How Warren Buffett broke American capitalism

The investor tells Berkshire Hathaway managers to widen their moat or cut competition

by: Robin Harding




Growing up, I admired nobody more than Warren Buffett, the greatest investor ever. His achievement is towering. The market is an implacable opponent but here was a man who beat it year after year, making $75bn out of nothing but wisdom and charm. There was moral purity in his modesty, his ethics and his quiet attachment to home in Omaha, Nebraska. What footballer, politician or thinker could compare?

Now 87, Mr Buffett wields huge influence over US business and finance, usually positive. He pushed companies to expense stock options, warned of danger in derivatives and taught the public to invest long term in low-cost index funds.

But how ever much you admire the man, his influence has a dark side because the beating heart
of Buffettism, celebrated in a thousand investment books, is to avoid competition and minimise capital investment in the real economy.

A torrent of recent studies show how exactly those forces — diminished competition, rising profits and lower investment — afflict the US. Economists Jan de Loecker and Jan Eeckhout chart a rise in corporate mark-ups, a measure linked to profit margins, from 18 per cent in 1980 to 67 per cent today. In a paper presented at the Brookings Institution last week, Germán Gutiérrez and Thomas Philippon show how investment has fallen relative to profitability. Mr Buffett did not cause these trends. However, they are central to his fortune. When you celebrate him, you celebrate them.


Mr Buffett is completely honest about his desire to reduce competition. He just calls it by a folksy name — “widening the moat”. “I don’t want a business that’s easy for competitors. I want a business with a moat around it with a very valuable castle in the middle,” he said in 2007.

He tells Berkshire Hathaway managers to widen their moat every year. The Buffett definition of good management is therefore clear. If you have effective competitors, you are doing it wrong.

As with many aspects of his career, Mr Buffett used to act more visibly. An example is his 1977 purchase of the Buffalo Evening News. He bought this newspaper for $32.5m, a high multiple of its $1.7m operating profit, then launched a Sunday edition and drove the competing Buffalo Courier-Express out of business. By 1986, the renamed Buffalo News was a local monopoly making $35m in pre-tax profit. At the time, it was Mr Buffett’s largest single investment.

His concept of a moat is linked to his views on capital investment: the beauty of one is you do not need the other. One of his most celebrated purchases is See’s Candies, a company he bought for $25m in 1972. Every year, Mr Buffett raised prices. So strong was its brand that despite sales growing little, profits grew mightily, with barely any need for capital investment. “The ideal business is one that takes no capital, and yet grows,” he said last year.

His statement is unquestionably true for an investor. For an economy, it produces the pattern above: low investment relative to higher profits. A line attributed to business partner Charlie Munger in Alice Schroeder’s biography of Mr Buffett, The Snowball, is revealing: “Munger had always kidded Buffett that his management technique was to take out all the cash from a company and raise prices.” That does sum it up.

If Mr Buffett in his brilliance had found a few truly unusual companies and bought them on the cheap there would be no issue. But acolytes are taking his methods economy-wide.

These days, Mr Buffett has two main ways of putting his money to work. On one hand, he is finally investing in physical assets, although only in regulated industries such as electricity and railroads where returns are largely guaranteed. On the other, he is working with Brazilian private equity firm 3G as it slashes costs to the bone and drives up margins at Burger King and food company Kraft Heinz.

Kraft now makes a 23 per cent operating margin and an enormous return on tangible capital. In a competitive market, those high margins ought to present an opportunity for rivals to invest and steal market share. Instead, Kraft competitors such as Unilever and Nestlé are under pressure from their owners — a mixture of index funds and Buffett-like activists — to match those sky-high margins. If rivals also cut, rather than invest and compete, Kraft can cut even more. A kind of Buffett equilibrium is taking hold.

To be clear, this is not the only reason for declining investment and higher profits in the US.

Nor is there a simple solution. Better antitrust enforcement would help, but recent proposals for a complete revamp of competition policy are not well founded. Although research linking lack of competition to cross-ownership by institutional funds is interesting, it does not capture the reality of private equity operators such as 3G.

We can decide who to admire. Mr Buffett is brilliant at buying into monopoly profits, but he does not start companies or gamble on new ideas. America is full of entrepreneurs who do. Elon Musk is investing in two wildly risky and competitive sectors: automobiles and space. Even the much-reviled Koch brothers built most of their fortune on investment in the real economy.

