Why begin here? Three big reasons. First, this approach would deliver tangible, visible help, and quickly. Second, it would be politically irresistible—for the very reason that conservative opponents of public outlay love to hate: It would have elements of what is disparaged as pork-barrel spending. Every congressional district would get its share (would you like to be the congressman who voted against such a measure in a serious recession?). Harder-hit regions of the country would qualify for extra aid.

Third, an economic downturn supercharged by a credit contraction is a different creature from an ordinary business-cycle recession. About 16 percent of America’s homes have mortgages worth more than the value of the house. As economic activity slows, business defaults are rising. Loans that would be considered perfectly sound in normal times are being turned down or charged higher interest costs, because panicky banks have suddenly turned risk-averse. When businesses and consumers have trouble getting credit, economic activity slows and reces¬sion becomes a self-fulfilling prophecy. We saw this first in the subprime collapse, which gradually spread to the entire banking sector, and then to the rest of the economy. As a consequence, public spending needs to do heavier lifting than usual to counter¬act the depressive effect of a credit crunch.
Yes, Deficits

In the short run, part of this program of public works would be deficit-financed, as Obama recognized in moving beyond an earlier and ill-advised promise last spring that all his new spending programs would be offset by cuts elsewhere. It is a matter of basic macroeconomics that new outlays that are offset by other budget cuts or tax increases provide no net stimulus. After Obama announced his emergency anti-recession program on July 31, he gave an interview to NPR’s usually intelligent Michele Norris. Norris, in a flawless rendition of the conventional wisdom, asked in a slightly horrified tone, “This morning you announced a new emergency economic plan. It includes a $50 billion package. Can you promise to pay for all that without increasing our debt? Where will this money come from?”

Obama explained, “When it comes to a stimulus package, typically you are not looking at offsets, because what you are trying to do is to prevent the economy from going into a further tailspin.”

But Norris persisted with the usual story: “But with the deficit as high as it is right now, is it responsible to propose something that is likely to increase deficit spending?”

Obama didn’t flinch: “Well, Michele,” he said, “understand that if we continue on the trends we’re on right now, where unemployment keeps on going up—I’m in Florida, where they are in recession for the first time in 16 years—if you continue to see an economic slide, that is going to cost far more in terms of tax revenues, because businesses aren’t selling, taxes aren’t being collected. And what we’re going to end up with is a much worse situation when it comes to our deficit.”

This exchange occurred during a week when McCain was closing the polling gap with Obama and Democrats were expressing alarm that Obama had not yet made the sale with enough white working-class voters despite worsening economic conditions that should play to Democratic advantage. By explaining the stakes and offering tangible help, Obama positioned himself to be an effective president—as well as increasing the odds that he would reach the White House at all.

In the financial collapse of the Great Depression, Roosevelt turned to previously unknown peacetime deficit spending of around 4 to 6 percent of GDP. It turned out that this level of pump priming was necessary but not sufficient to fully restore prosperity. On the eve of the wartime mobilization, unemployment had been cut only in half, from a peak of 25 percent to about 12 percent. The economy kept slipping back into reces¬sions. Full recovery came only with the even greater deficit-financed government spending of World War II, which peaked at 30 percent of GDP.

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