History ignore tends to repeat itself. In 1937, the Depression ended up being extended when we decided that we needed to cut back on Government spending. This stopped a nascent recovery in its tracks and led to another round of misery that only ended when the second world war broke out.
During that same period, Germany got out of its depression by some massive Government spending on infrastructure and military buildup.
Now, the best way to reduce the deficit is to grow the economy. When the economy grows, we create jobs. People with jobs pay taxes while people without jobs consume taxes. This is an extremely simple equation. Of course the best outcome is for the jobs to be generated by private industry, but in order of precedence a private job is best, a public job is second and no job is last.
Economics can be extremely complex but it is also extremely simple. Assuming that we can produce enough goods and services to supply the needs of the population, the issue becomes providing a means for the population to consume those goods and services. So, we can produce cars, but if no one buys a car there is no reason to. This is a basic function of supply and demand. Increased demand leads to increased economic activity which leads to increased jobs.
The idea of Government stimulus is to prime the pump. It has been doing that, but the country is faced with a number of structural issues that have to work themselves out. So while the stimulus has stopped the decline in GDP and started some growth, we are not yet at the point where private demand is so great that the withdrawal of Government stimulus will not have a devastating impact.
The deficit is certainly a problem, primarily because the interest on it is an expense that must be paid. However, until the economy has passed the tipping point, where demand and jobs are self sustaining, focus on the deficit is misplaced.
Lets not ignore history.
