We have also relied on net immigration to augment domestic output. And finally, we have drawn down the pool of available workers. The bottom line, however, is that, while immigration and imports can significantly cushion the consequences of the wealth effect and its draining of the pool of unemployed workers for a while, there are limits.
Take the question of euro area adjustment. Who will bear the cost of the much-needed sovereign and private deleveraging? To what extent will the social cost of the crisis bear on political outcomes, and thus on economic policy decisions?