»  National Review

April 19, 1999

  The Anxious Class


Our private lives have endured two revolutions this past forty years: the sexual and the financial. Both have required ordinary citizens to become good at things which, in previous times, only a minority of experts, whose activities were regarded by the majority as morally somewhat questionable, were good at. Both have forced us to read books we would rather not have to read. Both have made fortunes for TV talking heads who can guide us through our new responsibilities — Doctor Ruth, Louis Rukeyser. Both have replaced simplicity with complexity.

Our new responsibilities have brought with them new anxieties, while banishing some older ones. In the financial as in the sexual sphere, our private relations with kith and kin have been invaded by troubling but irrepressible doubts and curiosities. Is his portfolio bigger than mine? we wonder. Or, when plowing through TurboTax on our home computer: Is that the response I was hoping for? Should I have clicked on that button right there? Or would it have been better to hold off until the next scream — er, screen? Am I really any good at this? Financial anxiety is, I think, now a component of every middle-class American's consciousness. For our own fulfilment, for the strength of our marriages and the sake of our children, and to be in tune with our peers — to be able to keep up a conversation at dinner parties — we have to know things our grandparents did not have to know, and indeed considered it improper to know. We have to work at things they did not need to bother with, and even considered it wrong to bother with. My grandmother had thirteen children; but she was adamant in insisting to my mother (number eleven) that "we never did it for pleasure." I am sure she would have considered investing in the stock market to be a shady activity, engaged in by people with yellow vests who pushed their hats back on their heads and talked without taking the cigar out of their mouths. True, she was a poor woman, the wife of a coal miner; but such attitudes went all the way up the social scale. The great rentier bourgeoisie of the nineteenth century did not buy stocks but bonds. "A millionaire has six hundred pounds a week," observes one of G.B. Shaw's characters — that is, an annual return of three per cent, the usual figure for government issues from Napoleon's war to the Kaiser's.

Vexing as these new anxieties may sometimes seem, it is as well to keep them in perspective. The sexual revolution, however questionable some of its outcomes, was not waged against nothing. It was waged against widespread ignorance, much cruelty, and untold quantities of silent pain and despair. Check out "vaginismus" in your medical encyclopedia — a complaint once common and untreatable, now rare. So with our financial anxieties. Worried about your retirement? Cast your eye back a hundred years, when Somerset Maugham, recently graduated from medical school, was working in a coroner's office in the East End of London. One of his chores was to examine and register the corpses of suicides fished out of the river Thames. A romantic young man, Maugham assumed that most of these unfortunates had killed themselves for unrequited love. He was surprised to find that this was in fact a very uncommon motive. Most had been driven to suicide by financial difficulties. The world of our grandfathers was procedurally much simpler than our own; but it was also very much harsher.

In addition to new anxieties, both these recent revolutions have exposed us to some very difficult questions about freedom and responsibility. It has been odd, in the recent Washington scandals, to hear supporters of President Clinton raise the cry that sexual relations are an entirely private matter. Who still believes this? It was an inspiring slogan in the first flush of liberation; but surely we are wiser now. Anyone who is not should be sent away to do curve-matching exercises on the graphs for postwar illegitimacy rates, welfare dependency, crime, etc. Human sexuality has momentous consequences for society. One is mildly astonished to find oneself still obliged to write such a sentence. Sex is no more private now than it was when Doctor Johnson justified the double standard on the grounds that "a man does not bring bastards into the home."

Similarly, we are now all acutely conscious that our private decisions about what to do with our money have major economic consequences. Suppose, for example, that we all go out tomorrow and spend our savings on stocks. By the well-known law of supply and demand, that will greatly raise the price of stocks. But the price of a stock is supposed to bear some relation to the worth of the company that issued it. If our private investment decisions cause the prices of all stocks to increase a hundred per cent, without any change in the circumstances of the issuing companies, we have created a bubble, haven't we? And bubbles burst, don't they? There are some economists who think this is what has been happening in the U.S. this past seven years. And there are some who think otherwise: if stock sells at high prices, it is easier for companies to raise funds — funds which hire more workers, renew plant, extend advertising... So the circumstances of the issuing companies actually do improve. I am not arguing one case or the other, only pointing out that ordinary middle-class folk now have to think about this stuff, which once bothered the heads of no-one outside a few specialized trading firms and a couple of government offices.

The reason we have to think about it, of course, is that we are all in the market. Forty-five percent of American households owned shares at the middle of 1998, mostly via mutual funds. At the time of the 1987 "correction" the figure was 25 per cent. At the peak of the 1920s boom — just before the crash of '29 — it was three per cent. We are all investors now. The reason for this great change is not hard to find. Beginning in the mid-1980s, two ideas began to penetrate the consciousness of ordinary Americans. The first was: Social Security isn't going to make it. The second: Stocks out-perform every other investment over the long term. Do you remember your first interview with a financial advisor? Did he not have that big colored graph on his wall — they seemed to be everywhere in the late 1980s — showing the relative performance of stocks, bonds and gold since 1860? See stocks run!

The infallibility of the stock markets as a long-term investment has now been thoroughly internalized by everyone. So has the notion that, if we boomers are to maintain ourselves in the manner to which we have become accustomed, we shall have to shift for ourselves in the last thirty years of our long lives. Social Security will not be there for us. It is economically improbable that it should be, unless our children and grandchildren are willing to hand over half their paychecks to fund our sunbelt condos and artificial hips. Alas, it is also economically improbable that eighteen per cent return on mutual funds will continue for very much longer. In a series titled "Unthinkables" last December, The Economist pointed out that whether stocks are really the best long-term investment depends on what you mean by "long-term."

It was not until the late 1950s that the Dow Jones Industrial Average returned in real terms to the value it enjoyed immediately before the stock market crash of 1929.

That's thirty years — the entire length of a boomer's retirement.

Conservatives cannot but applaud when responsibility for people's lives and happiness shifts to the people themselves. Financial liberation, like sexual liberation, has improved our private lives immensely, at a very modest cost in anxiety and vexation. Yet the gods of conservatism must still be the Gods of the Copybook Headings, waiting patiently outside the door to tell us that what goes up must come down, that high rewards come only from high risks, and that — to take a phrase from Wall Street lore — when the little guy comes in, it's time to get out. We little guys are all in now, and believe that the nature of the world has changed in our favor. Perhaps it has; but the Gods of the Copybook Headings will have the last word.