We did the right things -- save the banks, drop interest rates to the floor, pour money into the economy -- and we did them quickly. We're younger than Japan. We're riskier, too. We believe in the free market more. In the United States, it's easier to start a business and easier to fail. That's what makes us strong. But here's why we shouldn't be smug about avoiding a Japanese-style Lost Decade, or two:
Prolonged economic distress could undermine the attitudes responsible for U.S. economic dynamism. For example, the political winds are shifting against immigration even as labor-force growth slows because of an aging population and the leveling out of women's participation in the work force. The crisis has demonstrated that too much U.S. wealth is tied up in houses. The mortgages that financed them now clog financial institutions' balance sheets, starving new businesses of credit, much as Japanese banks kept lending to "zombie" companies at the expense of more promising firms. The U.S. risks perpetuating this misallocation of capital by maintaining extensive federal support for mortgages.
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