[T]he growth of the past few years... was fake. And the economy is now tumbling back to where it really should have been...
[T]he difference... exist[ed]... in the form of a debt bubble (what I call counterfeit money). As we all know, that fake wealth was captured by a small minority (the financiers with their hands on the tap, and the rich wh[o] held assets and saw their value ni[c]ely inflate) -- and the problem is that, dollars being dollars, that fake wealth was mixed with the real kind and diluted it [this is the phenomenon Atrios poetically denominates "Big Shitpile" --d], which means that the bursting of the bubble takes away something from everybody, and not just from those that benefited from the bubble in the first place.
Economic statistics, no longer sustained by bubble hype, are crashing to "safe" ground, ie, from what people can spend with plentiful debt, to what they can actually afford with no debt. And that first crash, which first looked mostly like a financial event, of course has further second order effect consequences on the real economy: people who suddenly feel they have less money to spend, do spend less, cut demand, and further shrink the economy -- the real one.
So we'll end up below... the W years. But the sharing of the wealth has been changed in the meantime, and will not revert because of the crash, unless policies change (and Obama's budget proposals go in the right direction in that respect).
Which means that all Americans face a 20% drop in living standards, on average -- unless macro-economic policies change in a massive way.
That 20% income/output gap was stolen over the past presidency, and is just "acknowledged" today -- with collateral damage. But that's the size of the problem -- in the best scenario.
In the discussion that follows this post, this analysis is connected to the larger problem of resource descent (and especially its Peak Oil facet), and the suggestion is made that the end of the petrochemical bubble might demand more like a 35% drop in living standards on average. I happen to think that these statistics produce false impressions, given that they assume divergence from current lifeways, which may in fact be wasteful or unrewarding in significant measure, constitute "drops in living standards" when they may just demand changes in priorities and ways of doing things that don't always feel like sacrifices when all is said and done. I agree though that this is more likely to be the case exactly in proportion to our ability to ensure that changes are borne generally rather than shifted onto the most vulnerable, in which case "change" would just amount to the usual enforced austerity and exploitation of the precarious by incumbents -- a recipe for catastrophic denialism, untold avoidable suffering and waste, and then eventually, likely civilizational breakdown.