Signs abound that the US economy is turning back downward as the stimulus wears off. With further stimulus out of the question and with no other candidates as engines to drive faster global growth, it is becoming clearer and clearer that the businesses, governments and consumers of the world need to become accustomed to a “new normal”, a world of slower growth, into the forseeable future.

What would this “new normal” mean? For consumers, it would mean buying based more on income than on capacity for debt. It would also require more careful consumption patterns: less impulse buying, more careful consideration of the classic economic parameters of marginal utility-price at the moment of purchase, which many are now calling “calculated consumption” in contrast to the conspicuous consumption that prevailed in the boom years.
In the United States, many blogs and self-help books are encouraging debt-strapped consumers to live more simply. One challenges individuals to live with no more than 100 personal items. Economic research on the relationship between spending (rather than income) and happiness) is pointing out that people are happier when they spend on experiences –travel, education, family outings– rather than objects. The changes could induce a historic shift in spending patterns in the US, and possibly throughout the richer countries.

In developing countries, the loss of a major stimulus from exports to developed nations will mean weaker growth into the future, even if emerging economies increasingly trade with and invest in each other. There is a bright side to this, which is more rational investment and use of scarce resources, avoiding the excesses that arise in property bubbles such as the one currently occurring in China.

For developed-nation governments, a slower-growth “normal” will mean hard decisions about the social programs that for years were financed by fast growth in incomes and populations. Pensions will have to be overhauled to make them sustainable; nonwork programs will need to be revamped to provide continuous strong incentives to work throughout a normal lifetime; and health systems will need major rethinking to keep expenditures under control. Governments, strapped by debt and constrained by slower growth, will have no choice but to become “leaner and meaner” if they are to continue to provide the services their citizens demand with existing revenues.

There is much to do to get used to the “new normal”. But on the bright side, a world of slower growth is the only true path to a sustainable economy. And moving forward more slowly will give time for more careful and rational thought on spending and investment decisions. And after all, this new normal is more in line with historic trends than the frantic “normalcy” we took for granted since the 1980s.