Celebrate that kind of business. It is the kind America needs.


Why Entitlements Keep Growing, and Growing, and . . .

Once granted, benefits always multiply and are nearly impossible to repeal, John Cogan says. Only three presidents have been able to rein them in.

By Tunku Varadarajan
ILLUSTRATION: KEVIN FALLIN


Donald Trump’s gleeful deal with the Democrats—ratcheting up the debt ceiling, as well as the ire of the Republican establishment—puts John Cogan’s mind on 1972. Starting in February of that year, the Democratic presidential candidates engaged in a bidding war over Social Security to gain their party’s nomination. Sen. George McGovern kicked off the political auction with a call for a 20% increase in monthly payments. Sen. Edmund Muskie followed suit, as did Rep. Wilbur Mills, chairman of the Ways and Means Committee. Former Vice President Hubert Humphrey, never one to be outdone, offered a succulent 25%.

Mr. Cogan has just written a riveting, massive book, “The High Cost of Good Intentions,” on the history of entitlements in the U.S., and he describes how in 1972 the Senate “attached an across-the-board, permanent increase of 20% in Social Security benefits to a must-pass bill” on the debt ceiling. President Nixon grumbled loudly but signed it into law. In October, a month before his re-election, “Nixon reversed course and availed himself of an opportunity to take credit for the increase,” Mr. Cogan says. “When checks went out to some 28 million recipients, they were accompanied by a letter that said that the increase was ‘signed into law by President Richard Nixon.’ ”

The Nixon episode shows, says Mr. Cogan, that entitlements have been the main cause of America’s rising national debt since the early 1970s. Mr. Trump’s pact with the Democrats is part of a pattern: “The debt ceiling has to be raised this year because elected representatives have again failed to take action to control entitlement spending.”

A faculty member at Stanford’s Public Policy Program and a fellow at the university’s Hoover Institution, Mr. Cogan, 70, is one of those old-fangled American men who are always inclined to play down their achievements. The latest of his is the book that draws us together in conversation. To be published later this month by Stanford University Press, it is a 400-page account of how federal entitlement programs evolved across two centuries “and the common forces that have been at work in causing their expansion.”

Mr. Cogan conceived the book about four years ago when, as part of his research into 19th-century spending patterns, he “saw this remarkable phenomenon of the growth in Civil War pensions. By the 1890s, 30 years after it had ended, pensions from the war accounted for 40% of all federal government spending.” About a million people were getting Civil War pensions, he found, compared with 8,000 in 1873, eight years after the war. Mr. Cogan wondered what caused that “extraordinary growth” and whether it was unique.

When he went back to the stacks to look at pensions from the Revolutionary War, he saw “exactly the same pattern.” It dawned on him, he says, that this matched “the evolutionary pattern of modern entitlements, such as Social Security, Medicare, Medicaid, food stamps.”

As he explains it, entitlement programs typically begin with relatively narrow eligibility requirements. “For the Civil and Revolutionary War pensions,” he says, “original eligibility was limited to soldiers who had been injured in wartime service, or the widows of those killed in battle.” Marching and fighting wasn’t enough; you had to have lost life or limb for your country. But these rules were incrementally relaxed, and by 30 or 40 years after each war, virtually all veterans were covered, “regardless of whether you were disabled or not, and regardless of whether your disability was related to wartime service.”

We’ve seen the same phenomenon in modern entitlements. “When Social Security started, we had about 50% of the workforce covered,” he says. That was 1935. “By the 1950s, coverage was universal. The Social Security disability program was originally limited to those 50 years or older. And you had to be totally disabled—so disabled that you were unable to perform any job in the U.S. economy.” Gradually, Congress eliminated the age requirement. Then lawmakers allowed benefits for temporary disabilities.

“You see the exact same phenomenon in the low-income benefit entitlement programs,” Mr. Cogan says. Medicaid “extends to all individuals who live in poverty, regardless of whether or not they’re receiving cash welfare.” ObamaCare gave federal health-insurance subsidies to households with incomes up to 400% of the poverty line—currently $98,400 for a family of four.

