed to bother his parents. They were thrilled.
He recalled:

It was a tough life but they didn’t know it because where they’d come
from it was tougher. So it was an improvement no matter what.

The Ferenczs fled Hungary to escape Jewish persecution during the

Holocaust. His family came to America on an open deck of a ship in the
middle of winter, nearly freezing to death. Ben later became a lawyer and
prosecuted Nazi war criminals during the Nuremberg trials, and today seems
to be one of the happiest people I’ve come across.

It’s staggering how expectations can alter how you interpret current
circumstances.

In 2004 the New York Times interviewed Stephen Hawking, the late
scientist whose motor-neuron disease left him paralyzed and unable to talk
since age 21.

“Are you always this cheerful?” the Times asked.

“My expectations were reduced to zero when I was 21,” Hawking said.
“Everything since then has been a bonus,” he replied.

If an abjectly terrible situation can be offset with low expectations, the

opposite is true.

Not long after the Times interviewed Hawking it interviewed Gary Kremen,
who founded Match.com. At the time Kremen was 43 years old and worth
$10 million. That put him in the top half of 1% in the country, and probably
the top 1,000th of 1% in the world. In Silicon Valley, it made him just
another guy. “You’re nobody here at $10 million,” he said. The Times wrote:
“He logs 60- to 80-hour workweeks because he does not think he has nearly
enough money to ease up.”

The point here isn’t to say Hawking has the clarity of a monk or that Kremen
was out of touch. Just that all happiness has its roots in expectations.

And Kremen’s situation is by far the more common one. It’s natural. It’s so
natural that an important question is wondering if most of us walk through
life on the same path.

Warren Buffett once told a group of college students that they all lived better
than John D. Rockefeller:

I mean you’re warm in winter and cool in summer and can watch the
World Series on TV. You can do anything in the world. You literally
live better than Rockefeller. His unparalleled fortune couldn’t buy
what we now take for granted, whether the field is—to name just a
few—transportation, entertainment, communication or medical
services. Rockefeller certainly had power and fame; he could not,
however, live as well as my neighbors now do.

This is another one of those technically-right-but- contextually wrong

problems. Rockefeller never had Advil or sunscreen or penicillin. But nobody
today wakes up feeling better off than Rockefeller because that’s not how
people’s heads work.

People gauge their wellbeing relative to those around them. It’s the path of
least resistance to determining what life owes you and what you should
expect. Everyone does it. And goalposts move both ways: Sebastian Junger’s
book Tribes details the long history of camaraderie during shared disasters,
like soldiers during war and neighbors during natural disasters. Hardship is
more palatable when everyone around you is in the same boat.

Subconsciously or not, everyone looks around and says, “What do other

people like me have? What do they do? Because that’s what I should have
and do as well.”

And this, I think, is a window into understanding why we yearn for the 1950s
despite today being better by almost any measure.

Paul Graham wrote a few years ago about what happened to the U.S.
economy after World War II:

The effects of World War II were both economic and social.

Economically, it decreased variation in income. Like all modern
armed forces, America’s were socialist economically. From each
according to his ability, to each according to his need. More or less.
Higher ranking members of the military got more (as higher ranking
members of socialist societies always do), but what they got was fixed
according to their rank. And the flattening effect wasn’t limited to
those under arms, because the US economy was conscripted too.
Between 1942 and 1945 all wages were set by the National War Labor
Board. Like the military, they defaulted to flatness.

Indeed, a few years after the war historian Frederick Lewis Allan wrote:

The enormous lead of the well-to-do in the economic race has been
considerably reduced.

It is the industrial workers who as a group have done best – people

such as a steelworker’s family who used to live on $2,500 and now are
getting $4,500, or the highly skilled machine-tool operator’s family
who used to have $3,000 and now can spend an annual $5,500 or
more.

As for the top one percent, the really well-to-do and the rich, whom we
might classify very roughly indeed as the $16,000-and-over group,
their share of the total national income, after taxes, had come down
by 1945 from 13 percent to 7 percent.

This went beyond income – even the variation in consumer goods flattened
out. Harper’s Magazine wrote something in 1957 that was so important to
the era:

The rich man smokes the same sort of cigarettes as the poor man,
shaves with the same sort of razor, uses the same sort of telephone,
vacuum cleaner, radio, and TV set, has the same sort of lighting and
heating equipment in his house, and so on indefinitely. The differences
between his automobile and the poor man’s are minor. Essentially
they have similar engines, similar fittings. In the early years of the
century there was a hierarchy of automobiles.

