e are now, I think, at a crucial juncture. The fall of inflation from 13 percent in 1979 to 2 percent in 2003—and the side effects with which we're still dealing—crudely defines a complete economic cycle. To recapitulate briefly: During these disinflationary years, a largely virtuous circle operated. As lower inflation fed into lower interest rates, stock prices and housing values rose. Feeling richer, many Americans skimped on saving. The resulting resilient consumer spending favored prolonged job creation, profits and productivity growth. But this engine of prosperity could not run forever, because people ultimately exhaust their ability to borrow and spend ever-larger shares of their incomes. (Borrowers become overburdened, and lenders—fearing defaults—tighten loan standards.) And overconfidence in the inexorability of rising stock and home prices bred self-destructive "bubbles." So this long economic cycle is ending, and it's unclear whether the future will be as kind. The question confronting us is simple: Have we entered, or are we about to enter, an era of "affluent deprivation," which I define as a period of slower economic growth that doesn't satisfy what people regard as reasonable private wants and public needs? Even as we grow richer—as seems probable—we may feel poorer because our expanding wealth can't meet all the claims made on it.

In some ways, slower growth seems inevitable. Arithmetically, economic growth equals the percentage change in the labor force (measured by the number of hours worked) plus the percentage change in productivity (measured by output per hour worked). By this math, the retirement of baby-boom workers will depress economic growth by stunting labor force increases. New workers will barely replace retiring workers. By contrast, the labor force expanded rapidly for most of the post-World War II period, reflecting the influx of boomers and women, especially married women with children, who used to stay at home. From 1960 to 2005, the annual growth of the economy (Gross Domestic Product) averaged 3.4 percent, with contributions from labor force and productivity growth varying in different periods. Averaged over the entire span, productivity rose 1.9 percent annually and working hours 1.5 percent. By the mid-2020s, the Social Security Administration expects economic growth to slow to about 2 percent annually. Labor force growth would be scant (about 0.3 percent annually) and productivity growth (1.7 percent) close to its recent average.1

What we don't know is how economic, social and political developments might alter these plausible projections, for better or worse. So many factors (technology, management, competition, workers' skills) influence productivity that its future is always uncertain. Other trends could bring economic growth almost to a standstill. Our present situation is paradoxical: Developments that, on the whole, have contributed to American well-being may now subvert it. There are three prime candidates: the welfare state; the "democratization" of credit (more Americans can borrow in more ways than ever before); and globalization. Since World War II, the expansion of the welfare state has provided psychological and economic security for the unemployed, the poor, the disabled and the elderly. The growth of credit has allowed Americans to benefit from purchases (of a home, a college education, a car) before fully saving for them. Globalization has significantly raised living standards. Now, each of these beneficial changes might imperil economic growth. Before explaining why, we need to address a more basic issue: Does economic growth matter?

I earlier asserted that it does. Although most Americans would probably agree, the conclusion is not self-evident. We need to justify the value of economic growth. Consider the counterargument. Even if average U.S. incomes froze at current levels—a gloomy and unlikely outcome—most Americans would enjoy living standards, including free time, inconceivable in most of history. As we have seen, recent economic growth has been purchased partly at the cost of rising individual insecurity and economic inequality. To sacrifice some growth for other goals—added security, less inequality, diminished global warming—might initially seem a good bargain. Has economic growth outlived its usefulness as a yardstick of social progress? If the answer is "yes," then threats to growth aren't so important.

The question of how to use our prosperity, as opposed to merely getting more of it, dates at least to The Affluent Society, John Kenneth Galbraith's 1958 bestseller. In it, Galbraith correctly observed that modern societies (of which the United States was then the preeminent example) had passed a historic milestone in the twentieth century. In these societies, Galbraith noted, most people had been liberated from age-old fears and deprivations.

[P]overty has always been man's normal lot, and any other state was in degree unimaginable. This poverty was not the elegant torture of the spirit that comes from contemplating another man's more spacious possessions. It was the unedifying mortification of the flesh—from hunger, sickness, cold. Those who might be freed temporarily from such a burden could not know when it would strike again. ... It is improbable that the poverty of the masses of people was made greatly more bearable by the fact that a very few—those upon whose movements nearly all recorded history centers—were very rich.2

Galbraith himself did not see much conflict between achieving high rates of economic growth and reallocating more of the benefits to the public sector. Society needed to spend more on education, the arts, the environment and health care. Because growth depended (in his view) mainly on corporate planning, diverting more of growth's fruits into government spending was a political choice, not an economic sacrifice.

