04/30/2009 08:00 pm ET Updated May 25, 2011

The Return of The Real American Dream

In a recent New York Times Op-Ed piece, Paul Krugman, the noted Economist, Nobel Prize Winner & Princeton Professor said, "...these days America is looking like the Bernie Madoff of economies; for many years it was held in respect, even awe, but it turns out to have been a fraud all along." Ouch. These are very strong words from such a brilliant man.

That got us thinking. If our economy, or at least our much-vaunted financial system, was a fraud, then what about the long cherished American Dream? Was that concept just a big, fat fraud too?

We've all heard the gut-wrenchingly scary statistics. Many stock markets around the globe are 50% off their highs. Unemployment is the US is over 8%, the highest levels in decades. 1 in 8 US mortgages are currently delinquent or in foreclosure. The result is that experts estimate American households have lost a whopping $20 TRILLION in wealth between the twin collapses of the stock and housing markets.

That's a fall of epic proportions by anyone's measure, leading one to question how real those glory days were. This brings us back to today's query: Was The American Dream a fraud too? At its simplest level, The American Dream is about freedom and happiness. So let us ask you three simple questions:

1. What did you do last Monday?
2. Did you feel free?
3. Did you feel happy?

If you are like millions of Americans, the odds are high that you don't even remember what you did last Monday let alone whether you felt footloose and fancy free. As such, we'd argue that whether we like it or not, in many ways we are now being forced to return to The Real American Dream - which was not a McMansion and SUV for every man, woman, and child. For so many of us, the things we were doing during the go-go years of the past two and a half decades really didn't bring us freedom and happiness. From what we've seen as personal finance experts - for most of us, we didn't own our homes, our cars, our fancy shoes and cutting edge electronics... they owned us. Many of us were slaves to our possessions. We often worked at jobs we didn't like to acquire possessions that we either tired of shortly afterwards or that burdened us with the need for upkeep, care, and insurance. In short, we were trapped, not in The American Dream but in The American Scream.

As devastating as it has been, the upside to this economic downturn is that we are all being forced to engage in mindful spending. Whether you've just lost a job, have been put on furlough, or are simply worried that this may be coming down the pike, many people are starting to think tactically about their spending for the first time in years. They are asking, "Will this really add to my life? Will it make me happy?"

Surprisingly, what many people are finding is that when they don't miss the takeout dinners night after night. When you can only buy one new article of clothing at a time, instead of ten, you really savor that item. A recent Pew Foundation study found some significant shifts in the way Americans are defining luxuries versus necessities.

As horrible as it's been for many people, there may be a silver lining. Being forced to cut back may be exactly what we needed to bring back The Real American Dream.

Manisha Thakor and Sharon Kedar are the co-authors of ON MY OWN TWO FEET: a modern girl's guide to personal finance.