The same forces that were at play in the 19th century are alive and kicking (the economy) today. “It’s step-by-step expansion,” Mr. Cogan says. “Each expansion tends to be permanent. And each expansion then serves as a base upon which Congress considers the next expansions.”

But what fuels this process? Why is it so relentless? Mr. Cogan identifies a form of moral argument as being a key factor. “After an entitlement is created,” he says, “individuals who are just outside the eligibility line start clamoring for assistance on the grounds that they’re no less ‘worthy’ of receiving assistance than the group that is eligible.” In the case of Social Security disability, why should a 49-year-old who was disabled in a car accident receive any less help than a person who’d had an accident at 50?

“The natural human impulse to treat similarly situated individuals equally under the law,” Mr. Cogan argues, inevitably results in “serial, repeated expansions of eligibility.” Congress responded in the 19th and early 20th centuries, when there were large budget surpluses. “But it also responds now, in the 21st century,” when deficits are endemic and the country is $20 trillion in debt.

Can an entitlement expansion, once granted, ever be taken back? Mr. Cogan refuses to say “never,” but says such rescindments “occur under rather extraordinary circumstances.” He offers a remarkable example: “You might ask, ‘Who achieved the largest reduction in any entitlement in the history of the country?’ Well, surprisingly, it was FDR, a person whom we normally associate with launching the modern era of entitlements.”

When Franklin D. Roosevelt took office in 1933, “the budget was in shambles, in deep deficit as a consequence of the Great Depression.” The new president had campaigned on a promise to put Washington’s fiscal house in order, and at the time, veterans’ pensions accounted for 25% of all government spending. “Within seven days in office,” Mr. Cogan says, “FDR asked Congress to repeal the disability entitlements to World War I, Philippine War, and Boxer Rebellion veterans. Congress gave him that authority, and within a year, he’d knocked nearly 400,000 veterans off the pension rolls. By the time we got to World War II, the benefit rolls were a third lower than they were when he took office.”

Who would feature in an Entitlement Reform Hall of Fame? Mr. Cogan’s blue eyes shine contentedly at this question, as he utters the two words he seems to love most: Grover Cleveland. “He was the very first president to take on an entitlement. He objected to the large Civil War program and thought it needed to be reformed.” Cleveland was largely unsuccessful, but was a “remarkably courageous president.” In his time, Congress had started passing private relief bills, giving out individual pensions “on a grand scale. They’d take 100 or 200 of these bills on a Friday afternoon and pass them with a single vote. Incredibly, 55% of all bills introduced in the Senate in its 1885 to 1887 session were such private pension bills.”

The irrepressible Cleveland “started vetoing these private bills right away”—220 of them in his first term—which explains why he still holds the presidential record for most vetoes. Mr. Cogan admires Cleveland particularly because “each of his vetoes contains an explanation of the reason why and the facts of the case. As time went on, he became more exasperated with Congress, and his veto messages more acerbic.” In one veto, involving a widow who’d claimed her husband had died in battle, Cleveland noted that the man had died in 1882 and wrote: “No cause is given for the soldier’s death, but it is not claimed that it resulted from his military service.” A newspaper later reported the soldier had “choked to death on a piece of beef while gorging himself in a drunken spree.”

The FDR of 1933 is also one of Mr. Cogan’s Hall of Famers, as is Ronald Reagan : “There’s no president who has undertaken entitlement reform in as comprehensive a way.” Reagan “fought a very good fight and he slowed the growth of entitlements like no other president ever had.” He achieved significant reductions in 1981 and 1982, and then “battled to preserve those changes through the rest of his two terms. The growth of entitlements during his time in office is the slowest of any modern administration.” Still, this striking accomplishment “ultimately only slowed, and did not reduce, the aggregate financial burden of entitlements.”

Mr. Cogan also gives an honorable mention to Bill Clinton for his welfare-reform plan. Mr. Clinton’s was “a fairly narrow reform compared to the broad swath of entitlements, but history will show that it’s one of the most successful reforms that’s ever been achieved. The reform not only reduced welfare’s burden on taxpayers, it has also benefited the recipients, whom the old unreformed program had been harming.”

