The most glaring deficiency in traditional economic models is that they completely ignore the role of context in evaluation.

When people bump up against one another in the course of pursuing their goals, it is in everyone's interest to resolve any resulting problems in the least costly ways possible.

As John Maynard Keynes taught us in the 1930s, in such situations, government is the only entity with both the motive and the ability to boost total spending by enough to put people back to work. As it happens there are long lists of important public projects that cry out to be done.

In short both the things we feel we need and the things available for us to buy depend largely—beyond some point, almost entirely—on the things that others choose to buy.

The private sector is first of all much larger than the public sector. The waste we see in that sector does not result from the fact that people spend their money carelessly. Mostly, it occurs because what one family must spend to achieve its goals often depends heavily on what other families spend.

We're in a classic demand-shortfall recession. There aren't enough jobs because total spending is too low. Consumers won't lead the way because they're busy paying down debt and are fearful they'll lose their jobs, if they haven't already. Businesses, which are currently sitting on mountains of cash, won't spend either, because they already have sufficient capacity to produce more than people are willing to buy.

Only the federal government has the power to spend beyond its current revenue. It shouldn't do that when the economy is at full employment. But it's an essential step for an economy mired in recession.