During 2010, the economic decline abated, but the recovery did not arrive. There were a few false dawns, and stagnation. The problem was this: The policy makers knew how to pull economic levers, but they did not know how to use those levers to affect social psychology.

The crisis was labeled an economic crisis, but it was really a psychological crisis. It was caused by a mood of fear and uncertainty, which led consumers to not spend, bankers to not lend and entrepreneurs to not risk. No amount of federal spending could change this psychology because uncertainty about the future remained acute…

The failure to generate a recovery led to a collapse of public confidence. President Obama’s promises of 3.5 million jobs now seemed a sham and his former certainty a delusion. The political climate grew more polarized. That meant it was impossible to tackle entitlement debt. That and the economic climate meant it was impossible to raise taxes or cut spending or do anything to reduce the yawning deficits. Federal deficits were 15 percent of G.D.P. and growing.