The vast majority of Americans are much wealthier today than their predecessors were 100 years ago – or even a few decades ago. This wealth comes in multiple dimensions. It’s not just that the U.S. economy produces three times more goods and services per person today than it did in 1950, and seven times more than in 1900. We also live longer and our quality of life is far better. For example, in 1940, one-third of American homes didn’t have running water or flush toilets, and in the early 1960s only 10% of new cars had air conditioning. This is hard to fathom today, in a world where almost all homes have indoor plumbing and cars have air conditioned seats and remote-controlled air conditioning to cool the car before you even get in.
Sharp observers of 20th-century economies predicted this tremendous increase in wealth would lead us to radically restructure our lives and society. In 1930, British economist John Maynard Keynes anticipated that in 100 years our standard of living would be so high that people would work just 15 hours a week. In his 1971 book “Post-Scarcity Anarchism,” Murray Bookchin argued that material abundance should make possible a radical transformation of how society is organized and governed.
Yet last I checked, there aren’t many of us working 15 hours a week and the news always reports with great concern on any slowdown in economic growth. On the surface, nothing has changed.
Or maybe it has. Perhaps we have changed – at least in subtle ways – in response to our growing wealth and abundance.
Dietrich Vollrath, an economics professor at the University of Houston, argues that Americans have measurably changed our behavior in the past 70 years. In “Fully Grown: Why a Stagnant Economy Is a Sign of Success,” he focuses on the very specific question of why the nation’s economy has grown so much more slowly since 2000 than it did from 1950 to 2000. From the midpoint to the end of the twentieth century, average annual GDP growth per capita was 2.25%, versus just 1% from 2000 to 2016. Elected officials, economists and others have concluded that slower growth means there is something wrong with the economy. Vollrath, however, breaks down the numbers to explain why slower growth is a sign of economic success.
First, a quick reminder that economic growth means an increase in goods and services, and it depends on three kinds of inputs: physical capital, human capital, and residual factors (which are often called “productivity” but include a wide range of influences).
Vollrath identifies two main reasons for slower growth: declining human capital and a change in one residual factor: a shift in economic activity away from high-growth toward low-growth sectors.
Human capital can decline for a number of reasons: fewer workers, fewer hours worked, decreased education, or less experience among workers. The biggest reason for the U.S.’s slower economic growth is that we have fewer workers today relative to the total number of Americans than we did in the 20th century; as Americans’ material standard of living rose in the mid-20th century, they chose to have fewer kids, which means fewer workers today.
Vollrath calls this decline in fertility rates “a symptom of success.” Economic success has given workers higher wages, which makes working more attractive, which causes people to delay marriage, and later marriage means families have fewer kids. Higher wages also mean the opportunity cost of having a child rises, because the parents’ foregone wages are greater. Economic success also brought us technologies that contributed to declining fertility: most obviously birth control, but also a variety of labor-saving devices in the home, which made it easier for women to enter the workforce, which decreased the number of kids they had. The decisions made by increasingly prosperous Americans in the mid-20th century about how many children to have explains two-thirds of the slowdown in economic growth since 2000.
The second major factor for slower economic growth is that we’re consuming more services relative to goods – and economic growth is inherently slower in the service sector. We still buy plenty of goods (way more than we can manage if you consider the 292 million tons of stuff that Americans threw away in a recent year). But there’s only so much wealth we can spend on goods. Consider: buying one TV provides you with lots of benefit, the second TV less benefit, and by the time you’re considering your fifth TV, you decide you’d rather spend your money on a massage.
This preference for services affects economic growth because productivity increases more slowly in services than in goods. Automation and more efficient transportation networks, for example, can make it cheaper to produce a TV by reducing the amount of labor required. But it’s hard to automate a massage.
So if our economy is growing more slowly because we’re living better lives, why is there so much hand-wringing by elected officials and pundits over slower GDP growth? Perhaps it’s because our economy is designed to overcome scarcity, so that’s what it will go on trying to do, even when scarcity is in the rearview mirror.
But economic reality shows that, consciously or not, we’ve made a choice to slow economic growth. Vollrath offers a thought experiment. He points out that we could increase future economic growth if we increased fertility by marrying younger, having women drop out of the workforce, quitting school earlier, giving up some labor-saving technologies at home, and limiting access to contraception. To boost growth now, we could buy more TVs instead of getting massages.
You’d probably say no to all of this. So have most Americans. In other words, we find the trade-offs needed for faster growth to be unacceptable.
Which leads one to wonder: what other social and economic changes might we embrace if we found more ways to let go of the American obsession with economic growth? If Apple and Samsung’s growth in sales no longer mattered, perhaps our understanding of the environmental damage from mining the rare minerals used in cell phones would prompt us to repair our old phones more often and to buy new ones less often? If Delta and United’s ticket sales didn’t matter, would the U.S. put greater weight on the climate harm caused by flying and invest in high-speed rail, or change social expectations about how much travel is needed to live a good life? If striving for more growth were no longer the American way, would we spend more time with friends and community?
Now that sounds like a wealthy society.