The power of recall

The other day, I heard the Stranglers’ Strange Little Girl for the first time in ages, prompting me to recall having an Indian takeaway in a friend’s Morris Oxford somewhere off the Clarendon Road on a sunny evening in 1982. I wonder: does this help explain why older people are more hostile to the Labour party than younger ones?

My response to that particular song was of course idiosyncratic. But it is nevertheless typical. All of us have Proustian madeleines – cues that prompt us to recall some memories. We all, I suspect, have songs which we associate with specific people and places. This is why “trigger warnings” are sometimes necessary: traumatic memories can indeed be triggered. As Daniel Levitin writes:

The brain is not like a warehouse; rather, memories are encoded in groups of neurons that, when set to proper values and configured in a particular way, will cause a memory to be retrieved and replayed in the theatre of our minds. The barrier to being able to recall everything, we might want to is not that it wasn’t ”stored” in memory, then; rather, the problem is finding the right cue to access the memory (This Is Your Brain on Music, p165)

In a new paper Jessica Wachter shows that this process colours our financial decision-making. Take for example the finding of Erin McGuire and Stefan Nagel and Ulrike Malmendier (pdf), that economic conditions in our formative years influence how much we invest in equities even decades later. From one point of view, this seems absurd: expected returns are the same for all of us. So, how can it happen? Simple. The questions “should I buy shares?” or “What is the economic outlook?” trigger particular memories. For some, these are memories of the bear market of the 70s. For slightly younger people they are memories of the 80s bull market. And these generations invest accordingly.

A similar thing, says Professor Wachter, explains why shares fell so far – in hindsight by too much – when Lehmans collapsed. This triggered memories of (reading about) the Great Depression and hence alarm.  (Luckily, though, it also reminded the Fed of the Great Depression, so it knew what not to do).

I suspect a similar process contributes to older people’s greater opposition to Labour. Remember that it is not inevitable that young people should be predominantly left-wing: in 1987, for example, more of them supported the Tories than Labour. So why are things different today?  

One reason, of course, is that older people own houses and younger ones don’t.

But it could be that different memories are involved. If you are in your mid-50s or older, talk of a left-wing Labour party cues memories of the Soviet Union and of the 1970s – and of the more salient aspects of the 70s such as strikes rather than less salient ones such as the fact that most workers got better real-terms pay rises than they’ve had recently.

Young people, however, have none of these memories. For them, talk of nationalizing the railways trigger not memories of British Rail sandwiches but of pleasant train journeys in Europe.

Of course, the 1970s were the 1970s whether you experienced them or not. But as David Hume said, actual experiences – impressions – are stronger than mere ideas.   

In one sense, all of this might be trivially obvious. In another, though, it’s not. Even though the truth should in theory be the same for all of us – in the way that future share price moves will be – we perceive it differently. This is not (just) because we are stupid or dishonest. It’s because of how memory works.  

Comments

[Blissex]

That is also plausible, and there is the 4-types of generation theory that supports it, and the marketing find that the music people tend to like is that which was popular when they were 23.

There are however problems with the thesis, one which is not against it, but makes it worse inasmuch it is true: many people's memories are unreliable, very unreliable (except the #MeToo ones of course :->)..

The other problem is even if reliable different people will have different memories, for example in 20-30 years time 1/3 of England will remember the 2010s as a period of booming gains and living standard, 2/3 will remember it as a immiseration and the exhausting fight to find a job, any job.

[aragon]

"1/3 of England will remember the 2010s as a period of booming gains and living standard, 2/3 will remember it as a immiseration and the exhausting fight to find a job, any job."

That is true of the eighties, if you live North of Watford, the loads o' money 1988 was a sick joke.

We had just had the miners strike of 84/85

https://www.bbc.com/news/uk-england-nottinghamshire-47401859

And the yuppies were all in London. Even during the booms, London overheated before we defrosted.

@RSM
The MMT answer to ressesions, is a Minisky Moment/Cycle.

https://en.wikipedia.org/wiki/Minsky_moment

[Scratch]

Maybe it works for reasons other than economics too.

The easy-going bawdiness and humour (one suspects the only thing to have raised a smile recently from say, Jess Phillips or David Lammy might have been the successful hounding of Carl Sargeant) of the Seventies seems quite alien to the bourgeois-infested modern Labour party, more so than the Tories I think who still smell faintly of the 19th hole.

[Blissex]

«the exhausting fight to find a job, any job.»

What I really should have written there: "find a shift, any shift". Finding jobs that don't pay anything is easy, what's really hard for so many is to find enough shifts that amount to full time work, never mind with a pension and sick or holiday days.

[Robert S Mitchell]

"Hyman Minsky, who noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze."

We can protect provisioning of real goods by paying a basic income so that lack of money due to a financial panic does not affect real sales. Finance is disconnecting from the real economy anyway. A volatility index such as the VIX seems something of a pure derivative product, with no underlying real asset. Basic income can provide money for real provisioning and shared, non-profit-motivated innovation; finance can explore innovation in its own way but without impacting billions of innocent non-participants when it gets itself into a panic ...

[aragon]

@RSM

https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

[Blissex]

«We can protect provisioning of real goods by paying a basic income so that lack of money due to a financial panic does not affect real sales.»

Indeed JM Keynes a long time said that as long as the mass of wages is taken care off, the economy won't have huge recessions; it is when the mass of wages shrinks that things get bad. The current thinking is instead that "inflation" matters more than recessions, and as long as the mass of wages does not grow, inflation won't happen.

