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Friday, April 10, 2009

The New Austerity: How Long Will It Last This Time?

According to a column in the Washington Post, “a growing number of Americans have acquired a voracious appetite for tips on, among other things, how to slash grocery budgets, or how to throw a child's birthday party for under $25, or how to save thousands annually by changing one's own oil, hanging clothes to dry, carrying bag lunches to work, and other everyday lessons in leaner living.”

Before quoting that column, however, I left out one vital piece of information: it was published more than 16 years ago.

You see, those of us who are old enough to have experienced more than, say, one or two recessions that occurred before the current one, can remember (or at least should remember) that something like this, though perhaps not quite of this magnitude, tends to happen around once each decade.

Some big financial catastrophe, like an energy crisis, a savings & loan crisis, or a speculative bubble, causes the stock market and the underlying economy to tank and, suddenly, conspicuous consumption is shunned; frugality becomes hip; coupon queens appear as guests on daytime talk shows, demonstrating techniques that supposedly sometimes even allow them the pleasure of receiving rather than giving money at the grocery checkout; numerous books with titles like How to Live on Nothing materialize from the ether and roll off the presses; and pop-finance gurus suddenly start saying things like “No, silly -- you should never view your home as an investment. It’s a lifestyle choice.”

Yes, folks. Although, due to youth or other factors, not all of us may realize it, what we’re watching right now is a rerun. And the original airdate was not even from last season, by a long shot.

But we Americans, unfortunately, are often viewed as being infamous for our short memories. Just a short time after the years in the 1970s of waiting in line for hours at gas stations and rationing based on whether your license plate number ended with an odd or even digit, here we were driving ginormous SUVs as if OPEC had never existed. For around 25 years, gas prices in the U.S. fluctuated inside a relative comfort zone between $1.00 and $1.99 per gallon, and everyone was happy until the big psychological threshold of two bucks started to break.

And just a few short years after the recession of the early 1990s that ushered in, along with a buyer's market in real estate, “the new frugality” referenced in the Washington Post column I quoted, the conspicuous consumption party was on again. Twentysomething entrepreneurs were spinning lame online business concepts into multi-billion-dollar IPOs, and suddenly the homebuilding industry couldn’t throw up enough fiberboard McMansions to keep up with demand. The guy delivering your pizza was making money day-trading telecom stocks. And no one thought it was a bubble until it was too late.

Is the current recession deep enough, different enough, painful enough, and scary enough to make our memories longer and change our habits, for the better, for the long run? Next time around, will enough of us, finally, be sufficiently savvy to spot the signs of an emerging bubble before it has a chance to destroy trillions of dollars in capital and vaporize millions of jobs? Or will we once again fall victim to the fallacy that “it’s different now -- this is a new economic paradigm?”

Only time will tell, of course. But history teaches us that, unfortunately, like students who manage to ace exams by cramming the night before, we’re not very good at long-term retention of our lessons. Sphere: Related Content

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