I am by nature and upbringing a pessimist. As a boy in Glasgow, I was encouraged to expect the worst, on the principle that by doing so you'll never be disappointed and sometimes you may even be pleasantly surprised.
This is not the American way. Optimism is in the DNA of the U.S.A. Louis Armstrong epitomized the upbeat national mood in that wonderful song "On the Sunny Side of the Street":
If I never had a cent
I'd be rich as Rockefeller
Gold dust at my feet
On the sunny side of the street
Nowhere is that sunny side sunnier than in Miami. I went there last week and was dazzled. The place is more than booming. Red Ferraris and black Hummers line the boulevards of Coral Gables. The good times have returned to the Biltmore Hotel, that glorious masterpiece of Roaring '20s architecture.
Tourism, which is Miami's biggest business, has more than recovered from the shock of 9/11. Thanks to surging trade volume, both the port and the airport are thriving. Financial services are growing apace. Unemployment is low.
Pick up the Miami Herald and you find full-page advertisements with messages such as "Create Generational Wealth Through Real Estate" and "No money? It matters not. Bad credit? No problem. No education? So what. Over 65? There's still time to change your financial future." The sunny side of the street indeed.
Note too that Miami's prosperity is a triumph for free migration as well as free trade and the free market. The population of Miami-Dade County is 57% Latino, largely though by no means exclusively Cubans. Yet the contrast with shabby, down-at-heel Havana could scarcely be more stark.
Yet, if history is any guide, our present golden age of globalization is unlikely to endure. It could be ended by a geopolitical crisis. Or it could be ended by a gradual domestic backlash.
Should Americans — and especially Miamians — be less optimistic? Conventional wisdom has it that they should. Economists want them to save more. Environmentalists want them to consume less.
Well, be careful what you wish for.
For roughly a decade, the global economy has been propelled forward by the insatiable consumption of U.S. households. Consumption accounts for about 70% of the U.S. gross domestic product, and U.S. growth has recently accounted for more than half of global growth. The appetite of Americans for imported clothing and gadgets has been one of the engines of China's economic miracle.
American consumption depends critically on American optimism. Why? Because it is only by saving literally zero percent of their incomes and borrowing to the hilt that U.S. households have been able to keep on consuming, as they say, to the max.
To take a look at the finances of the typical American family is to see optimism in action. According to the 2006 Retirement Confidence Survey, six out of 10 American workers claim they are saving for their retirement. In reality, more than half have less than $50,000 set aside (excluding the value of their homes), and more than a third have less than $10,000 in savings.
Similarly, most Americans say they expect to work until age 65. But in reality, the average retirement age is 62. This is what it means to walk on the sunny side of life's street. You simply don't contemplate the possibility that you might get made redundant, or fall sick, or get old. You hang on to that American dream that you'll be one of the lucky few who scales the socioeconomic ladder to become "rich as Rockefeller."
The decline of the U.S. personal savings rate from about 8% in the 1980s to below zero percent today is in itself a remarkable phenomenon. Almost as impressive has been the sustained rise in American indebtedness.
Again, this borrowing bonanza has been based on optimism. As they pile up debt, Americans reassure themselves that the other side of the balance sheet is going to justify the risk involved. Most households have one big asset — their home. Its value has risen steeply over the last decade. The assumption is that this inflation in the real estate market will continue.
The world, as I've said, has reason to be thankful for American optimism. By the same token, however, the world has reason to dread an American mood swing. After all, interest rates have been rising steadily since the summer of 2004, driving up the cost of servicing credit card debt and adjustable-rate mortgages. And it's generally assumed that the Federal Reserve will raise rates again next month. At the same time, Americans are coming to realize that energy prices are not going to go down anytime soon.
A quadrupling of interest rates and a trebling of oil prices is quite a combination.
"The only thing we have to fear," declared Franklin Roosevelt during the Depression, "is fear itself." That fear has been long absent from American life. But we should never forget what a devastating thing it can be on those rare occasions when the United States crosses over to the shady side of the street.
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