Close your eyes and try to remember what your life was like 20 years ago.
I guess that much has changed for you in that time and all of us probably have key things that we can point to that made a huge difference to our lives. For some it will be a death, a birth, a marriage, a divorce or just the invention of the iPhone.
For billions of people in the world they moved out of extreme poverty (measured as living on less than $2 per day).
20 years ago 29% of the world’s population lived in this bracket, where you eat the same meal every day, drink water from a hole in the ground and gather wood to cook over. Today that figure is 9%. This is extraordinary.
It is easy to forget that as recently as 1966, half of the world population lived below this extreme poverty line and that in the UK, living standards for the majority were at the level that Malaysia are at today. Roll back just 200 years and in the UK most of us would have been living in the same extreme poverty currently experienced by those in Afghanistan.
The point is that life has improved substantially for the majority of us but a combination of negativity bias and a rose-tinted view of the past, often stops us from seeing it. Capitalism has done an extraordinary job of changing peoples lives for the better. It hasn’t been perfect as some effects haven’t been priced in, such as environmental impacts, but so far it has been good for us humans.
It is possible that even Capitalism has its limits, in the UK the average person can only gain incremental improvements from here unless we start getting Dan Dare style jetpacks and hoverboards. In this sense Japan’s economy seems to be ahead of us and possibly acts as a cautionary tale. They have a rapidly ageing population and low levels of immigration. As a result, they have moved from having 7 workers per 1 retired person in 1980 to now only 2 workers for every retired person. This disparity between the economically active and inactive makes paying for state support expensive. They also have extreme high house prices, leading to several generations being locked out of property ownership or locked into 50 year mortgages. Japan are navigating a form of managed decline, where some of the progress of the last few decades starts to slowly reverse.
This is something that we may have to navigate in the future and as automation removes sections of the job market, President Nixon’s vision of a Universal Basic Income might need to be looked at again.
The one protection that you can have, is to own capital. Capital produces a passive income by giving money to the great companies of the world (either in the form of equity or loans) in exchange for them giving you a share in their profits (equity) or an interest income (loans). The evolution in this form of investing in the last 20 years has been equally extraordinary. We can now deploy your capital into thousands of companies all around the world at costs close to zero (0.08% per year is the lowest currently). You can then sit back and enjoy the fruits, whilst we tweak its tax position to stay one step ahead of the Chancellor.
This is why we always recommend educated, calm inaction.