The no-growth trap.

• Author: Friedman, Benjamin M.
• Position: Essay

Well before the summer's horrific shootings in Norway, many citizens of the Western democracies had the sense that the social fabric was flaying in unexpected places. The Danes restricted immigration in violation of the European Union's Schengen Agreement. The lower house of the Dutch parliament voted--by nearly four to one--to outlaw ritual Muslim butchers (and, along the way, kosher butchers too). The French banned burkas in the streets. The Swiss banned minarets. In America, we are fighting over whether to build a wall between Texas and Mexico and litigating how far individual states can go in enforcing their own laws that bar undocumented immigrants and deny public benefits to those here legally. Most recently, a swath of cities across Britain exploded in racial violence and riots.

But the tensions on display across so much of the Western world are hardly limited to questions of immigration or race or religion. A dismissively antagonistic, often outright nasty, tone of public debate has become the new norm, in some countries accompanied by outright political paralysis. According to the latest opinion surveys, most Americans were appalled at the U.S. government's inability to resolve the debtlimit crisis with at least some semblance of order, even if not civility. In Japan, the debate over Tokyo's response to the Tohoku earthquake and tsunami, and what to do about the resulting loss of nuclear-generating capacity, led to a no-confidence vote that the then prime minister Naoto Kan survived only by promising to resign--on a timetable that, within hours of the vote, spawned yet further acrimonious argument over just when he was supposed to depart (eventually the finance minister took the helm). The prize for the most fundamental stalemate goes to Belgium, where antagonism between the French- and Flemish-speaking parties has prevented the formation of a government for over a year. An end to this ugly process is now in sight, but for a while even normally phlegmatic observers were wondering whether the two regions could continue as a single country.

What has received less attention is the underlying economic cause of these troubling tensions: they are all-too-predictable manifestations of the discontent that sets in whenever most of a nation's citizens suffer a period of protracted stagnation in their living standards, and lose too their optimism that the material progress they used to enjoy will resume anytime soon. A pervasive economic stagnation has now set in across almost all the world's advanced economies. Here in America, the family right in the middle of the country's income distribution earned $64,200 (in today's dollars) at the beginning of the last decade. Seven years later, the median family's income was $64,500--less than half a percent greater, not per annum but cumulatively over those seven years. With the 2007-09 financial crisis, the recession that followed and the sluggish recovery since then, by 2010 the median family income fell to just $60,400, down 6 percent from the previous peak and lower than in any year since 1997. The Census Bureau has not yet released data on median income for 2011, but with the continuing weak economy it is unlikely there has been any significant uptick. The majority of American families have now gone nearly a decade and a half with no improvement.

Many countries in Europe have suffered parallel experiences. In Britain as in the United States, the 1990s saw fairly robust income growth, but stagnation set in after 2001. In Italy, the median income remained largely flat through the 1990s and the 2000s until the financial crisis hit. In the Netherlands, both the 1990s and the aughts--up to 2007--saw stagnant median incomes (apparently separated by a large one-year gain in 2001 that may have been an illusion created by a change in statistical procedures). After 2007, the crisis and ensuing economic downturn depressed incomes everywhere. Japan has suffered even worse stagnation: median income fell by 3 percent in the 1990s overall, and then yet another 5 percent between 2000 and 2007. By 2009, median income in Japan was down nearly 18 percent from the mid1990s peak and back at a level the Japanese last saw in the early 1980s.

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Anti-immigrant agitation, racial and religious prejudice, rancorous public discourse, political stalemate and paralysis, eroding generosity toward the disadvantaged--all are the predictable pathologies that ensue from stagnating incomes and living standards. In America, the agricultural depression of the 1880s and early 1890s led to violent labor unrest (most dramatically, the Homestead and Pullman strikes), a wave of religious bigotry, and the rise of Jim Crow (and not just in the South). The rocky economic period that followed World War I, even before the onset of the Great Depression, led to the resurgence of the Ku Klux Klan (again, not just in the South), the end of America's early attempts to provide government assistance to women and children in poverty, and immigration laws both more restrictive and more discriminatory than anything the United States had seen before, or has seen since. The protracted stagnation from the...