In closing the books on 2010, the best that might be said was that it was better than 2009. This was a year that cemented a certain narrative of the past decade, one that has coalesced since the fall of 2008 and could be heard from the lips of everyone from Oprah to Obama: Americans had been living beyond their means, using their homes and cheap credit as a piggy bank, and with the Great Recession, the bill has come due. What lies ahead is years of belt tightening to compensate for those years of excess.
That sentiment is widely shared, yet that doesn't make it true. For all the supposed austerity, you need look no further than this holiday season to realize that Americans are about as austere as Augustus Gloop. Overall holiday sales were up more than 4% from last year to approximately $525 billion, according to estimates compiled by the National Retail Federation. They are now at an all-time high, nearly $10 billion more than before the recession. E-commerce has seen explosive gains during the past two years with $36 billion in sales this year alone, up 15.4% from last year.
The online figure is telling, and the percentage was especially high in apparel, such as clothing and shoes. Buying apparel used to require going out and trying stuff on. But in a period when we have scolded ourselves with tales of inappropriate spending, the availability of online shoes (Zappos, anyone?) and clothing means you can escape the quandary of shopping when the cultural message is not to.
The belief that Americans overconsumed and are now tightening their collective belts has, of course, some basis in fact. In the two decades before 2008, the amount of debt carried by Americans did go up significantly, and in the two years since, the savings rate has gone from a low of 1% to nearly 6%. And in the past two years, millions have suffered for the debts they took on in the flush years. Mortgage delinquencies soared and are now nearly 10% of outstanding loans. Credit-card default rates went up as well, to more than 9%.
Those are troubling numbers, but they do not add up to a picture of an entire nation that lived beyond its means and now faces the consequences. Even at the height of the credit bubble, the percentage of income the average American had to pay to service debt rose only from between 10.6% and 12.4% in the 1980s and 1990s to a high of 14% in 2007, the highest on record but lower than similar rates in Great Britain. In addition, U.S. household debt relative to income, even at its peak, was lower than in countries such as Japan, Canada, Australia and the Netherlands hardly proof that America was exceptionally profligate.
To put this in lay terms: if a U.S. household making $45,000 a year had to pay $5,400 a year on credit cards, car loans and mortgage payments in the mid-1990s, it paid $6,300 in 2007 a whopping increase of $900. Meanwhile, incomes also went up, offsetting some of that increase. Hardly a picture of a nation run amok in debt.
Even more telling, if a generalization is something that applies to the bulk of whatever we're generalizing about, what are we to say about a populace where 90% are current on their mortgages and credit card payments? Sure, it used to be even more, but 90% ain't bad. The most accurate generalization is that Americans have been living within their means, taking on debts they can afford, and spending responsibly. Yet that statement flies in the face of conventional wisdom.
None of this changes the fact that tens of millions are unemployed or underemployed, nor that many millions have seen or will see their homes foreclosed, their assets seized and their credit ruined. But the crisis however widely shared emotionally has hit only a fraction materially. It has hit the poor, those with inadequate health insurance and those who truly bought more on credit that banks should never have extended. Yet as this holiday season demonstrates, it has not radically shifted the spending trajectory of the vast majority of us, aside from a period in 2008 and 2009 when fear and uncertainty altered behavior.
How then to explain why so many of us think otherwise? There is a strong strain of modest Puritanism in our culture, one that has always been uncomfortable with the material excesses that erupt from era to era: consumption is a vice and has a price.
But it's also important to note that this bout of self-flagellation is taking place against a different global backdrop, one that sees countries from China to Brazil blazing their own trails while the U.S. seemingly plods along. It's been shown that people assess themselves in relative terms, by how much they have compared with their neighbors more than by how much they have. Today, Americans have a surfeit, but relative to the world as a whole, the slice is shrinking.
Those new economic powerhouses are spending, too, but in smarter ways. They're pouring money into education and infrastructure. That in turn has led to increased personal consumption born of the fruits of those efforts. The contrast with the U.S., which struggles with political gridlock that makes it difficult to pass similar measures, is striking. That, more than the balance on our credit cards, should fuel legitimate American pessimism.