The Great Shopping Spree, R.I.P.

What's notable is that all these forces for more debt and spending are now reversing. The stock and real-estate "bubbles" have burst. Feeling poorer, people may save more from their annual incomes; it's already much harder to borrow against higher home values. Demographics tell the same story. "Life-cycle spending drops among 55- to 64-year-olds"—they borrow less and their incomes decline—"and that's where our household growth is now," says Susan Sterne of Economic Analysis Associates. "After 2010, growth is among the 65- to 74-year-old households, where incomes are even lower."

And credit "democratization"? Well, the message of the subprime-mortgage debacle is that it went too far. Up to a point, the spread of credit was a boon. Homeownership increased; people had more flexibility in planning major purchases. But aggressive—and often abusive—marketers peddled credit to people who couldn't handle it. There are no longer large unserved markets of creditworthy consumers, and, indeed, many Americans are overextended. In 2007, household debt (including mortgages) totaled $14.4 trillion, or 139 percent of personal disposable income. As recently as 2000, those figures were $7.4 trillion and 103 percent of income.

The resulting retrenchment of consumer spending is already being felt. RETAILING CHAINS CAUGHT IN A WAVE OF BANKRUPTCIES, headlined The New York Times last week. Even surviving retailers may cut back; in the next year, the Times said, Foot Locker will close 140 stores and the jeweler Zales 100.

What can replace feverish consumer spending as a motor of economic growth? Health care, some say. This is a mirage. To be sure, health spending will increase. But its expansion will simply crowd out other forms of consumer and government spending, because it will be paid for by steeper taxes or insurance premiums. Both erode purchasing power. Higher exports are a more plausible possibility; they, however, depend on how healthy the rest of the world economy remains without the crutch of exporting more to the United States. Another possibility: a surge of investment in new technologies.

But what if the correct answer is "nothing"? Nothing takes the place of the debt-driven consumption boom. Its sequel is an extended period of lackluster growth and job creation. Somber thought. For good or ill, the ebbing shopping spree signals that the U.S. economy has reached a crucial juncture. It will challenge the next president in ways that none of the candidates has probably yet contemplated.

© 2008