This article by the evergreen Samuel Brittan shows how bad we have been hit in the UK. On a reasonable estimate, UK production is now down ten percent compared to where it would be if we had sustained the very modest 2.6% pa growth that it is estimated is consistent with non-accelerating inflation. Per capita real incomes are obviously worse affected than this since the population is clearly not dropping, whatever stories the government puts out about eastern Europeans all flooding back to Poland and the Baltic States.
A couple of years ago many commentators invoked Hyman Minsky as a guide to what we should do. As I understand his work, we cannot escape the bad effects of recessions without a large public sector to provide the 'automatic stabilizers' which maintain demand that would otherwise wither. I don't think any economist would argue against the dire effects on productivity that results from having the government account for so much (55%) of total spending in the economy. I think the massive damage to our output shows that this is a price not worth paying.
Of course, politicians are not interested in this sort of analysis. Spending other people's money to buy votes is just what they do.
