What were you doing in the late 1970’s?  I was across the street from my office at the Traverse City Junior High School.  I was tiny and cute.  I was painfully shy and excelled at math.  When not in school you would find me traipsing through the woods, building forts on Old Mission Peninsula.

Some of you may not even have been born while others were in the midst of raising your families and working in your respective careers.  If you were here in the 70’s, one thing is certain, you remember the double-digit inflation that eclipsed our current levels.  You may remember gas lines, odd and even days, and probably the blizzard that was legendary.

It seemed like it would never end, and high inflation was just a way of life.  Decisions were made at kitchen tables about what expenses to cut and which bills to prioritize.  Times were tough and hard work was necessary to lose ground at a slower pace than anticipated.  That feeling of these conditions being perpetual (which we all likely had) was gnawing and miserable.  So miserable that Ronald Reagan coined the term – “Misery index,” which was a combination of unemployment and inflation.  Each of these indicators was hitting historic highs and the combination of them together was debilitating.

Fast forward to about ten years ago.  The misery index didn’t exist.  We were at full employment and inflation was so benign that nobody reported on it.  In addition to that, I became aware of the relatively new study of Behavioral Economics.  This is the intersection point of psychology and finance and the study of how we make financial decisions.  More than that, it indicated some of the behavioral miscues of which we all are guilty.  I pored through books and couldn’t get enough new information.

One of the miscues that stands out to me today is the one called “Recency Bias” which is exactly the same one that we were guilty of in the early eighties.  The recency bias states that whatever economic condition we find ourselves in, will continue forever.  When times are great, fortunes are being made, the recency bias leads us to believe that the good times will never end.  It reminds me of the 1969 Mary Hopkin’s song Those Were the Days.  The chorus went something like this, “… Those were the days my friend, we thought they’d never end.”  It seems that Mary Hopkins discovered the recency bias before behavioral economics was even invented.

In a similar way, when times are tough, like they were during the global financial crisis, or more recently during the pandemic, it seems like those conditions will always prevail.  The recency bias leads us to a self-fulfilling prophesy of perpetuating these extremes longer than they would occur naturally through our behavior.

I am here to liberate you from that thinking and remind you that what we are experiencing is fleeting.  Don’t fall prey to the recency bias and keep a long-term perspective.  Remember that after the misery index peaked we headed into full employment and that nasty high inflation was tamed once again.  Kitchen table conversations shifted to topics such as vacations, promotions, new davenports, or even a VCR.

Inflation is as high as it has been since 1981, but so many things are different. The unemployment rate is below 4%, which to me is essentially full employment. The so-called misery index doesn’t even register on the same scale as it did in the eighties. Although the price at the pump doesn’t make me smile, we don’t have odd and even days or long gas lines anymore.  This high inflationary period will pass just like it has in the past.

If we are not at peak inflation now, we are very close to it.  This too shall pass and before you know it inflation will once again be fairly modest.  So, be aware of the recency bias and don’t fall prey to its powerful influence.  We will get through this, and I will be here to remind you that I told you so.  We will have some other new issue and yet another behavioral miscue which will tempt us to follow its siren call.