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Soon after the global financial crisis erupted in 2008, I warned that unless the right policies were adopted, Japanese-style malaise – slow growth and near-stagnant incomes for years to come – could set in.The basic point that I raised a half-decade ago was that, in a fundamental sense, the U.S. economy was sick even before the crisis: It was only an asset-price bubble, created through lax regulation and low interest rates, that had made the economy seem robust. Beneath the surface, numerous problems were festering: growing inequality; an unmet need for structural reform (moving from a manufacturing-based economy to services and adapting to changing global comparative advantages); persistent global imbalances; and a financial system more attuned to speculating than to making investments that would create jobs, increase productivity and redeploy surpluses to maximize social returns.The U.S. economy is still roughly 15 percent smaller than it would have been had growth continued even on the moderate pre-crisis trajectory.Median real income in the U.S. is below its level in 1989, a quarter-century ago; median income for full-time male workers is lower now than it was more than 40 years ago.Inequality leads to weak demand; widening inequality weakens demand even more; and, in most countries, including the U.S., the crisis has only worsened inequality.Malaise is better than a recession, and a recession is better than a depression.
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