RISKY BUSINESS

The Western world has never been so rich—and it’s making us miserable

Obsession
Future of Work
Obsession
Future of Work

The year 2016 will go down in history as when voters in America and Western Europe got fed up, rejected the establishment, and demanded change.

In the US, polls show that two-thirds of people think the country is on the wrong track. Brexit, and the general rise of far-right populists in Europe, suggest that a dissatisfaction with the status quo is a transatlantic phenomenon. It’s no wonder that people around the world are reporting higher levels of anxiety and depression.

But it’s worth asking: why, exactly, are people so unhappy?

The explanation that it’s all about economic hardship doesn’t hold up to scrutiny. Many Trump and Brexit voters have decent earnings. Trump even won a larger share of white college graduates than his opponent. These voters yearn for change despite the fact that, in may ways, things have never been better. Across the income spectrum, we live longer lives (with opioid addicts a notable exception) and have more leisure time than before. It’s true that income growth has been stagnant for the lower and middle classes, but economists argue that it’s what those incomes buy that matters—and thanks to globalization and technological advances, our incomes buy a wider and better array of goods and services than we could have imagined 20 years ago.

Still, people in rich countries are worse off than their parents in a few ways. They set high expectations for themselves that are hard to meet, and these days they experience more risk and uncertainty as they live their lives. It is not enough to have more; we also want to feel like our good fortune is sustainable and will continue in the future.

Falling short of expectations

Humans are generally pleased when they are making progress and amassing more resources. Research by British neuroscientists argues that happiness requires more than things simply going well; people also must get more than they expect. So even if we have more than ever before—good health, leisure time, consumer goods—we have even grander expectations.

Although the idea of the “American Dream” has been somewhat tarnished, most Americans still believe that anyone who works hard will be able to move up the economic ladder. For generations, nearly all children out-earned their parents. But now, research shows that Americans are no longer guaranteed this rite of passage. There are also signs of declining mobility in the United Kingdom. Today’s young people make enough to afford higher absolute living standards than their counterparts in the past, but that brings little satisfaction if they think they’ll never be richer than their parents.

Taking on more risk

Risk is the range of things that might happen to you, from losing your job to getting a fantastic promotion. You have some sense of how likely any of these things are. Generally, people prefer certainty to risk; that’s why more volatile stocks have a higher return than more stable bonds. People need to be compensated for taking on risk, which is why working for the government pays less than working for a startup.

In some ways, people in rich countries have never known more stability. Wealthy countries offer safety nets that have some holes but do a fairly good job of protecting most people from extreme hardship. For most of human history, a bad economy was accompanied by famines or plagues. If you live in a rich country, these risks are pretty much eliminated because of the social safety net. But people still may feel acute risk if they worry about falling down a few rungs on the economic ladder. The fact that the risk of the devastating calamities common in past has subsided offers little comfort. The human brain is often less concerned with extremely bad but remote possibilities than with more probable, near-term risks.

Even with a decent job, a nice house, and lots of great things, many households are one unlucky event away from losing their home and what they’ve bought on credit. And the average American household has taken on a lot more debt to finance its lifestyle than in the past.

British households show a similar pattern. In 1987, a typical British household’s debt-to-income ratio was around 90%—it peaked at 160% before the crisis, and sits around 130% today.

So, years after the global financial crisis, Americans and Brits continue to hold high levels of debt. If they lose their jobs, the interest payments don’t go away. This isn’t a problem if they have a lot in savings to bolster their incomes. But the median leverage ratio—the ratio of debt to total assets—is also historically high.

The things that these higher debts can buy—like houses and cars—create their own stress. Often, what we fear most is losing what we already have. That is, having something and losing it is worse than never having it to begin with. This is what is known as the endowment effect. Even if globalization, technology, and debt have allowed most people to have more, the heightened sense of risk this brings can also make them deeply unhappy.

Facing more uncertainty

Uncertainty is what you can’t anticipate: your boss embezzles all the company assets, say, and the firm suddenly shuts down. In many ways, uncertainty is worse than risk because you can’t prepare for it.

Today, people face not only more risk, but also more uncertainty. Economic historian Joel Mokyr says that “the twin forces of globalization and technology” have sowed more uncertainty in modern lives. “If it were risk we could have some sense of control, but with uncertainty you fall back on instinctive methods like witch-burning,” he says.

In the past, uncertainty frayed the social order and led to violent populism. A study of weather patterns from 1100 to 1800 estimates that cold-weather shocks (a proxy for variability in agrarian economies) was correlated with more persecution of Jews. An earlier paper found that variability in temperature was also linked with more witchcraft trials (pdf) in Renaissance Europe. In the modern day, other forces are sowing uncertainty by shaking up the economic order and destroying certain jobs.

The economy is changing fast, but the institutions that are supposed to provide people with certainty were built for a different era. Workers rely on their employers for stability, job training, health and retirement benefits, and sense of community and belonging. Now that bond is more precarious because long-term relationships with employers are less common. In the US, the median job tenure for men aged 55 to 64 was 15.3 years in 1983. In 2014, it fell to 10.7 years. Similar trends can be seen among middle-aged men across many OECD countries.

Moykr points out this has happened before—when farmers lost their jobs to factories:

“The American progressive movement in the 1890s was driven by farmers. They were angry that farm jobs were disappearing. They didn’t stop progress—[technological change] is going to keep happening. And we should expect [that] this always brings anger and frustration. People don’t like their lives being destroyed—there is very little we can do, but the alternative is stasis. Technology moves forward, but leaves lots of corpses along the road.”

In some ways, the effects of heightened uncertainty are worse now because people live longer. “As you get older it is harder to learn new tricks,” Moykr says. “Before, if you were displaced at 45, you only had five or 10 years of work left, it wasn’t such a big deal. But now you might still have another 40 years. All of this causes more uncertainty.”

Moykr’s theory might be why higher rates of dissatisfaction are recorded even among people who keep their jobs. Studies show one of Trump’s more reliable groups of supporters are relatively high earners in economically depressed areas. They still have good jobs, but the poor economy that surrounds them may make them nervous about their family’s future.

Even so, Moykr is optimistic about the future of work. Uncertainty can bring good surprises as well as bad. He says we can’t imagine what future jobs will entail, anymore than your great-grandmother could have foreseen the need for cyber-security specialists.

How can we fix it

Better policy solutions are needed to alleviate economic anxiety. In the past few decades, the US and Europe relied more on monetary policy than fiscal policy to boost their economies. This typically involved lowering interest rates, hoping to get people to spend more by making consumption more attractive than saving. Policies like this can boost economic growth in the short term, but also contributes to longer-lasting feelings of economic insecurity as it weakens household balance sheets.

Turning back the clock by reducing trade or relying on devising an industrial policy that assumes more loyalty between workers and employers won’t make people happier. A better way is to think about how to make people less reliant on long-term employment but still offer the same level of security. It may require retirement and health benefits that are independent of employment, transitory wage shock insurance, and more vocational training and tax credits for apprenticeships. These programs can step in when companies don’t have the same incentives to invest in workers that they used to.

Most people in rich countries were born lucky; they enjoy wealth and prosperity that is unimaginable to a majority of the world’s population. But that prosperity still doesn’t bring them joy if it comes with more risk and uncertainty. In a sense, because they have so much, the insurance they need to secure their happiness costs more. The key to improving everyone’s happiness is to focus less on zero-sum populism, and more on finding ways to make people feel more secure about their economic future.

home our picks popular latest obsessions search