Living With Less.

By Paul Kedrosky.

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The essay below was written by Dr. Paul Kedrosky, a fellow blogger back in the days when people blogged on Blogger.

Paul is an investor in private and public companies, as well as a writer and researcher. Originally trained as an engineer, he went on to do a Ph.D. at the University of Western Ontario in Canada, where he researched aspects of the economics of technology—specifically, the role of path dependency and network effects in risk & complexity.

Paul regularly speaks at private and public events across the U.S. and around the world, usually on topics related to risk finance, economics, the future of work, and artificial intelligence. He is currently a research fellow at MIT's Institute for the Digital Economy, where he is studying artificial intelligence, economic disruption, and the future of work.

You can find his daily note at paulkedrosky.com. What follows is republished with Paul’s expressed (and generous) permission.

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The Crackup

The American economy is facing a quiet crackup that's behind much of the frustration and anger among its citizens. For decades, the United States averaged GDP growth rates above 3% annually. Today, 2% growth—or less—is more likely, now and in the near future.

The Congressional Budget Office projects similar GDP growth over the next decade.

This shift from robust to modest growth affects ... everything. It is behind, in large part:

• The rise of populism

• Anti-immigrant sentiment

• DOGE

• A return to tariffs

• Soaring U.S. deficits and debt

The Psychology of Slower Growth

The difference between 3% and 2% annual growth is stark. At the higher rate, over ten years, you have:

• $3.36 trillion larger economy

• $3.7 trillion more in tax revenue

• 6 million more jobs

• Significantly higher real incomes

The gap directly affects opportunities, wage growth, tax revenue, social services, health care, solvency, and optimism about the future. Growing quickly and being awash in income makes people optimistic about the future; the opposite does ... the opposite.

Americans built their self-image and expectations around decades of strong growth, trusting each generation would surpass the previous one. Sub-2% growth erodes this assurance, shifting psychology from abundance toward scarcity, and even zero-sum thinking. When people don't see abundance they stop sharing. And Americans have stopped sharing.

Zero-sum thinking: A general belief system about the antagonistic nature of social relations, shared by people in a society or culture and based on the implicit assumption that a finite amount of goods exists in the world, in which one person's winning makes others the losers, and vice versa ... a relatively permanent and general conviction that social relations are like a zero-sum game. People who share this conviction believe that success, especially economic success, is possible only at the expense of other people's failures. More.