Regrettably, Robert Samuelson, who’s a brilliant economist, may be on to something here.
What we are witnessing in Europe — and what may loom for the United States — is the exhaustion of the modern social order. Since the early 1800s, industrial societies rested on a marriage of economic growth and political stability. Economic progress improved people’s lives and anchored their loyalty to the state. Wars, depressions, revolutions and class conflicts interrupted the cycle. But over time, prosperity fostered stable democracies in the United States, Europe and parts of Asia. The present economic crisis might reverse this virtuous process. Slower economic expansion would feed political instability and vice versa. This would be a historic and ominous break from the past.
…Demographics alone suggest slower economic growth. The aging of the United States, Japan and most European countries reduces the labor force growth, because there are fewer new workers compared with retiring workers.
…With the labor force increasing more slowly, the pace of potential U.S. economic expansion would drop to 2.3 percent annually, assuming that productivity gains stay the same. Unfortunately, that’s an iffy assumption.
…Technological innovation, though faltering, will continue, Gordon writes. Think more driverless cars and new cancer drugs. But he argues that the effects on average American living standards will be muted. Less-skilled workers from lackluster schools will cut productivity and wage growth further. Greater inequality will steer some gains to the wealthy. Higher taxes to cover budget deficits and transfers to the elderly will squeeze take-home pay. Health insurance costs (which he does not mention) would do the same. Though not preordained, Gordon’s prophecies suggest a long era of stunted economic growth.
The demographic shift is very real and the older a workforce gets, the less producers there are and the more extremely expensive non-producers there are to supply. Additionally, as we move into an age that’s more advanced, there are less opportunities for uneducated, unskilled workers in the Western world because their jobs are either being done by machines or elsewhere in the world for a fraction of the cost. Add in massive deficits, a slowing of revolutionary technological developments, and an unmet expectation of life always getting better, and the Western world could be in for a few rocky decades.
Of course, there is a world of difference between “could” and “will” as doomsayers have been finding out for centuries now. However, there’s certainly no cause for blind optimism either. We have some serious issues that may very well lead to slowing economic growth, diminished prosperity, and greater instability for future generations. Whether we just shrug our shoulders and continue on with business as usual or start taking steps to deal with these problems may determine whether the American dream dies on the vine or it stays alive.