I ask Mr. Cogan how America can break the grip of ever-expanding entitlements. He balks at offering a specific policy agenda, insisting, that his book is a work of economic history. But he does identify three necessary political conditions for any entitlement reform. The first is presidential leadership, without which “there has never been a significant reduction in an entitlement.” Veterans benefits in the 1930s would not have been trimmed without the “strong leadership” of FDR. The restraint on growing expenditures in the 1980s wouldn’t have happened “without Reagan’s steadfast commitment to spending control.” And there would have been no welfare reform in 1996 without Mr. Clinton’s push.

Mr. Cogan’s second sine qua non is “a significant agreement among the general public and the elected representatives that there’s a problem.” In Roosevelt’s day, the belief was widespread that the fiscal crisis had to be addressed. Both Reagan and Mr. Clinton enjoyed public support and a workable legislative consensus.

The third condition is the most piquant, especially given the warring nature of American politics today. Any solution to the problem of entitlements, Mr. Cogan says, “has to be bipartisan.” No significant restraint, he believes, can be imposed by one party alone: “It took a bipartisan effort on the part of Congress and presidents to create our entitlements problem. It’ll take bipartisanship to solve the problem.”


Mr. Varadarajan is a research fellow in journalism at Stanford University’s Hoover Institution.


The Politicization of Everything

Everybody loses in the Trump-NFL brawl over the national anthem.

By The Editorial Board

Baltimore Ravens players kneel during the playing of the U.S. national anthem before an NFL football game against the Jacksonville Jaguars at Wembley Stadium in London, Sunday Sept. 24, 2017. Photo: MATT DUNHAM/ASSOCIATED PRESS


Healthy democracies have ample room for politics but leave a larger space for civil society and culture that unites more than divides. With the politicization of the National Football League and the national anthem, the Divided States of America are exhibiting a very unhealthy level of polarization and mistrust.

The progressive forces of identity politics started this poisoning of America’s favorite spectator sport last year by making a hero of Colin Kaepernick for refusing to stand for “The Star-Spangled Banner” before games. They raised the stakes this year by turning him into a progressive martyr because no team had picked him up to play quarterback after he opted out of his contract with the San Francisco 49ers.

The NFL is a meritocracy, and maybe coaches and general managers thought he wasn’t good enough for the divisions he might cause in a locker room or among fans. But the left said it was all about race and class.

All of this is cultural catnip for Donald Trump, who pounced on Friday night at a rally and on the weekend on Twitter with his familiar combination of gut political instinct, rhetorical excess, and ignorance. “Wouldn’t you love to see one of these NFL owners, when somebody disrespects our flag, to say, ‘Get that son of a bitch off the field right now, out, he’s fired. He’s fired,’” Mr. Trump said Friday.

No doubt most Americans agree with Mr. Trump that they don’t want their flag disrespected, especially by millionaire athletes. But Mr. Trump never stops at reasonable, and so he called for kneeling players to be fired or suspended, and if the league didn’t comply for fans to “boycott” the NFL.

He also plunged into the debate over head injuries without a speck of knowledge about the latest brain science, claiming that the NFL was “ruining the game” by trying to stop dangerous physical hits. This is the kind of rant you’d hear in a lousy sports bar.

Mr. Trump has managed to unite the players and owners against him, though several owners supported him for President and donated to his inaugural. The owners were almost obliged to defend their sport, even if their complaints that Mr. Trump was “divisive” ignored the divisive acts by Mr. Kaepernick and his media allies that injected politics into football in the first place.

Americans don’t begrudge athletes their free-speech rights—see the popularity of Charles Barkley —but disrespecting the national anthem puts partisanship above a symbol of nationhood that thousands have died for. Players who chose to kneel shouldn’t be surprised that fans around the country booed them on Sunday. This is the patriotic sentiment that they are helping Mr. Trump exploit for what he no doubt thinks is his own political advantage.

American democracy was healthier when politics at the ballpark was limited to fans booing politicians who threw out the first ball—almost as a bipartisan obligation. This showed a healthy skepticism toward the political class. But now the players want to be politicians and use their fame to lecture other Americans, the parsons of the press corps want to make them moral spokesmen, and the President wants to run against the players.

The losers are the millions of Americans who would rather cheer for their teams on Sunday as a respite from work and the other divisions of American life.


How Will Trump Reshape the Federal Reserve?

