Economic decline turns democracy

But there’s another way of looking at growth that doesn’t depend on singing the virtues of its material outcomes. Economic growth doesn’t just make us better off, it also makes us, collectively, better people by making us more tolerant and accepting of diversity. It also enhances social mobility, gives us a greater sense of fairness and equality, and increases our commitment to democratic ideals and institutions.

The key point here is that it’s the growth itself that matters, not how it affects our absolute living standards. It’s the simple fact of economic expansion that inclines people towards feelings of openness and toleration and that inspires trust in our democratic institutions. Just as the knowledge the pie will keep getting bigger makes people more generous in the divvying up of that pie, the sense that we can expect things to get even better—no matter where we currently are on the development curve—acts as a sort of bellows of fellow-feeling, making people more hopeful for the future and more generous-minded. More than anything else, the mere fact of growth is a signal that the future will be better than the past.

Unsurprisingly, the opposite holds during periods of stagnation, when zero-sum thinking kicks in. When the economy stops growing or even starts to shrink, people become fearful for the future, suspicious of immigrants and diversity in general, and distrustful of democracy. Stagnation breeds authoritarianism. That, of course, is one of the great lessons of the 1930s, as the Great Depression drove diverse, democratic populations toward nationalism and into the arms of fascist dictators. While there are no iron-clad laws of history, economic stagnation and the decline of liberal democracy are strongly linked.

This has been made clear by the recent history of the United States. As Harvard economist Benjamin Friedman put it in his book The Moral Consequences of Economic Growth, “The consequence of the stagnation that lasted from the mid-1970s until the mid-1990s was, in numerous dimensions, a fraying of the U.S. social fabric. It was no coincidence that during this period, popular antipathy to immigrants resurfaced to an extent not known in the United States since before World War II.” Remarkably, Friedman’s book came out in 2006, when it was still an open question whether the return to the higher levels of growth of the late 1990s would prove sustainable. The answer came two years later, when the financial crisis of 2008 catalyzed the Great Recession by cratering the finances of the middle class and those struggling to join it.

The result of these two trendlines—the dominance of luxury-belief-driven status competition in a period of extended economic stagnation—was a brew of identity politics, political tribalism, and cultural warfare that would have been bad enough on its own. It’s when you toss it all into the seething cauldron of social media that things start to get really toxic.