What Are All These Crazy Politicians Doing Trying to Cut Spending?!

What if we're hurtling toward the second valley in a double dip recession? The paper of record offers a "news analysis" comparing the country's current financial troubles to the one-two punch of the 1980 and 1981-1982 recessions—and suggesting that, if we're recession-bound once again, policymakers might not be ready or able to act. Here's the no-questions-asked capsule summary of the last time the economy took a dive:

When what may eventually be known as Great Recession I hit the country, there was general political agreement that it was incumbent on the government to fight back by stimulating the economy. It did, and the recession ended.

That's one way of putting it. Another way of putting it would be that we spent roughly $800 billion in deficit-financed taxpayer dollars stimulating the economy and maybe-or-maybe-not creating jobs only to produce a period of weak growth that may or may not be slipping into yet another recession. Anyway.

But Great Recession II, if that is what we are entering, has provoked a completely different response. Now the politicians are squabbling over how much to cut spending.

Heavens to Hayek! It's almost as if the federal books are already submerged in debt and projected to take on enough additional obligations to sink them far, far deeper. Why in the name of all that is Keynesian and holy would policymakers possibly want to look for ways to spend less than planned in order to trim annual deficits? It's almost as if some of them have this crazy idea that an "unsustainable" long-term debt is a bad thing—and might even be a factor in our current economic woes.

But that can't be right. Or can it? Here's Harvard's Kenneth Rogoff, coauthor of what is probably the most comprehensive history of financial crises, on what conventional analysis of the economy's current troubles gets wrong:

The phrase "Great Recession" creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong. Moreover, too many policymakers have relied on the belief that, at the end of the day, this is just a deep recession that can be subdued by a generous helping of conventional policy tools, whether fiscal policy or massive bailouts.

…Many commentators have argued that fiscal stimulus has largely failed not because it was misguided, but because it was not large enough to fight a "Great Recession." But, in a "Great Contraction," problem number one is too much debt.

It's the debt, dummy? Sadly, even this week's multi-trillion dollar deal isn't likely to do much about the root problems of the federal debt.