What You Don’t Know about the Federal Reserve

 
Stanley Fischer, vice chair of the Federal Reserve, announced he will resign in mid-October, while a question remains over whether Janet Yellen will be reappointed as chair when her term ends in January. Fischer’s departure leaves the seven-member board with as few as three sitting members, creating a vacuum of power and an unprecedented opportunity for President Donald Trump to reshape America’s central bank. Wharton finance professor Krista Schwarz, Wharton legal studies and business ethics professor Peter Conti-Brown, and Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations, joined the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111 to discuss what lies ahead for the Fed.

The following are four key points from the conversation.


Fischer’s departure can be seen as a watershed moment in American monetary policy.
 
Fischer, 73, is stepping down from a storied career that blended academic experience with stints at The World Bank, the International Monetary Fund, Citigroup and as governor of the Bank of Israel. His tenure at the Fed created a sense of continuity, and his resignation undoubtedly will be felt.

“You’ve got normally seven governors on the Washington board of the Fed, and right now we’re down to three once Stanley Fischer steps down. More than half the slots are vacant, and if Janet Yellen does leave when her term is [up], that means there’s only two of seven representing continuity,” Mallaby said. “The President has enormous leeway to put his own stamp on the Fed. The mystery is we have no idea what he wants to do with that power.”

Conti-Brown also expressed concern about stability at the central bank.

“As a Fed watcher and someone who appreciates continuity as opposed to disruption … this is very far from ideal,” he said. “It would have been much better for Stanley Fischer to remain vice chair through his term, which would have allowed him either to work with a reappointed Yellen, which I hope is the outcome of Trump’ decision-making process, or to help guide the Fed with the new fed chair.”

Although the role of the vice chair role is “ambiguously defined,” Conti-Brown said, it’s not simply as a stand-in to the chair. “The vice chair exercises enormous leadership, and to have both of these spots vacant simultaneously or filled with new additions troubles me. I think it could be very disruptive, depending on the identity of the people who fill these slots.”

In the Trump administration, it’s difficult to predict the future.

Whether Yellen stays as chair is anyone’s guess, given the unpredictability of the president’s loyalties. Schwarz pointed out that Trump spoke unfavorably about her during the campaign, yet he has praised her since coming into the White House.

“I think expectations have shifted from little likelihood of her staying to increased possibility,” she said. “The things he had criticized her for during the campaign — keeping interest rates too low — now that he’s in office, that is what he would likely want. I honestly don’t think that this is a priority for him at the moment. I think tax reform is foremost on his mind.”

Yellen also hasn’t said harsh words in public about the president, which could help her keep her job.

“He’s either black or white about people, either in favor or out of favor, and she hasn’t done anything necessarily yet to be out of favor,” Schwarz said. 
Mallaby recalled the “absolute melodrama” surrounding Trump’s appointment of secretary of state, with a parade of candidates being considered and dismissed before his selection of Rex Tillerson.

“I fear that with the Fed we might experience a similar thing with a drip, drip, drip of rumors about who’s in the frame and who’s not in the frame, which at some point is probably going to unsettle the market because all of this uncertainty about the leadership of the Fed coincides with a period when the Fed is about to make some pretty consequential monetary policy choices,” Mallaby noted.

Mallaby referred to a board meeting scheduled in late September and the expectation of an interest rate increase before the end of the year.

“After a period in which rates were basically kept at zero without alteration for seven years, we’re suddenly into a period where monetary policy is complicated by the fact that employment seems to be full, yet inflation is weak,” he said. “You’ve just got a very complicated moment for the central bank, which comes right when their leadership is most up in the air. I think that could be unsettling to markets, so unnecessary melodrama around the Fed chair reappointment is going to be bad news.”

Along with talk about Yellen’s reappointment, there have been rumors swirling that Trump could name his top economic adviser, Gary Cohn, to the chair. But Conti-Brown thinks the move is unlikely after Cohn gave an interview in which he criticized the administration’s response to racially motivated violence in Charlottesville, Virginia, saying the White House must do more to stop white supremacy.

Filling the other vacancies on the board of governors is equally important to addressing the chair and vice chair positions, Conti-Brown said.

“Are they going to be credible appointments as a somewhat soft norm of reaching across the aisle and maybe even pairing a Republican with a Democrat? Is that going to happen? All of this is on the table,” Conti-Brown said. “… And if it’s not Gary Cohn, who are the alternatives? [Top adviser] Steve Bannon’s out of the White House, but that doesn’t mean there aren’t other people who have a multi-decade interest in ending the Fed as a functioning institution.”

