Here is a big chunk from a Brad DeLong posting detailing how a mainstream economist like DeLong views the issue:
The big valid complaints about policy over the past fourteen months are not that it has run up the national debt and not that it has rewarded the princes of Wall Street, but rather that it has, if anything, been on too small a scale--that we ought to have done more.The fact is, the political right in the US are hypocrites who pretend to be patriots but in fact are destroying the US economy with their idiocy. They willfully ignore economic facts in favour of their ideology to the detriment of the nation. They are, however, heros to the ultra-rich who act as patrons for these efforts to downsize government and remove taxes from the rich by shifting them onto the poor.
Yet these policies appear, somehow, to be political losers in Washington right now: nobody is proposing to do more along the same lines. This is strange: usually when something works the natural impulse is to do it again.
So we have a big puzzle: Just what is going on in America? Good policies that are working to boost production and employment without causing inflation ought to be politically popular, right?
I think two different things are going on--one with respect to the Obama fiscal boost that is the ARRA, and a second with respect to the TARP and related banking-sector support policies.
With respect to the ARRA--the stimulus package, the Obama fiscal boost--it seems to me that what is going on on the American right is simply (a) an outbreak of extraordinary intellectual and political dishonesty that (b) the press refuses to see.
For two and a half centuries economists have believed that the flow of spending in an economy goes up whenever groups of people decide to spend more. Sometimes and to some degree these increases show up as increases in prices and sometimes and to some degree as increases in production and employment. Sometimes these increases come because there is more spendable cash in the economy and sometimes because changes in opportunity cost make people want to spend the cash they have more rapidly. But always it has been that spending goes up whenever groups decide to spend more--and the government's decisions to spend more are as good as anybody else's, as good as the decisions of the mortgage companies and new homebuyers to spend more buying new houses during the housing bubble of the mid-2000s or of the princes of Silicon Valley to spend more building new companies during the dot-com bubble of the late-1990s.
Chicago economists' arguments that fiscal stimulus can't work are at best incoherent and usually simply wrong. Republican politicians' arguments that fiscal stimulus isn't working are simply ripped out of the Newt Gingrich playbook: lie all the time. Remember that back in 1993 when the Democrats' analyses led them to seek to reduce the deficit and spend less--well, back then the Republicans said that would destroy the economy too. And they were very wrong. But how many media stories about Republican claims make even a small attempt to evaluate them?
A stronger--but not much stronger--argument is that the ARRA is boosting employment and production, but at too great a long-run cost because it has produced too large a boost in America's national debt. If interest rates on U.S. Treasury securities were high and rising rapidly as the debt grew, I would agree with this argument. But that is not the case. Interest rates on U.S. Treasury securities are very low. They are not rising. The argument that the economy has too much debt--that the market does not want more debt--is belied by every single Treasury auction at which the market gobbles up huge new tranches of U.S. Treasury debt at high prices. What the market is telling us is that while the economy has too much private debt--prices of corporate bonds are low, and firms find financing expensive--the economy has too little public U.S. government debt, which everyone wants to hold. Those who claim that we have a debt problem, and you can't cure a debt problem with more debt suppress--sometimes deliberately--that since the start of the financial crisis private debt and U.S. Treasury debt have been very different animals, moving in different directions and behaving in very different ways.