Minimize Me

One of the most enjoyable documentaries I've ever seen was "Supersize Me," a 2004 film chronicling Morgan Spurlock's month-long McDonald's-only diet. The psychological and physical torment he experienced was as compelling to watch as it was revolting to contemplate. Here we had an otherwise healthy man destroying his body little by little over the course of a month. By the end it's clear if he continues on this path he would seriously endanger his life. As viewers we're thankful he's done with his misadventure by the end of the month.

Mr. Spurlock's artery-clogging journey parallels in some ways the American consumer's behavior during our most recent debt-fueled economic binge. During that time it seemed as though enough would never be enough for all but the most frugal among us. Immediate gratification was the preferred path since people could acquire anything and everything they wanted without really having to work for it. The only problem with that path was the non-trivial requirement to incur sizable and in many cases unsustainable debt loads to live the showcase lifestyle. Like Mr. Spurlock at the end of the movie, we are now dealing with the painful after effects of this binge and trying to figure out how to improve our financial diet and get healthy again.

A lot has been written about the 'paradox of thrift,' a primary policy conundrum being addressed by our current administration. That paradox is essentially this: what is in the best interests of people individually (higher savings and investment, less consumption) is not necessarily in the best interests of the country as a whole since consumer spending accounts for roughly 70% of total economic activity. Keeping our economy propped up when its citizens are already way overleveraged, unemployment is high and jobs are scarce is not unexpectedly proving to be a herculean task. Unfortunately much like the government after 9/11 that asked us to go out and shop to support the country, this administration has been employing equally spurious incentives geared toward goosing short-run consumption despite the potential adverse longer-term impacts.

Thankfully though, we're starting to see early signs of rationality and prudence creeping back into consumers' decisions as they attempt to define for themselves their own 'new normal.' A couple good examples:

• "A survey released this month by the National Association of Home Builders shows that the average home built during the first quarter of 2009 was 2,335 square feet, down from 2,629 square feet during the second quarter of 2008."
  (http://online.wsj.com/article/SB124630276617469437.html?mod=googlenews_wsj)

• "...the savings rate surged to 6.9 percent, the highest level since December 1993."
  (http://www.bloomberg.com/apps/news?pid=20601068&sid=an7UdA7Bo8xg)

It appears many are now waking up with a grueling hangover and coming to the realization that over-consumption is a costly and unhealthy habit. The perception that more material possessions translates to happiness may finally be over for some - at least until the memory of this whole episode fades. Many are learning to minimize, rather than supersize their lives as a natural response to economic pain. They have found that simplifying and downsizing - actions which unfortunately provide headwinds to the administration's short-term economic goals - lead to a better way of life. It will be quite interesting to observe the future policy tensions created by such actions of rational self-interest.