You know the story. We live in prosperous times ("These are the good old days," US News & World Report, 1-31-00). Mr. Dow and Mr. Jones can't complain. Neither too hot (we've avoided inflation) nor too cold (we've avoided recession and high unemployment), our "Goldilocks economy" is the envy of the world.

End of story, right? Think again. Economist Jim Devine warns that our prosperity rests on the growth of debt that we can't sustain http://clawww.lmu.edu/~JDevine.

Devine writes: "The problem (for the American economy), of course, is the Three Bears: 1. Papa Bear: the steep rise of consumer indebtedness. 2. Mama Bear: the steep rise of U.S. external indebtedness. 3. Baby Bear: the increased indebtedness of non-financial corporations."

Take Papa Bear. United for a Fair Economy reports: "Total revolving consumer credit--most of it credit card debt--has more than tripled from $185.9 billion in January 1990 to $584.3 billion in October 1999" (12-15-99). Workers borrow to make up for falling wages, which have just begun to rise. "The recent gain in wages is a welcome reversal of long-term wage decline, but most working families are still playing catch-up," says economist Jared Bernstein (The State of Working America 1998-99). Their lost ground has led to the wealthiest one percent of Americans now owning more wealth than the bottom 90 percent (The Social Health of the Nation: How America is Really Doing, 1999).

Changing relations between employers and employees fuel wage inequality. The Boeing Corporation wants to cut the life insurance and wages of technical workers. In the Golden State, Sacramento County has cut the health insurance and salaries of entry-level workers. Public and private employers also cut their employees' wages with unstable work. A study at UC San Francisco found that in 1999, "only a third of California workers have 'traditional jobs'--that is, single, permanent, full-time, day-shift work paid for by an employer at the employer's site" (Bureau of Labor Statistics, 1-10-00). Part-time, contract, and other non-full-time workers represent 10% of the work force nationwide (Wall Street Journal, 1-25-00).

Lower and less stable wages, in turn, cause American workers to sink further into red ink. "Total household debt has jumped from 85% of personal income in 1992 to 103% last year" (The Economist, 1-28-00). Debt-financed spending has another consequence. Namely, the U.S. private savings rate continues to drop, notes Robert Blecker ("The Ticking Debt Bomb," 6-99). Under capitalism, over-borrowing causes under-saving for the working majority.

Which brings us to Mama Bear: America's more than $300 billion per year trade deficit, "larger in terms of its percentage of gross domestic product than at any time in history" (Nick Beams, 1-26-00). Our trade deficit is the imbalance between what we buy and sell around the world. Americans are borrowing to buy foreign goods on the cheap, Devine adds. From where does this dough flow? During a two-year period ending in December 1998, our financial debt to foreign lenders tripled to $1.5 trillion, according to the Financial Markets Center.

Blecker writes: "Month after month, year after year, the U.S. trade deficit sets new records. And as the United States borrows to cover the excess of its imports over its exports, the U.S. position as the world's largest debtor grows by leaps and bounds. Closely related to both of these trends is the drop in the U.S. private savings rate, which forces the country to continue borrowing from abroad in spite of the shift from a deficit to a surplus in the federal budget balance.

He continues: "In fact, the U.S. economy's current prosperity rests on the fragile foundations of a consumer spending boom based on a domestic stock market bubble, combined with foreign bankrolling of the U.S. trade deficit. If present trends continue, the growth in the U.S. international debt will not be sustainable in the long run. No country can continue to borrow so much from abroad without eventually triggering a depreciation of its currency and a contraction of its economy. The rising trade deficit and mushrooming foreign debt are thus warning signals of underlying problems that--if not corrected--could bring the U.S. economic boom crashing to a halt in the not-too-distant future."

Could there be a lesson from the recent past here? Recall the praise for the steep growth of the East Asian "tiger economies" before they crashed in the summer of 1997. The nations of East Asia grew on debt, thanks to foreign lenders. In this respect, East Asia's former prosperity resembles our Goldilocks economy today. However, there are important differences, Devine cautions. Here's one: America can repay its international debts with dollars. The East Asian nations couldn't use their currencies to pay foreign lenders.

On to Baby Bear. Corporate America is also caught in the debt trap. "During the past two years, non-financial corporations increased their debts by $900 billion, while they retired a net $460 billion of equity. The main reason for these buy-backs is so that firms can pay employees in share options without depressing the share price. In effect, therefore, firms are borrowing to finance their pay bill [payroll] and to prop up share prices" (The Economist, 1-28-00). This trend favors the richest people in America. Devine points to the increased value of executive stock options as a case in point.

Meanwhile, the corporate news media cheers the Goldilocks economy. Expect more of this in the wake of the recent America Online-Time Warner merger that heralds the transformation of the Internet into a global shopping mall.

It's unclear how long our Goldilocks economy can grow on borrowed money. Yet one thing is clear. The arrival of the Three Bears will eliminate any global envy, real or imagined.