I think:
1. everyone wouldn't suddenly become frugal, that would definitely represent a (potentially destabilizing) shock to the current system, but it is extraordinarily unlikely. you'd be talking about a monumental shift in cultural norms, attitudes, and ways of thinking, and humans generally don't do that on a mass scale very quickly.
2. in the steady state, say we had a culture with a less wasteful consumer culture, I still think the economy would need to grow. more people being born every day! it's just that instead of profits being based on the latest iphone or gucci bag, corporate profits might come from feeding a larger number of people and providing for their basic needs. So I think it is possible that an ethical, growing economy *could* exist
3. that is not to say that we can rely on infinite growth; eventually the world only has so many resources and humans/the-laws-of-physics only have so much ingenuity to make new technology. I think at some point the world's resources might be depleted and such an economy could no longer sustain it's growth based on a growing population. In such a scenario, index investing probably wouldn't work the same as it does now.
4. Overall, I think we are a long way out from exhausting the world's resources and reaching some limit on what improvements technology can bring - long enough that the index investing strategy will work for our lifetimes. I just wish we could be approaching that limit it in a more ethical and sustainable way, with less wasteful consumerism.
TLDR; I don't think GROWTH necessitates WASTE, that is just the trap our society is in at the moment. There are other ways.