Deficits Are Not the Problem

Here is a bit from an excellent article by Brad DeLong on The Week:

We need bigger deficits

In normal times, deficit spending has all sorts of negative effects on economic activity. These are not normal times.

As the disappointing May job numbers confirm, this is still an exceptional time—a time in which many of the normal rules of the Dismal Science are changed and transformed. It is a time for not normal economics but rather “depression economics.” The terms on which the U.S. government can borrow now are exceptionally advantageous. And because of high unemployment the benefits of boosting government purchases and cutting taxes right now are exceptionally large.

He goes through a detailed accounting of how deficits would affect a "normal" economy. Then he details how deficits would affect a depressed economy. Read the article for the details. Brad DeLong comes out strongly for more spending. Here's his conclusion:

Back in December 2008 the incoming Obama National Economic Council feared that an increase in the proposed size of the Obama stimulus program, the ARRA, from $800 billion to $1.2 trillion would bring these factors into play. It is now clear that they were overly pessimistic, in large part because they were overly optimistic about the state of the economy.

Right now, bad politics is undermining good policy, hurting the American economy and legions of unemployed workers. It is long past time for another stimulus package.

DeLong doesn't cover the psychological damage of long-term unemployment. He doesn't discuss how the loss of production in a depressed economy is never regained (all those goodies that could have been produced by unemployed workers can never be re-created in the future). A recession is a Gulf Oil spill size catastrophe. It is crying for strong action just like the Gulf oil spill. But Obama and the US Congress remain oddly timorous and continue to "lead" by faint half measures. Tragic.