Get ready for the austerity decade. Forget all thoughts that the economic storm of the past 30 months is about to blow over. We've had what Mervyn King once called the NICE period of non-inflationary constant expansion but now we face a long DRAG – deficit reduction, anaemic growth. The lessons of economic history, the current configuration of the economy, and inescapable long-term challenges that have to be faced provide the same message: it's payback time.

Let's start with a trip down memory lane. The post-war era has been characterised by three distinct phases in the global economy. There was a 25-year boom that ended with the quadrupling of oil prices in the autumn of 1973 during the Arab-Israeli war. There was another long boom – very different in its shape and in the division of the spoils – that also lasted for a quarter of a century, between 1982 and 2007. In the middle, there was a nine-year period in which policymakers grappled with stagnating growth and rising inflation.

It's tempting to treat the current crisis as simply another of the mini-problems that punctuated the 1982-2007 upswing, but this is different from the stock market crash of 1987, the US savings and loans debacle of the 80s, the mild recession of the early 90s or any of the crashes in emerging markets during the 90s. All the previous crises could be alleviated by cheap money policies to create a bit more debt or shrugged off as peripheral events. This crisis is different; it has gone to the heart of the global economy, it has left the financial sector in a zombie-like state, and it has caused the same sort of existential crisis for the Chicago school of economists as stagflation caused for Keynesians in the 70s.

The profound nature of the shock means that the adjustment period will be just as long as it was in the 70s and early 80s, when the occasional flash of blue sky was quickly blotted out by a new thundercloud. In the 70s, it took a long time for policymakers to understand that the old levers were no longer working, and the same applies now. The response to the crisis has been unprecedented, and thankfully has helped prevent a deep recession from turning into something much worse. There is some comfort to be drawn from the V-shaped recovery enjoyed by China and some of the other Asian economies, which suggests a decoupling between the developed economies of Europe and North America and the fast-growing emerging world. But not much. The sobering fact is that the structural weaknesses that caused the crisis – the imbalances between creditor and debtor nations, an over-reliance on debt, a financial sector that has lost sight of its real purpose – remain untackled. We are – as King noted last week when calling for reform of the banks that would prevent retail banks on the high street speculating with their customers' money – living in a fool's paradise.

Turn now to the immediate outlook. Financial markets have been wobbling since the turn of the year, fearful that the pick-up in activity from the spring of 2009 was merely a prolonged dead-cat bounce. There is plenty for the bears to be worried about. The strength of the recovery in the United States is flattered by businesses rebuilding stocks run down during the early, savage months of the downturn. The housing market is weak and will remain so until unemployment starts to come down. Officially, the US has a jobless rate of 10% but it is much higher once the number of part-time workers who would prefer to work full time is taken into account. Unsurprisingly, consumer confidence is low.

Europe is already into the second phase of a double-dip recession. The economic convergence that the single currency was designed to bring about has happened: unfortunately the fast-growing countries on the fringe have been dragged down to the slow pace of those at the core rather than vice versa.

As for the UK, don't be misled by the upward revision to growth in the final three months of 2009. Downward revisions to previous quarters of last year mean that the peak to trough fall in output was even bigger than previously thought at 6.2%, while the boost to activity between October and December was partly the result of strong government spending and partly the result of consumers bringing forward spending to beat the return of VAT to 17.5%. There is a real possibility – looking at the latest official data for high-street spending and for unemployment – of a relapse in the first quarter of 2010. King and many of his fellow members of the Bank of England's monetary policy committee certainly think so, judging by recent comments.

But never fear. We are told, endlessly, that Britain is well-placed to take advantage of the recovery in the global economy. The depreciation in sterling means that the focus of growth will be switched from domestic demand to exports. This would be funny if it were not so serious. Here's the reality. More than half of Britain's visible exports go to a part of the world – Europe – that is barely growing. Less than 5% go to the big emerging markets of China, India and Brazil. UK exporters have certainly been helped by the drop in the value of the pound, but have responded by fattening their profit margins rather than by selling more goods. The extra cash flow is keeping them in business but not prompting additional spending on new kit. Last week's investment figures were truly horrific, with capital expenditure in manufacturing down by more than a third between the fourth quarter of 2008 and the same period of 2009.

The lack of investment will show up in Britain's trend rate of growth – the rate at which the economy can expand without inflationary pressures surfacing. In the pre-crisis period, the Bank and the Treasury thought the trend rate of growth was about 2.5%-2.75%, but the recession has left deep scars. Capital has been scrapped and is not being replaced. The trend rate of expansion will have fallen at a time when there is a need to reduce the mountain of public debt. That will make the deficit cutting process even longer and even tougher.

All this comes at a time when pressures on public spending are bound to intensify as a result of higher medical and long-term care costs of an ageing population, and the need to "brain-up" the workforce. Andrew Dilnot, principal of St Hugh's college Oxford and former director of the Institute for Fiscal Studies, says the greying of the baby boomer generation and extra NHS/care costs will add one percentage point per decade to the structural budget deficit.

So while the fragility of the economy means it would be unwise to start tightening fiscal policy immediately, an eventual squeeze is inescapable. Apart from anything else, the interest payments on the national debt are rising fast, and every pound spent paying off the UK's creditors is a pound unavailable for schools, hospitals and care homes.

As a result, the next decade will be marked by higher taxes and restraint on public spending. Consumer demand and government investment will grow far more slowly than in the boom years. Eventually, resources will be diverted into investment and exports. But this is a sick economy, and it will take a long, long time.