The summer of 1932 was the darkest period the American economy had ever seen.
A quarter of the labor force was out of work – the equivalent of the entire population of California today. GDP was down 27% in four years. The stock market was down 89%.
That same summer, an electrical engineer named Edwin Armstrong was in his lab hustling to complete a breakthrough that would change communication forever.
Radio transformed the 1920s. But it was bedeviled by static interference that silenced stations during bad weather. Armstrong developed a new way to transmit radio signals, called frequency modulation, or FM radio. It offered crisper and more reliable sound than traditional radio.
In 1933 Armstrong introduced FM technology to David Sarnoff, an RCA executive struggling to hold together an industry smashed by the Great Depression. Sarnoff later recalled the conversation, as told in the book Man of High Fidelity:
“Why are you pushing this so hard?” asked Sarnoff.
“There is a depression on,” said Armstrong. “The radio industry needs something to put life in it. I think this is it.”
Armstrong’s push for FM eventually transformed not just radio, but television and the Army’s superior communication abilities in World War II.
And he pushed not in spite of the Great Depression, but because of it.
The depression gets so much attention that we overlook how many similar stories there were in the 1930s. Economist Alexander Field writes that “the years 1929–1941 were, in the aggregate, the most technologically progressive of any comparable period in U.S. economic history.” Productivity growth was twice as fast in the 1930s as it was in the decades before and after.
The Great Depression brought us bread lines. But it also brought us supermarkets, microwaves, sunscreen, radar, jets, rockets, penicillin, electron microscopes, magnetic recording, nylon, photocopying, teflon, helicopters, color TV, plexiglass, commercial aviation, most forms of plastic, synthetic rubber, nuclear fission, laundromats, and countless other discoveries.
The timing of some of these breakthroughs were coincidences. But many were not.
Nothing sparks resourcefulness like necessity and scarcity. The 1930s gave us both in ample supply. If the 1920s was the Era of Leisure, the 1930s was the Era of Get Your Act Together Today or There Might Not be a Tomorrow. Same for the early 1940s. World War II is responsible for both the most risk and the most rapid invention of any six-year period in history. Writing in 1952, Historian Frederick Lewis Allen describes the burst of scientific progress the war sparked:
What the government was constantly saying during the war was, in effect: “Is this discovery or that one of any possible war value? If so, then develop it and put it to use, and damn the expense!”
These are extreme examples. But we don’t talk enough about how most innovations trace their roots to stress and worry.
It’s well known that people hate loss more than they like gain, so the threat of loss can do more to focus people’s attention than the possibility of gain. It’s an easy point to ignore because it’s so unfortunate. But it has an important takeaway: When thinking about the success of economies, businesses, and careers, be careful what you wish for.
In 2005 the World Gallup Poll went to 121 countries and asked people the same question: “Did you experience a great deal of stress yesterday?”
A group of psychologists studied the data to see if it correlated to other measures of wellbeing – things like life expectancy, GDP, overall life satisfaction, and career happiness.
According to health psychologist Kelly McGonigal, it does – “but in the exact opposite way that the researchers expected.” She explained:
The higher a nation’s stress index, the greater its GDP and life expectancy, the more satisfied people are with their lives, their work, their communities, their own health, the happier they are. Basically, the more people you have who thought yesterday was very stressful, that’s better for public health, it’s better for the economy, it’s better any way you look at it. It kind of blew the researchers minds. It was not what we were expecting.
When they dug in a little deeper, it made more sense.
Stress was a barometer for pushing people toward the things that ultimately made them productive and happy. A tough project at work brings stress, but also a sense of accomplishment when it’s finished. Raising kids is stressful, but being a parent brings meaning.
Stress focuses your attention in ways good times can’t. It kills procrastination and indecision, taking what you need to get done and shoving it so close to your face that you have no choice but pursue it, right now and to the best of your ability.
A bigger point is that the opposite is true.
When Snap went public last month, its investor documents contained a warning that has become common in tech companies:
We have many current employees whose equity awards are fully vested and will be entitled to receive substantial amounts of our capital stock shortly after our initial public offering. As a result, it may be difficult for us to continue to retain and motivate these employees, and this wealth could affect their decision about whether they continue to work for us.
Google is facing this too. Its self-driving car program is suffering an exodus of talent. Bloomberg recently explained why:
Early staffers had an unusual compensation system that awarded supersized payouts based on the project’s value. By late 2015, the numbers were so big that several veteran members didn’t need the job security anymore, making them more open to other opportunities, according to people familiar with the situation. Two people called it “F-you money.”
We’ve become used to it, but it’s amazing how much innovation comes out of scraping-by startups rather than deep-pocketed corporations. Through the lense of McGonigal’s stress paradox, it makes sense. Startups have extremely limited resources, forcing them to focus 100% of their attention on vital tasks right now. Not tomorrow; now, with everything you’ve got, or you’re out of business. Big companies have the luxury of time, which blinds them to how fast the world changes and robs of them of the need to act.
It’s the same for people.
Investors refer to the “magazine indicator.” A glowing profile on a magazine cover makes you think you can do no wrong, and thinking you can do no wrong is like pouring gasoline on the flames of overconfidence.
Bill Gates – whose motivation has always outrun his wealth – put it: “Unless you’re running scared all the time, you’re gone.”
This can be pushed too far. Stress can quickly go from motivating to debilitating.
How do you stop it from getting there?
The best way to handle volatility in investing is absorbing manageable damage. You accept small hits from the market’s daily ups and downs in order to avoid the large hits that come from buying and selling at inopportune times.
Same goes for economies, businesses, and careers. The best way to avoid too much stress is to constantly surround yourself with a little of it, keeping yourself just scared enough to fight off the complacency that leads to serious problems.
Jeff Bezos recently talked about Amazon’s Day 1 culture in the company’s annual shareholder letter:
I’ve been reminding people that it’s Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.
Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.
One part of this ethos is driven by frugality, reminding employees that money is always scarce and that acting like you’re rich is the fastest way to cease being rich.
Another is to remind yourself that any success you have attracts competitors, and those competitors may be hungrier than you are specifically because they’re not as successful.
There’s also the idea that every company should have at least a little debt. Debt requires enough operational focus to keep equity heading in the right direction. A small amount of self-inflicted worry as a strategy to ward off catastrophic worry.
The economy is booming, stocks are at all-time highs, and unemployment at decade lows. It feels like we can finally exhale after the financial crisis. I love it. But careful what you wish for. We might be creeping into Day 2.