If you look at the 1950s and ask what was different that made it feel so
great?, this is your answer. The gap between you and most of the people
around you wasn’t large. It created an era where it was easy to keep your
expectations in check because few people lived dramatically better than you.

It’s the one thing – maybe the only thing – that distinguishes itself from
other periods

The lower wages felt great because they’re what everyone else earned.

The smaller homes felt nice because everyone else lived in one too.

The lack of healthcare was acceptable because your neighbors were in the
same circumstances.

Hand-me-downs were acceptable clothes because everyone else wore them.

Camping was an adequate vacation because that’s what everyone else did.

It was the one modern era when there wasn’t much social pressure to
increase your expectations beyond your income. Economic growth accrued
straight to happiness. People weren’t just better off; they felt better off.

And it was short-lived, of course.

By the early 1980s the post-war togetherness that dominated the 1950s and
1960s gave way to more stratified growth where many people plodded along
while a few grew exponentially. The glorious lifestyles of the few inflated the
aspirations of the many.

Rockefeller never yearned for Advil because he didn’t know it existed. But
modern inequality mixed with social media has made it so you do know that
people drive Lamborghinis and fly in private jets and send their kids to
expensive schools. The ability to say, “I want that, why don’t I have that?
Why does he get it but I don’t?” is so much greater now than it was just a few
generations ago.

Today’s economy is good at creating two things: wealth, and the ability to
show off wealth. Part of that is great, because saying “I want that too” is such
a powerful motivator of progress. Yet the point stands: We might have higher
incomes, more wealth, and bigger homes – but it’s all so quickly smothered
by inflated expectations.

That, in many ways, has been the defining characteristic of the last 40 years
of economic growth. And Covid-19 pushed the trend into hyperdrive.

The point isn’t to say the 1950s were better or fairer or even that we should
strive to rebuild the old system – that’s a different topic.

But nostalgia for the 1950s is one of the best examples of what happens when
expectations grow faster than incomes.

And all of us, no matter how much we earn, should ask how we can avoid the
same fate.

Jesse Livermore was one of the richest men in the world in 1929. By 1934 he
was bankrupt – again – living off the money his wife saved from a previous
marriage. “I am a failure,” he wrote, before shooting himself in a New York
hotel.

Livermore’s story – the greatest investor of all time whose success led to
bigger bets that eventually ruined him, a process he repeated three times – is
fascinating because he was the best in the world at making money and
perhaps the worst at keeping it.

By his own admission, the problem was rooted in past success increasing his
appetite for future success. If he could double his money in a year, why not
triple? If he could triple, why not quadruple? And so on until he went broke.

Livermore wrote shortly before his death:

I sometimes think that no price is too high for a speculator to pay to

learn that which will keep him from getting the swelled head. A great
many smashes by brilliant men can be traced directly to the swelled
head – an expensive disease everywhere to everybody, but
particularly in Wall Street.

He is the most extreme example. But the idea that if you don’t know where
the boundaries are you’ll keep pushing until you blow past them has
universal truth.

Whether it’s savings or investing, getting the goalpost to stop moving – or at

least move slower than your income grows – is the only way to both be happy
with what you have and ensure you don’t push beyond the limits of what you
can handle.

It requires two skills.

One is the constant reminder that wealth is a two-part equation: what you
have and what you expect/need. When you realize that each part is equally
important, you realize that the overwhelming attention we pay to getting
more and the negligible attention we put on managing expectations makes
little sense, especially because the expectations side can be so much more in
your control.

The second is realizing that managing expectations doesn’t have to mean

being conservative or unambitious. It’s just realizing that an insatiable
appetite for more will always push you to the point of disappointment and
regret – always, every single time. So having some ability to deny an extra
dollar of work, or a potential opportunity, a bigger house or a nicer car, is
essential if you want to use money to make a better life.

More on this topic:

The Psychology of Money

Save Like A Pessimist, Invest Like An Optimist

How to Do Long Term

Play Your Own Game

!"✉
Jun 7, 2021 by Morgan Housel · @morganhousel

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