A serious economic crisis can force some rethinking of economic and political dogma. The current crisis is serious for most of the world: the IMF is projecting world economic growth of just 0.5% this year – the worst since the second world war – and this number could easily be revised downward.
(...) One of the first casualties of the current recession was the extreme fiscal conservatism that has plagued the country for decades. It seems like ages since the Clinton administration, facing projected budget surpluses of more than $5tn, decided that it needed to pay off the entire national debt before committing to any new social spending. President Barack Obama's proposed budget has a deficit for this year of 12.3% of GDP – twice the size (relative to the economy) of the next largest deficit in the six decades since the second world war. (That was Ronald Reagan's "military Keynesian" budget of 1983.) Like his successor George W Bush, Reagan never admitted that deficit spending was needed to pull the economy out of recession. Instead he pretended that he was just meeting "defence needs" and granting tax cuts where tax cuts were due (mostly to the wealthy).
(...) If the debt grows at the same rate or slower than the GDP (in nominal terms) it will not grow as a percentage of the economy. That is what matters, not the absolute size of the public debt – a big scary number ($10.9tn) that is often thrown around by conservatives.
(...) That is because the US dollar is overvalued, and this overvaluation has artificially stimulated our imports and reduced our exports for many years. The idea that the United States needs a "strong dollar" could be the next widely held economic misconception to bend to reality.
(...)