Today in the Times, Paul Krugman lends his Nobel-winning credibility to the argument for massive government spending in order to stimulate the economy.

Yes, it will drive up the deficit in the short run. And, yes, fears of higher deficits led Bill Clinton to abandon his spending promises during the 1990s. But this is not the 1990s, Krugman reminds us. Back then, Clinton was worried that government borrowing would "crowd out" private investment, by driving up interest rates. Today, interest rates are ridiculously low. 

Admittedly, this isn't the first time a prominent expert has made this sort of case. (It's not even the first time Krugman has made it.) But today's column does contain one important argument that's gotten relatively little attention: the fact that, twice before, governments tried balancing the budget to combat the sort of crisis we're experiencing today. Both times, the strategy failed.

Krugman explains:

The first took place in 1937, when Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.

The second episode took place 60 years later, in Japan. In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. And again the recession that followed led to a steep fall in private investment.

Just to be clear, I’m not arguing that trying to reduce the budget deficit is always bad for private investment. You can make a reasonable case that Bill Clinton’s fiscal restraint in the 1990s helped fuel the great U.S. investment boom of that decade, which in turn helped cause a resurgence in productivity growth.

What made fiscal austerity such a bad idea both in Roosevelt’s America and in 1990s Japan were special circumstances: in both cases the government pulled back in the face of a liquidity trap, a situation in which the monetary authority had cut interest rates as far as it could, yet the economy was still operating far below capacity.

And we’re in the same kind of trap today--which is why deficit worries are misplaced.

--Jonathan Cohn