Dear Friends,
Could we really be entering an “age of abundance” in which the majority of Americans have more money than time? (For instance, do you order things on Amazon and then let the boxes stack up unopened because you forgot what you ordered and don’t have enough time to use them anyway?) How do we know when we have enough money and ought to shift our focus to other aspects of life?
Earlier this year, I spent some time in Japan and Sweden — two countries with declining populations and slowing economic growth. They made me think that maybe slowing economic growth in rich countries isn’t so terrible after all, even if it’s unlikely to happen in the U.S. (for reasons discussed below).
I’m all for economic growth. I love innovation, entrepreneurialism, and more people having more money. With few exceptions, all the evidence says that richer countries have happier people and that wealthier households are more satisfied.
But how much economic growth? How quickly? And at what expense? Those are questions I still wrestle with. I think few Americans realize how fast our economy has grown over the past twenty years compared to Europe and most everywhere else.1 We have become a very, very rich country. And yet, over the past two decades, we’ve also become lonelier, meaner, more divided, and by some measures, less healthy.
This week’s newsletter is a look back at 2001, when traveling to Japan or Sweden was prohibitively expensive for a young American, to this year when I discovered that both countries are surprisingly affordable (and delightful) precisely because their economic growth has not kept pace with the United States.
You’ve probably read about “Peak China” — the idea that China’s economic growth stalled faster than anyone expected, and that now they’re facing a plateau of stagnation similar to Japan in the 1990s, but without having reached Japan’s level of wealth.
But have you heard of “Peak Sweden?” Having spent a week last month in that Nordic paradise of pristine landscapes, beautiful people, and insanely good coffee, I’d like to make the case. Here’s why I’m optimistic about the pessimistic predictions for Sweden’s economy.
My teenage lust for Volvos and Saabs
When I was 16, my parents moved from Orange County to Northern San Diego County. In Orange County, middle-class kids had a Honda or Toyota while the rich kids had an Acura or Lexus. In San Diego, I went to an artsy public school where nearly everyone drove a 1980s Volvo with a surfboard on the roof rack.2 My high school girlfriend, she drove a stick-shift, emerald green Saab 900 Turbo with a polished mahogany dash — the same car featured in the Japanese movie, Drive My Car.3
I didn’t know anything about Sweden. But I knew that Volvos and Saabs were Swedish, and so I figured the whole country was cozy, refined, and under-stated … and I don’t think that I was far off the mark. Today, Volvo is owned by a Chinese company and Saab went bankrupt in 2011.4 Sweden is hardly struggling and still has its global brands — Spotify, H&M, Ikea, among others — but its overall economy (like most of Europe) has grown more slowly than the economy of the United States.
That Big Mac I couldn’t afford in Stockholm
In 2001, I took a semester off from school to travel using a round-the-world ticket with a college girlfriend. I had saved up $5,000 while working between bouts of community college, and I was scientific about how I planned to make my money last for 8 months of travel by spending long periods of time in cheap countries like India and short periods of time in expensive countries like Japan. The Economist’s Big Mac Index was my guide. I was dying to see Scandinavia, but the Big Macs there were so expensive that I scratched it off my list, and opted instead for Prague and Dublin.5
22 years later (last month), I finally had my chance to visit Sweden with the comfort of a middle-aged professional’s income. And yet, it was so ingrained in my mind that Sweden was too expensive for a community college kid like me that I had to overcome my assumption that we would have to survive on kebabs and convenience stores. Instead, I discovered that Sweden was surprisingly affordable — and much more affordable than the San Francisco Bay Area.6
Why was Sweden so out of reach in 2001 and such a killer deal in 2023? Mostly, it’s because I was making $6 an hour in 2001, and considerably more than that today. But it’s also because the United States became a very, very rich country over the past 22 years while Sweden just kinda coasted along, comfortable with its wealth, not needing much more.
Slowing down seems okay
The Congressional Budget Office predicts real GDP growth (adjusted for inflation) over the next decade at around 2%. That’s significantly lower than the 3.4% annual growth in the 1990s, but it’s still pretty great.
Imagine if you run 2% faster every year. You start out running an 8-minute mile.7 After your first year, you average 7:50 per mile. But in just ten years you’re running a very impressive 6-minute mile. In 15 years, you’re running a blistering 5-minute mile. And after 20 years you’d be running a record-breaking 3:50-mile pace. In other words, trying to get 2% faster every year is a good strategy.8 But at some point, you’re running so damn fast that you just can’t get much faster. And do you really want to? Aren’t there other things you’d like to do?