Board members typically do not complete their terms.

Each of the seven members on the board of governors is appointed to a 14-year term. The experts said a majority of the members historically have not sat through their entire term, with a few exceptions. The average tenure is a little less than six years.

“It’s much more normal to resign early. I think that’s regrettable. I think it feeds a dysfunction in Fed governance,” Conti-Brown said. “Let’s keep in mind that when Richard Nixon resigned from the presidency, the Senate confirmed some of his Fed appointments the week before. We are not in that place in terms of constitutional crisis in the Trump administration, yet our ability to put people on the Fed’s board of governors is worse than it was in 1974.”

He thinks the government should consider ways to make the job more enticing, perhaps by shortening the term. “Also, we should just go back to the earlier model. Before the Obama Administration, we’d never even had three vacancies.”

Vacancies are bad for the credibility and legitimacy of the central bank because it concentrates power into fewer hands, which is antithetical to democratic principles.

“It’s already a problem to have concentrated, technocratic power in the hands of these technocrats, and it’s very consequential to the economy what happens to interest rates,” Mallaby said. “If that power appears to be even more narrowly concentrated after these seats are vacant on the board, I just don’t see how that enhances the legitimacy of the central bank.”

On the other hand, Mallaby said, the practical functions of the bank can carry on without incident because of the highly competent staff.

Conti-Brown agreed with Mallaby’s points.

“This becomes a question of democratic credibility, not just in diffusing the decision-making across the committee and moving away from the sort of Fed as emperor approach, but also because this is the primary way, and in some ways the only way, of exercising democratic accountability,” he said. “When we’re deprived of this, we’re not able to go through the process that many people hate but is actually quite transparent, quite useful, of vetting these people.”

Too many vacancies also leave the Fed without a quorum to exercise some of its emergency authority, such as lending in times of crisis.

“If we get to the point where we only have three governors, for many key decisions we lack quorum, and that just feeds dysfunction at the top,” Conti-Brown said.

Finding the right candidate for the board is a tall order.

Schwarz, Conti-Brown and Mallaby agree that Fischer would have made an excellent choice for chair. He brings a balance of research, knowledge and experience in the public and private sectors to the table. That’s what Trump and congressional leaders should be looking for in a replacement.

“You want to have voices from different types of views and perspectives and experiences that they can draw from,” Schwarz said. “I think the most likely next candidate would be a community banker because that’s something that has been lacking. There has been a lot of push to have someone come on the board who can speak for the banks that have been a bit overwhelmed with the increased scope of regulation and being able to comply with all of that as the big banks can. I think that’s a voice that’s important to have.”

Mallaby said the ideal candidate for chair of the board is someone who has not served as a chief executive officer. He thinks the chair needs to be someone with a mastery of economics and politics.

“I think that’s the great lesson of Alan Greenspan’s tenure, that his success as chairman was as much about Machiavellian power plays as it was about his command of the data.”

Mallaby said he’s not sure if members of the Senate can fully recognize a candidate’s depth of expertise in economics, although the confirmation process does serve to root out “someone wacky” from being appointed.

“If they are not adept politically and experienced in Washington, they’re probably going to have their knees kneecapped by the process because there’s just so many bits of hidden furniture that you can run into if you don’t know your way around that city,” he said.

Conti-Brown added that the ideal candidate also needs to be a good manager.

“The Federal Reserve system is a huge, sprawling organization. An ability to manage other humans and the logistics of it is pretty exceptional,” he said. “I would say leadership is important, but if you aren’t able to direct the flow of information and policy through the system, then I think that can be pretty problematic.”


Feeling Older? Here’s How to Embrace It

By CHRISTOPHER MELE



Too often, experts say, myths about aging get in the way of older people staying connected or pursuing what is meaningful to them. Credit Nathan Benn/Corbis, via Getty Images

The realization that you are getting older can come in waves.

You watch movies and point to the actors, saying: “She’s dead. Oh, he’s dead, too.”

Your parents move to a retirement community they call God’s waiting room.

You hear more snap, crackle and pop in your joints than in your breakfast cereal.

