The Simple Life: Goodbye to having it all.

(3 of 7)
In scaling down their tastes, most Americans are making a virtue out of necessity. Contrary to perceptions, the past decade was an era of downward mobility for the majority of U.S. families, who kept up their spending by borrowing and relying on two incomes. Only the wealthiest 20% of Americans significantly increased their real income during the Reagan era, and the poor slipped further behind. After adjustment for inflation, the national standard of living has actually fallen since 1973; the real average hourly pay for U.S. workers has gone from $8.55 then to $7.54 today. Says Barry Bosworth, an economist at the Brookings Institution: "Americans are not becoming pessimistic. They are becoming realistic. It is right to think of cutting back."

At the same time, the baby-boom generation, which accounted for much of the spending binge of the '80s, is reaching middle age. Here come 75 million aching backs. A generation of reluctant grown-ups is raising children, caring for aging parents and beginning to think about retirement. Instead of pumping iron, preening and networking, they are worrying about orthodontists, skateboards and college tuitions. The backyard now has more appeal than the boardroom.

So forget those champagne wishes and caviar dreams, the right car, vodka, watch, cuisine and music system. Consumers no longer feel they absolutely must have the latest luxury product. Who would be impressed, anyway? "People don't think being square is synonymous with being a sucker anymore," says Dan Fox, marketing planning director of the Foote, Cone & Belding ad agency. Besides, they no longer seem to get a kick from spending borrowed money. Consumer installment credit dropped $342 million in December, or 0.6%, in what would ordinarily have been a busy shopping season, and a huge $2.4 billion in January.

Not everyone believes America has changed its stripes, however. "If the present generation has learned anything, it is that talk is cheap. But are they really doing anything different?" asks Stanford economist Victor Fuchs. "The baby boomers are just growing up and playing out a predictable life- cycle change." Elmer Johnson, a Chicago lawyer and former executive vice president of General Motors, sees "a hardness of heart that has not yet begun to be broken." John Kenneth Galbraith, the eminent liberal economist, dismisses the trend as a bicoastal fad among fast-trackers. Says he, with amused cynicism: "I just think it's pure horse."

Yet a lot of business people who stake their livelihood on shifts in consumer behavior see thousands of small changes that they believe are adding up to something. At a Brookstone store in Boston, a man exchanges a gift, trading in a $99 executive fountain pen ("I'll never use it") for a car-care kit. Suddenly people want to buy toys that don't take batteries. Sales of dolls are up. Power dressing is out. One sign: shoulder pads, standard issue for the female corporate warrior, are finally disappearing from women's clothing. Even designers are getting into the act: Donna Karan and Bill Blass offer more congenially priced ready-to-wear fashion lines. Revlon's Charles of the Ritz has sprouted the cheaper Ritz Express skin-care line (1 oz. of Perfect Finish makeup: $10, vs. $25 for an ounce of Revenescence liquid foundation).