The response to the private-sector failures and profligacy that had caused the crisis was to demand public-sector austerity. The consequence will almost surely be a slower recovery and an even longer delay before unemployment falls to acceptable levels. There will also be a decline in competitiveness. While China has kept its economy going by making investments in education, technology, and infrastructure, Europe and America have been cutting back.
It has become fashionable among politicians to preach the virtues of pain and suffering, no doubt because those bearing the brunt of it are those with little voice—the poor and future generations. To get the economy going, some people will, in fact, have to bear some pain. But the increasingly skewed income distribution gives clear guidance as to whom this should be: Approximately a quarter of all income in the United States now goes to the top 1 percent, while most Americans’ income is lower today than it was a dozen years ago.