And given the serious misallocations that marked the onset of this recession, there is good reason to believe that the period of reallocation will be deeper and last longer. A reduction in the size of the finance and housing industries, for example, is well under way. Efforts to forestall those changes, in my judgment, are unlikely to succeed as promisingly as advertised.
But perhaps a larger risk is that changes in public policies may, in the pursuit of stability, hold down the growth of the U.S. economy over this period. Simple textbook models tell us that a nation's output is the product of the number of hours worked and the output produced per hour.