It is difficult to determine what the fiscal policy lessons of 1937 are when domestic spending per capita has increased so dramatically in the intervening decades. The biggest lesson is one that is often ignored. As much as many love to wag their finger at Lyndon Johnson or FDR, the levels of spending they engaged in was miniscule by today’s standards. Critics may label any reduction in current spending as an exercise in austerity, but one wonders if we have any idea what austerity would really look like.

If someone is very deceived about politics or economics, he will usually be very deceived about metaphysics, aesthetics, or personal ethics as well – and vice versa.

Irresponsible borrowing by governments in international credit markets requires irresponsible lending.

Both in the US and the EU, some spent more than they could afford, and others granted credit that they ought not to have granted. But Americans blame irresponsible banks, while Europeans blame irresponsible southern countries like Greece.

Another key issue regarding metaphors concerns what is the correct metaphor for government. For libertarians, government is like a Mafia Godfather, carrying out a protection racket. It is a criminal organization that controls certain economic activities through the use of force. It obtained its status by ruthlessly stamping out competitors. To someone on the left, government is more like the adult supervision at a day care center. It sets the rules, provides structure, and prevents what otherwise would be dangerous behavior and chaos.

There is simply no other market that makes a plausible substitute for US securities. China is big enough, but its capital markets are primitive, and subject to heavy government intervention. Japan has lost its AAA, and has a massive debt overhang, to boot. None of the other AAA countries–or even all of them together–are big enough, and debt-hungry enough, to absorb the amount of capital flowing into the United States. Ultimately, some of the world’s investors are going to have to wean themselves off of the illusory security of AAA debt, because obviously, we cannot keep issuing a trillion worth of AAA debt every year. Either we’ll issue less debt, or we’ll lose our AAA.

The predicament of the West remains lamentable. Even so, some economists still advocate more fiscal stimulus. Instead, Western leaders need to focus on fixing their state budgets in order to salvage what they can.

Finally, the deal has passed the Senate and the House. Which means we now return to our regularly scheduled programming: panicking about Europe.

This is the fun stuff about politics. Basically our politicians are being forced to do something they don’t want to do and our job is to cut through the obfuscation to see how they are doing exactly the opposite of what they say they are doing. It is fairly obvious that despite what they are saying publicly, they aren’t making significant cuts to the budget. And S&P and Moody’s know this. Which means that we’ll see our gilt-edged credit rating (a curious term since there is nothing really golden about our national debt) be cut anyway.