Three years after a severe recession, the economy remains stuck in a modest recovery. More than twelve million Americans actively seek work. Many citizens, particularly the younger and less educated, find themselves detached, demoralized, and defeated. Many others, gainfully employed with some trappings of success, question whether the promise of America will endure for the next generation.

Meanwhile, a growing Washington consensus credits any improvement in economic performance to Washington’s doing. Private markets are incapable of generating self-sustaining, rising living standards, so businesses and households should be grateful for the government’s continued largess. This consensus seems to believe that the strength of our country rests with its political leaders, whose strength is their intellect. And the success of the governed depends principally on the enlightened decisions of those who govern.

My views are decidedly less fashionable: the strength of our country is our economy. The strength of our economy is our citizenry. And the strength of our citizens is their character and good judgment.

Those on the front lines of the real economy are getting short shrift. Workers and firms are owed overwhelming credit for the economy’s recent performance. The flexibility of our labor, product, and service markets has sustained us through the toughest of times and provided the best opportunity for our economy to prosper.

A full accounting of government activism can ill afford to dismiss the substantial risks incurred. Proponents of still more fiscal expenditures and more aggressive monetary policy emphasize the immediate benefits. But our country’s finances are unsustainable. The rule of diminishing marginal returns applies to policy activism. There will be a bill to pay. If policy makers have learned anything in the past few years, it should be this: complacency breeds crisis.

The medium-term prospects of households and businesses are not significantly affected by fleeting changes in fiscal policy. Families and businesses cash their “stimulus” checks and pocket one-time incentives, but a strong foundation for future growth demands balance-sheet repair. So middle-income families have made tough choices and deferred some consumption. They deserve our encouragement. Instead, government seems keen to tempt them to reacquire old, bad habits—borrow, consume, and hope it all works out.

The “fiscal cliff” in early 2013—when government stimulus spending and tax relief are set to fall—is not misfortune. It is the inevitable result of policies that kick the can down the road. Fortunately, American households are proving more prudent than their government.

U.S. firms—as measured by earnings, profit margins, and strength of balance sheet—are also systematically outperforming expectations and foreign peers. This is not due to a government mandate. When the economic environment deteriorated, U.S. companies reacted with force and purpose to cut costs and drive productivity. Because they prioritized, they are now poised to attract capital and grow.

Policy makers should resist the tendency to justify their success using static econometric models. We should be wary of practices that assign higher fiscal multipliers to government spending than to private activity and then audit the results using the same models to prove the success of their efforts. Economists should not simply add the contribution of government spending to next quarter’s GDP and declare victory.

Finally, we should not allow the failings of the U.S. banking system to serve as a generalized indictment of the market economy. The failures in the banking system owe at least as much to public-policy failures as to deficient private practices. The marketplace is still the best allocator of capital and labor.

That doesn’t mean that private markets for goods, services, or financial products are always and everywhere perfect. But market failures are less prevalent than government failures. And doling out capital to anointed firms and sectors chosen by the government tends to lower returns and reduce standards of living over time.

This debate on the source of recovery should result in judgments based on facts and evidence. The burden of persuasion rests squarely on the shoulders of those who want to borrow more money from future taxpayers to fund a larger government today.