In society, youthfulness is glorified and getting older is cast as something to avoid, but as your age increases, your quality of life does not necessarily have to decrease, experts said.

Here’s what you should know:

What is ‘old’?

Most people wouldn’t say that a 38-year-old qualifies, but once you pass the median age of 37.8, you may statistically be considered “old,” said Tom Ludwig, emeritus professor of psychology at Hope College in Holland, Mich.

Studies show that people start feeling old in their 60s, and a Pew Research Center survey found that nearly 3,000 respondents said 68 was the average age at which old age begins.

Daniel B. Kaplan, an assistant professor of social work at Adelphi University in Garden City, N.Y., said in an email that living to an advanced age was a relatively recent achievement.

“The average human life span gained more years during the 20th century than in all prior millennia combined,” he wrote, adding that the average life expectancy in the United States is 79.1.

Gain perspective

Dr. Gayatri Devi, a neurologist at Lenox Hill Hospital in Manhattan, said that your outlook can make a difference.

She recalled a patient who frequently said, “Old age has an ugly face.” The patient died when she was 84.

Another patient, who was 98, told Dr. Devi that when she was younger she looked like the actress Elizabeth Taylor. When the doctor told her that it must be difficult for someone who was once that beautiful to have aged, the patient remonstrated: “What do you mean? Am I not still beautiful?”

That patient is now 100.

Diversify your friends

Dr. Devi said a patient who died at 101 had told her to try to have a friend “from every decade of life.” He had befriended an array of people, including Dr. Devi’s daughter, who was 12 at the time.

Having friends from multiple generations can help head off the loneliness that can come when others move, die, get sick or are no longer mobile.

“It speaks to an antisegregation of the aged, maintenance of community, as well as keeping in touch with modern advances to prevent being accused of being an old fogey,” she said.

Get ready

Many of the problems that adults face as they get older are unrelated to the normal part of aging. The quality of your later life is partly under your control. Choices about lifestyles and behaviors can influence the effects of so-called secondary aging.

Exercise and proper sleeping and eating habits will help your physical health, which will benefit your mental and cognitive health, Mr. Ludwig said.

People should prepare for the later stages of their life as they would starting a family or helping a child gain independence.

Seek financial advice to help adapt to changes in your income and plan for the costs of health care, Mr. Kaplan wrote. Discuss with your family and friends what you expect from old age and what type of lifestyle you desire.

Embrace the positives

Older adults are generally happier and less stressed and worried than middle-aged and young adults, Mr. Kaplan wrote.

Although there can be declines in health and income, “the vast majority of older adults enjoy improvements in the emotional aspects of life” because they are more focused on positive information, he wrote.

Mr. Ludwig said the reality of aging was not as bad as stereotypes would suggest.

While you might not be able to do all the things you once did when you were younger — he advises against playing tackle football with teenagers, for instance — there are ways you can compensate by finding other activities that are rewarding.

Find something to commit to improving, whether it’s tennis or cabinetry. Mr. Ludwig suggested focusing on helping others, especially younger people.

Remember, too, that you are not the only one feeling sore or slowing down, he said.

“There are millions of Americans waking up with those aches and pains,” Mr. Ludwig said.

“What is the alternative to aging? It’s dying young.”

Reject ageist attitudes

Though it is true that as we age, we may gain some weight and lose some of our intellectual abilities, it is no reason to give in to stereotypes about older adults.

Myths about older people — that they are disconnected or crotchety — are perpetuated in the news media and our culture. Advancements in technology have accelerated the stereotype that older people can’t keep up, Mr. Ludwig said.

Leslie K. Hasche, an associate professor at the University of Denver Graduate School of Social Work, said she supported AARP’s “Disrupt Aging” initiative, which seeks to counter social and cultural myths about what it means to be old.

“Too often, the myths create barriers or limits, which get in the way of older adults staying connected or pursuing what is meaningful to them,” she wrote in an email.

Various milestones — birthdays, changes in careers and the deaths of siblings and peers — are reminders of the passage of time, but you should not lose focus on finding meaning and quality in life, Mr. Kaplan wrote.

“For many people, old age creeps up slowly and sometimes without fanfare or acknowledgment,” he wrote. “While most people enjoy relative continuity over the decades, being able to adapt to the changing context of our lives is the key to success throughout life.”