April 19, 2006


Running on optimism (Niall Ferguson, National Post, April 19th, 2006)

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. So I live my life with the worst-case scenario permanently hovering before my eyes.

This is not the American way. Ever since Thomas Jefferson cited "the pursuit of happiness" as a reason for American independence, optimism has been in the DNA of the USA. 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 manicured boulevards of Coral Gables. The good times have returned to the Biltmore Hotel, that glorious masterpiece of Roaring Twenties architecture.

The numbers bear out the impression of febrile prosperity. Tourism, which is Miami's biggest business, has more than recovered from the shock of 9/11. Thanks to surging trade volumes, both the port and the airport are thriving. Financial services are also growing apace. Unemployment here is as low as it gets in the United States -- and that's low.

Turn to the Miami Herald and you find full-page advertisements with headlines like "Create Generational Wealth through Real Estate": "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.

So it's small wonder the lecture I delivered in Miami unnerved people. Even by my standards, it was sombre in its conclusions. I pointed out that, if history is any guide, our present golden age of globalization -- which is so beneficial to Miami -- is unlikely to endure. It could be ended by a geopolitical crisis. Or it could be ended by a gradual domestic backlash. Such pessimism is rare in the U.S. and maybe that's just as well.

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 socio-economic ladder to become "rich as Rockefeller."[...]

The world, as I've said, has reason to be thankful for American optimism. The imbalance between American optimism and Asian caution manifests itself in the huge U.S. current account deficit. U.S. imports now vastly exceed U.S. exports. Americans finance the gap by borrowing abroad. Asian savings thus help finance American consumption, to the benefit of both parties.

By the same token, however, the world has reason to fear an American mood swing. And such a mood-swing could be much more imminent than a flying visit to Miami would lead you to believe. After all, interest rates have now been rising steadily since the summer of 2004, driving up the cost of servicing credit card debts and adjustable rate mortgages (which have grown increasingly popular in recent years). And it's generally assumed that the new chairman of the Federal Reserve, Ben Bernanke, will raise rates again next month. With wage inflation surging -- not least in places like Miami -- he really has no option but to press harder on the brakes.

So long as Americans keep walking on the sunny side of the street, the global economy will carry on growing. The nightmare scenario, however, is that optimism could quite suddenly tip over into pessimism.

"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.

Ah, there is nothing quite as deliciously quixotic as a Scottish (or Canadian) congenital pessimist musing darkly about a downturn in American optimism. Yet surely it is this above all that distinguishes Americans from the rest of the world, more so even than freedom or pragmatism. Canadians and Australians stand an easy second and they are chronic depressives by comparison. In only these and a handful of other countries do polls show majorities believe the individual is primarily responsible for his or her fate in life.

And therein lies the conundrum for those Americans frustrated in the extreme that a world where almost everyone says they crave freedom yet where so many make such a widespread hash of actually finding it. Individual freedom is not a terribly meaningful concept without complementary doses of optimism and self-reliance, two qualities of which there is a decided global shortage. Which is why so many countries who are handed freedom on a platter, often with American assitance and sacrifice, manage to find creative ways to throw it all away quickly.

But maybe I'm just being too pessimistic.

Posted by Peter Burnet at April 19, 2006 2:57 PM

The Scots should be pessimistic...

Meanwhile, though, we just went on a trip and one of the stops was the Boston Museum of Science. The Wife and i were checking out the population clock which is counting towards 300,000,000 Americans and thought it would make for a nice Brothers Judd field trip to be there for the roll over. Unfortunately, after driving through Philly, NYC, and Boston at rush hour I'm never leaving NH again.

Posted by: oj at April 19, 2006 4:00 PM

Aside from being a great schmoozer and someone who knew which way the wind was blowing politically, one of the things Bill Clinton was able to do was to retain an optimistic facade throughout the bulk of his presidency, as opposed to the previous Democratic prisident, James Earl the Dour, whose malaise speech was Step 1 in his eventual depature from office.

At the moment, it's hard to see what Democratic hopeful could veer more towards the Clinton side and away from the Carter attitude, if they happened to be elected in 2008 and things weren't going their way by 2010 or so (Hillary would have the game plan, but she just doesn't strike me as the Happy Warrior type). So maybe 4-5 years from now if things fall into place, Mr. Ferguson will have a Pessimist-in-Chief in the Oval Office to get the nation into a properly gloomy mood.

Posted by: John at April 19, 2006 5:00 PM

Timing is everything - raise interest rates again the day after a 195 point gain in the market.

Posted by: Sandy P at April 19, 2006 5:21 PM

Socialism is the product of pessimism. And once in place they feed one another. That's one of the reasons Socialism will not succeed in the long run.

Posted by: Genecis at April 19, 2006 6:49 PM

I wonder how well the pessimism factor correlates with the level of Catholicism in a given country. Quite well, I imagine. The 'Veil of Tears' and all that. I think that optimism came when Protestants "discovered" that they could acheive salvation by merely believing. America is applied Protestantism.

Posted by: Robert Duquette at April 19, 2006 7:58 PM

I found myself hoping Mr. Ferguson would write the Coffin obit.

Posted by: Noel at April 19, 2006 8:54 PM

Jack McCabe runs a research and consulting business based in Deerfield Beach, Florida. He sells his research and analysis of local real estate markets to developers, brokers, managers, lenders and appraisers in Florida and the Caribbean.

Says he:

“Between 1995 and 2004, 9,079 condos were built and absorbed by the market in Miami-Dade County.

“Right now, in Miami-Dade, there are 25,000 new condos already under construction. There are another 25,000 condos permitted for construction, and a further 50,000 announced for construction in the next 3 years.

“Ft. Myers was once one of the hottest markets in the country. Over the past 12 months, inventories of unsold homes have gone from 2,000 to 5,800. Orlando saw a 31% inventory increase in one month.”

On the positive side, there will be some really cheap condos available over the next few years for those desiring to retire to Florida, or as a vacation home.

Posted by: Michael Herdegen [TypeKey Profile Page] at April 20, 2006 8:12 AM

Michael, the same thing's happening in our corner of central Florida. Over the past months, we've gone from buyers knocking on doors making unbelievably high offers for existing units to a huge inventory of unsold new and used condos and single family homes.

People who have routinely covered their expenses by renting to snow bunnies, have had a dry winter season this time round because winter renters are opting to rent brand new units for less than they were paying for the old. With maintenance fees, in some cases, tripling over the past ten years and taxes going through the roof, second homes are beginning to become a burden on those who can't withstand costs. Will this lead to forced sales, quién sabe?

The boomers are coming though, so it's not clear how this will all play out.

Posted by: erp at April 20, 2006 9:12 AM

Problem is, the bulk of the Boomers are five years out.

Most of the people of whom you write won't last that long.

Posted by: Michael Herdegen [TypeKey Profile Page] at April 20, 2006 12:36 PM

Yes. The market is sorting itself out as it always does.

Boomers might be making out like bandits especially if the boom is still in bloom where they are relocating from. It'll be interesting to watch it all unfold.

For a silver lining. I'd love to see some of our more insidious developers on the soup lines.

Posted by: erp at April 20, 2006 4:37 PM

OJ -

Did you plan to drive through all those bottlenecks from 6:30 AM - 9:30 AM or 3:30 PM - 6:30 PM? Just asking.

Posted by: jim hamlen at April 21, 2006 11:06 PM