Perhaps Galbraith s most thoughtful and eloquent successor is economist Robert Frank of Cornell University. Galbraith argued that much of modern consumption was unsatisfying and artificially stimulated by advertising. Frank goes further. The obsessive nature of modern consumption, he contends, actually spawns discontent while starving the public sector. Middle-class Americans are caught up in self-defeating consumption wars. If you buy a bigger grill, then I have to buy a bigger grill. If only grills and shoes were involved, these status struggles wouldn't matter much. But, Frank says, the same logic applies to costlier purchases: homes, cars, flat-screen TVs. If everyone had smaller homes, Frank says, everyone would be just as happy. He's almost certainly correct. Considerable research has confirmed the folk wisdom: Beyond a certain point, money doesn't buy happiness.*3

* To discourage what he regards as needless consumption, Frank proposes a progressive consumption tax. At very high consumption levels, the tax would be 200 percent. This would, he asserts, raise economic growth by increasing total saving. People would save more of their incomes, because saving would be untaxed. My own view—aside from believing such a tax would never be enacted—is that it would discourage risk taking (why bother if you can't enjoy most of the rewards?) and

In very poor societies, economic growth does increase happiness, as traditional afflictions—hunger, homelessness, punishing physical labor—recede. This was Galbraith's point. But after rising from poverty, societies don't become happier as they become wealthier, a relationship first pointed out by economist Richard Easterlin in 1974. In 1977,36 percent of Americans said they were "very happy," 53 percent said "pretty happy," and 11 percent "not too happy," reports the National Opinion Research Center at the University of Chicago. In 2004, when the country was much wealthier—most Americans had bigger homes, more health care and more gadgets (computers, cell phones)—the comparable figures were 34 percent, 55 percent and 12 percent. Among households, happiness rises from the very poor to the middle class; people don't like being on the bottom. Thereafter, it's not especially sensitive to income. It depends more on personal relationships (married people report higher happiness than singles or divorcees), satisfying work, spiritual peace and personal temperament. Some people have a sunny disposition and stay hopeful through stress and tragedy; others are resolutely grim despite good fortune. Interestingly, higher government spending also seems ineffective at generating happiness; since Galbraith's time, social spending has increased enormously without elevating reported happiness.4

But just because economic growth doesn't expand statistical happiness does not mean it's useless. In wealthy societies, its social role goes beyond the material improvement of people's lives, which is stimulate a massive flight of money and ambitious people out of the country.

what it had been throughout most of history. Its central contribution now is to foster social peace and political cohesion. Growth mutes the collision between private and public wants—between personal selfishness and the larger social good. As early as 1976, the sociologist Daniel Bell observed that economic growth "has become the secular religion of advanced societies: the source of individual motivation, the basis of political solidarity, the ground for mobilization of society for a common purpose."5

More recently, Harvard economist Benjamin Friedman* has argued, in The Moral Consequences of Economic Growth, that in most societies at most times, economic growth has encouraged praiseworthy qualities such as "tolerance of diversity, social mobility, commitment to fairness and a dedication to democracy." The relationship is not entirely coincidental, Friedman argues. Economic growth breeds optimism. People believe that their lives will improve in the future. They're more inclined to be generous. By creating a new business elite and, more important, an expanded middle class, economic growth also assaults entrenched tribal, aristocratic and dictatorial bastions of power and authority. A social system that rewards economic success tends to become more open in its political and social relationships because it is more open in its economic relationships. The connections are not mechanical and automatic; but there are strong tendencies.6 People grow used to making market choices, not being dictated to by government. They grow accustomed to the idea that they can advance through their own efforts. Freedom becomes an experience, not just an abstraction.

* No relation to economist Milton Friedman.

Friedman's perspective offers a counterpoint to the stereotype of a selfish, obsessively materialistic culture that is irrationally driven to crave what it does not need. There is a moral case for economic growth that transcends the mere relief of human misery. All this implies that a future of much slower growth—or stagnation—would produce a more contentious and grumpier society. As individuals and groups felt frustrated in their hopes and goals, they would vent their disappointments on others. Contrary to Marx, who envisioned economic growth as creating political and social conflict, we have learned that economic growth often mutes conflict. In particular, economic disputes are easier to settle than religious, ethnic or tribal disputes. When all that's at stake is money, it's easier to split the difference than when the argument is over whose god is to be worshipped or whose ethnic group is to be privileged or persecuted.

So, economic growth matters. The idea that rearranging the existing prosperity—through income redistribution and more government services and protections—will satisfy most people is a false promise. Though this might help, it will not suffice. It is impossible not to notice an impending collision between rising private wants (for homes, furniture, vacations, college tuitions) and demands for government services and transfers: for retirees; for refurbishing roads, sewer systems, schools; for environmental protection; for poorer immigrants and their children; and for military spending and homeland security. There is probably no plausible rate of economic growth that could satisfy all these demands. But slower growth would intensify conflict and compound disappointment. Against that backdrop, let's now examine some looming threats to growth.

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