In the nearly 15 years that I’ve been writing about markets and managing money, there’s been a dramatic shift that has gotten only marginal notice. We’ve gone from having an optimism surplus to an optimism deficit. That may be a greater problem than the budget surplus becoming a deficit.
The belief that the future holds possibilities better than today is a necessary precondition to investing, starting a business and taking risks – all of which are key to a dynamic, vital economy. Yet that is precisely the belief that is less and less in evidence in the United States and more and more apparent elsewhere in the world.
During the last years of the 1990s, for what now appears a few halcyon days at the end of the millennium, the attitude and tone was relentlessly upbeat, optimistic and utopian, undergirded by a belief that technology fused with the markets would produce unparalleled wealth.
Then began the new millennium, which has been a near-unbroken series of problems, tragedies and false dawns. From the stock market peak of March 2000, through the attacks of September 11, 2001, the recession of 2001-2002, U.S. wars in Afghanistan and later in Iraq, the financial crisis 2008-2009, it has been an extraordinarily challenging decade.
The result has been an almost complete reversal from the late 1990s, from naïve optimism to chronic pessimism and despair about the future. That negative tone pervades every analysis of how we are doing and what the prospects for the future are. In recent polls, more Americans say they are pessimistic about the economy and about the potential of the next generation to do better than the current one. (Polls from the New York Times, the Wall Street Journal, Pew and many others show the figure approaching 50 percent.) Daily news – especially financial news – is suffused with stories of looming threats ranging from quagmires in Afghanistan to defaults in Greece and property bubbles in China along with double-dips in the United States.
And yet, though incomes remain stagnant and unemployment high, it is also true that few societies have ever been as affluent as the United States currently is. It’s not just that the average income is about $40,000. It’s also that the U.S. has functional markets (for the most part), wide availability of food and shelter (owned or not) and public order. China, for all of its aggregate growth, will remain poorer per person for decades to come. Even with credit troubles in Greece, the Eurozone has higher per capita income than almost anywhere in the world except the United States (some oil producing mini-states notwithstanding). While incomes in Europe and the United States have stagnated, especially since 2005, overall there was still a sharp rise in the decades before, even accepting that gains in income in the U.S. have been largely confined to the upper income levels. In other words, we may be pessimistic, but our pessimism exists in the context of affluence, not poverty.
On the flip side, the optimism of countries like China, India, Brazil and parts of the emerging world exists in the context of extreme poverty alongside pockets of burgeoning wealth. At least 400 million people in China live on less than a dollar a day, and the number is likely higher in India. Anyone who has seen the favelas in Rio knows that Brazil may be powering forward after the departure of President Luiz Inacio Lula da Silva, but large pockets of crime and poverty remain deeply entrenched. Yet unlike the nearly half of Americans who think the economy is in bad shape and getting worse, 75 percent of Brazilians think their government is doing a good job with the economy and that it’s getting even better.
The American optimism deficit matters, especially compared to the optimism surfeit in the rest of the world. Emerging countries are brimming with confidence and optimism, even as their material situation remains at best challenging. The United States, as well as the Eurozone, is mired in a funk, with many convinced that the dream is dead and the future is bleak. Both attitudes can be self-fulfilling, and in a competitive world, the optimism deficit, not the budget deficit, may be the one that sinks us after all.