«Finance is disconnecting from the real economy anyway.»

Derivatives are indeed pure bets, and most of finance today is just a game of "fantasy finance" played with "chips", but with the all important twists that 50% of "chips" won by each bank on each trade are converted to real currency at par, and distributed to executives and traders, and when the supply of "chips" dwindles, the Treasury and BoE shake the "magic money tree" and generously give a lot of new "chips" to the banks to keep "fantasy finance" gamers going.

[Blissex]

@aragon: I once read a very important but little known detail of Glass-Steagall...

It had two limitations on banking, one about keeping separate investment and commercial banking, which arguably was less important politically, the other far more important politically was that a bank from another state could only trade in states that explicitly authorized it.

This meant that no states allowed banks from out of state to operate (because local state banks paid the politicians to ensure that), and also meant that there was a huge lobby in Washington of small state banks that fought energetically against the lobby of the "money centre" banks from NY and CA, so politicians were split between the small and the big bank lobbies for "sponsorship".

When Glass-Steagall evaporated, the small state bank lobby also evaporated, and USA politicians could only be "sponsored" by the big bad lobby.

[aragon]

Small regional banks only, be subject to deposit insurance. Investment banks like Bear Stearns allowed to go to the wall, and the rich with them.

I think it's an old joke:

We could ban investment banking.
But what would the dim but privileged do?
They can't all go into politics.

Actually, I think it is that that the privileged, too dim for banking, go into politics.

Will Hutton on American Corporatism.
https://www.theguardian.com/commentisfree/2019/dec/01/america-is-not-the-land-of-the-free-but-one-of-monopolies-so-predatory-they-imperil-the-nation

"In the recently published The Great Reversal, leading economist Thomas Philippon of New York University and member of the advisory panel of the New York Federal Reserve, mounts a devastating attack on the conventional wisdom"

linked in article: Thomas Philippon:
https://www.theguardian.com/commentisfree/2019/nov/13/america-was-once-the-land-of-free-markets-now-theyre-becoming-a-myth

Banking Lobby
https://edition.cnn.com/2019/07/18/politics/american-banking-association-2020-elections/index.html

"The trade association for the nation's banking industry is ramping up its political operation in Washington, planning an eight-figure effort to shape more congressional races in 2020 than ever before."

[...]

"Brown added, "It's hard to think that Wall Street and the big banks can get more involved in trying to pick legislators to protect them.""

American Corporatism or German Mercantilism?
Scylla and Charybdis

[LJC]

"The other day, I heard the Stranglers’ Strange Little Girl for the first time in ages, prompting me to recall having an Indian takeaway in a friend’s Morris Oxford somewhere off the Clarendon Road on a sunny evening in 1982. I wonder: does this help explain why older people are more hostile to the Labour party than younger ones?"

Reading this reminded me of my own formative financial experience; the 1973/74 bear market where the FT30 (the forerunner to the FTSE100) hit a low of 146 on 6th January 1975 after falling 73% from its peak. From this low point it doubled over the next three months. One might expect that this would give people favourable memories of the Wilson government and unfavourable memories of the Heath government and so of their respective parties.

[aragon]

"I wonder: does this help explain why older people are more hostile to the Labour party than younger ones?"

"One might expect that this would give people favourable memories of the Wilson government and unfavourable memories of the Heath government"

While eventful Wilson/Heath

https://www.telegraph.co.uk/culture/tvandradio/8536030/Heath-v-Wilson-the-10-Year-Duel-BBC-Four-review.html

"The great political catastrophe for Wilson – the devaluation of 1967, which punctured his image as the nation’s trusted uncle – was an inevitable response to the parlous state of an economy ravaged by strikes and poor productivity."

And the early 70'S were very eventful: Miners strike (1972) Oil Crisis (1973, 1979) IMF (1976) etc

https://www.theguardian.com/books/2010/sep/26/state-of-emergency-dominic-sandbrook

"in an era of rampant inflation and mass unemployment, IRA bombs and football hooligans, petrol shortages and power cuts."

https://www.telegraph.co.uk/news/1525089/Decade-that-dimmed-the-strike-hit-Seventies.html

"After the "Winter of Discontent" in 1978-79, Margaret Thatcher took on the mining unions. This, together with the deregulation of the energy industry, and the discovery of oil and gas in the North Sea, brought an end to the widespread blackouts which had plagued Britain."

Thatcherism: Interest Rates at 22%, Miners Strike (1984/5), Union Busting. Destroyed the working Class. Major ERM (1992).

Blair: Student of Thatcher.
"After the Blair years, we have come so much to distrust the political artifice"

"https://en.wikipedia.org/wiki/Premiership_of_Tony_Blair"

"The former government advisor Andrew Neather in the Evening Standard stated that the deliberate policy of ministers from late-2000 until early-2008 was to open up the UK to mass migration", Internal Market, Middle East Wars.

Blair soured me on Labour.

[Alex]

"Take for example the finding of Erin McGuire and Stefan Nagel and Ulrike Malmendier, that economic conditions in our formative years influence how much we invest in equities even decades later"

We pretty much know that hysteresis is real by now, so perhaps what's really going on here is that people who graduate into recessions are less likely to be in a position to invest much...

[tom dykes]

i'm over seventy. i didn't begin to invest until i was forty; i have no knowledge of investment events before then.
i own a house in london: financially it makes me very rich; i have voted labour all my life and will continue to do so; increasing amounts of london voters appear to do the same.
the basis of this article is dubious