A tale of two cycles

By Dian Cohen
A tale of two cycles
(Photo : Dian Cohen)

Imagine a fulltime worker — mother with three kids, a good job, a nice house in the city, and a small vacation property in the country. All manageable. Life is good.
Five years later, not manageable at all. The mortgage rate on the house was renegotiated at 18 percent. The country house had to be rented out for extra money. The budget was tight and there were no extras.
That was me in 1981. Fast forward to today, living fulltime on the country property, amazed by the rapidity of food price escalation in 2022 but more concerned about the cacophony of hysteria about the future.
I lived through those uncomfortable years with the inflation that peaked at 14 percent. I felt a certain amount of a relief at the time that my mortgage rate was not 20 per cent. The cure was the same then as now – bump up interest rates until everyone screamed, unemployment rose and recession stalked the land. After a year or two, life went back to “normal”. Those with skills, luck and/or perseverance made it through, possibly a little wiser.
That was then. Our frame of reference seems to have changed. Maybe because we’re all so raw having lived through two plus years of Covid, this intermittently recurring cycle is making us more than usually angry and upset. Does it help to know that our average inflation rate for the past 60 years is just over 3 per cent? Maybe not, but it can’t hurt. It was over 10 percent for parts of the 70s and 80s and under 2 per cent on and off since the 1990s. Right now it’s around 7 percent.
On the jobless side, believe it or not, Canada’s unemployment rate has averaged more than 7% for the last 60 years – it reached an all-time high of 13.7 per cent in May of 2020 and a record low of 2.9 percent in June of 1966. Right now it’s around 5 percent.

Maybe we’re so upset because inflation is an everyone problem – no one escapes it even if it affects some of us far more than others. Unemployment is only a some-people problem – even in the worst kind of economy – say back in 2008 or 2011, most of us didn’t lose our jobs, and with so many worker shortages today, people who often struggle to find work may be having an easier time of it.
I was fortunate that the 1982 recession that followed the inflation of the late 70s did not claim my job and that I could still manage to put a small amount into my RRSP. It was not fun. Yet, contemplating these times from the vantage point of my much younger self reveals enduring lessons. Morgan Housel of Collaborative Fund fame is a genius at them – what follows is a version of his musings, tempered by my observed truths.
On the basis of past experience, where we are today is not forever. Human nature being what it is, bad times cultivate a turnaround through panic-driven problem-solving; good times are ultimately doomed through complacency.
It’s good to read a little history – it consistently shows that the past wasn’t as good as we remember, the present isn’t as bad as we think, and the future will likely be better than we anticipate.
The only way to be happy with your level of income or wealth is to know what is enough.
The best way to deal with uncertainty is to save like a pessimist and invest like an optimist. A corollary is that debt removes options from our everyday lives, savings add them.
When reading the news, you can increase your productivity and reduce your stress by asking, “Will I still care about this a year from now?”

Dian Cohen, C.M., O.M., economist
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