If we can have an increasing GDP while most of America experiences stagnation (as with the recent recovery) who's to say we can't have decreasing GDP coupled with improving quality of life? (at least for a short period) As you point out, machines are doing far more of the work that workers once did.

Another policy of FDR's New Deal was the creation of the 8 hour day (many people still worked 12-14 hour days until then: http://en.wikipedia.org/wiki/Eight-hour_Day#United_States). Perhaps reduced hours allowed more laborers to move into the workforce, and could be a more competitive and cheap way of supporting a broad middle class.