Is this Change Permanent?

Headlines proclaim that Americans lost up to 18% of their wealth in 2008. That comes to an astounding $11 trillion. (See post dated January 13, 2009 for how to picture a trillion dollars.) The Federal Reserve equates this decline to the combined annual output of Germany, Japan and the U.K. No wonder Americans are living more frugally. Economic constraint is "in." But for how long?

No one can say for sure. But consider these data points from The Wall Street Journal:

• "The decline in Americans' net worth, which was the first in six years, followed an extraordinary boom. Not accounting for inflation, household wealth more than doubled from 1990 to 2000, and then, after a pause, rose nearly 50% before the bust of 2008."


• "Past downturns have been mere blips compared with the losses Americans faced last year, which set them back to below 2004 levels. "

Wait a minute. 2004? In one sense, that doesn't sound so bad. At least it's not, say, 1984, or even 1994. (Admittedly, this viewpoint is a little bit like looking down on storm clouds from 40,000 feet. The white froth below looks fairly benign. But to those on the ground life is very unpleasant.)

We may be better off than we now perceive. Perhaps frugality will eventually go by the wayside.

On the other hand, optimism about the economy is in short supply. A recent Gallup poll shows that 82% of Americans are concerned about the amount of money being added to the federal deficit. Further, 78% are worried about inflation growing.

Housing statistics also suggest that there is a cloud of uncertainty. A recent article on Fast Company.com states that the Metropolitan Institute at Virginia Tech "predicts that by 2025 there will be as many as 22 million unwanted large-lot homes in suburban areas." Life in the "burbs" may never be the same as more people discover the economic and lifestyle benefits of living in more urban areas.

Only time will tell whether the changes in economic attitudes are temporary or part of some type of tectonic shift. Stay tuned!

Quick Vue: Here is an Associated Press report on the new savings habits of American consumers.

Sources for theis post included The Wall Street Journal, FastCompany.com and Associated Press.