That’s the general argument of the Degrowthers. Why do we need our economies to grow 2% every year? Sure, we’d all like to have more money. But, like sociologists complaining about their higher-paid economist colleagues, we’re mostly concerned with status and social comparison.
At a certain point, you realize that you don’t need more money or kitchen gadgets from Amazon. What you want is more time. More freedom. More fun with your friends. Better health and fitness. And while some amount of money can help you with those things, trying to make more money is often what distracts you from them.9
A slow Sunday in Stockholm
It was our last day in Sweden. The autumn sun was slanting golden through the parks. There were hardly any cars. Parents pushed strollers, and fashionable young couples smiled on their bikes. The cafes were full of friends and free of laptops. Even as I read about Sweden implementing a China-like surveillance system to combat gang violence, there was a palpable sense of collective calm contentment that is elusive in California.
Sweden’s economic growth is sure to decline over the coming decades as its population ages and decreases. But no one seems too worried. It’s a rich country and there is plenty to go around. Even in Japan, where economic growth has been gospel since WWII, there’s an unexpected demand for an outlook on life that is more focused on community and rest than growth and competitiveness.
Argentina and the limits to degrowth
I’m not a degrowther. I love entrepreneurs and problem solvers. I love listening to their stories on How I Build This. I think that it’s wonderful that more people have more money10 — and that even if it contributed to climate change, more innovation is our best hope of mitigating the effects.
I’m also happy that I chose to mostly live and work in the United States, where incomes and wealth have grown, instead of Argentina where they’ve stagnated.11
Even my friends who claim to be degrowthers aren’t really in practice. When pushed, they admit that they want their 401k retirement accounts and 529 college savings plans to appreciate as much as possible. But at some point, surely (I hope?), we’ll realize that we have enough and can start to slow down.12
I hope you’re having a slow and easy Sunday,
David
In 2008, the EU’s economy was somewhat larger than America’s: $16.2 trillion versus $14.7 trillion. By 2022, the US economy had grown to $25tn, whereas the EU and the UK together had only reached $19.8 trillion.” More than 20% of American families aged 66-64 are now millionaires.
Mike Mills captured the aesthetic and culture perfectly in his indie movie with Greta Gerwig, 20th Century Women.
I loved that car and its fun little turbo button. I drove a white Saturn made of plastic, a short-lived car company that would soon disappear along with the parts needed to fix it.
Saab’s parent company is now a defense contractor … not the vibe I got from my high school girlfriend’s car.
This was back before Ireland was, by official measures, the world’s wealthiest country and Dublin was still cheap. For nearly 40 years, The Economist has been publishing its Big Mac Index as a way to show the difference between how a currency fluctuates and what you’re able to buy for a US dollar in other countries. The chart below shows how Big Macs have become more affordable in most places with the exception of Uruguay and Argentina.
In 2004, a Big Mac in Sweden was 60% more expensive than in the United States. Today, a Big Mac is cheaper in Sweden than in the U.S.
Actually, last week I averaged a 8:10 mile compared to 6:45 just a few years ago. 🙄
Getting just 2% better at anything every year strikes me as the right strategy in most aspects of life.
In his book Spending Time, Dan Hamermesh estimates that if the average American were to take two extra weeks of vacation each year, average GDP per capita would have reduced from $59,500 to $58,300. But in more recently writing, after following a number of 4-day work week pilots in the Netherlands and US, he estimates the difference would hardly be noticeable and advocates for the government to mandate minimum vacation time.
Tyler Cowen has pointed out that if the US economy grew one percentage point less each year between 1870 and 1990, we’d be no richer today than Mexico in 1990. 1 percentage point compounded over 120 years makes a huge difference.
By the time I was 26 years old, I had finally saved up around $20,000 from a chaotic potpourri of work: coffee shops, web design, teaching English, and some freelance journalism and consulting. Where can you buy a stylish apartment in a cool, bookish neighborhood with a $20,000 down payment? In 2006, the answer was Buenos Aires. I had found the perfect studio loft in San Telmo for $120,000 and was just about to sign the paperwork when a few professional opportunities whisked me away. Later, I came to realize that an American romanticizing Buenos Aires for a few months in the mid-2000s was as cliche as a semester abroad in Valencia or Florence. But at the time I thought I had discovered a secret that was all my own. How much would that $120,000 apartment be worth today, nearly 20 years later? Probably around $170,000.
Something I learned while looking back at economic growth over the past twenty years is how difficult it is to anticipate which countries will grow and which will stagnate. In the 1990s, Mexico was five times as wealthy (GDP per capita) than China. I thought Europe, South Africa, and Japan would continue to grow. Instead, it was South Korea, Taiwan, and Ireland.
Have the end notes always been there or is this a sabbatical addition?