H. L. Mencken once quipped that a Puritan is a person who is afraid that someone, somewhere, is having a good time.
Well, we have a new Puritan class in our midst, and they’re not obsessing about personal good times. They’re worried about economic good times. They’re convinced that the average American has under-saved and overspent for decades, and now we have a bill to pay. The “New Normal” of this view has the savings rate rising to 10%, the economy running at 2%, and all of us wearing hair shirts.
The New Puritans are convinced that we need to atone for our economic sins. A higher savings rate is only for starters. They point to President Obama’s tire tariff as the first skirmish in a new trade war. They point to plans for financial reform as a sign of new re-regulation. They think these long-term trends of deleveraging, deglobalization, and reregulation will give our economy arthritic joints and make us all move slower.
But economics is not a morality play. Analysis shows that the “housing wealth effect” was really the employment impact of a construction boom. So a housing bust, while affecting employment, shouldn’t result in a permanently higher savings rate. The other aspects of the “new normal” seem equally cyclical.
Don’t panic. The world hasn’t ended or even changed that much. While galling to some, the dynamic American economy will still keep consumers happy.
Douglas R. Tengdin, CFA
Chief Investment Officer
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