Stop us if you’ve heard this one before. The economy is suffering from low growth and high unemployment. Families are struggling with debt. Many are living in homes whose mortgages cost more than the property is worth. All over the world, governments are reeling from the economic and political consequences of excessive sovereign debt.

The president of the United States, Barack Obama, appears before Congress to offer his solution. America, he says, is experiencing a collapse in what economists call aggregate demand. Consumers aren’t spending enough to fill the “output gap”—the theoretical difference between what the economy is producing now and what it might produce at full capacity. Government, he says, needs to cover the difference.

How? Through temporary tax cuts, aid to state and local governments, and federal spending on highways and high-speed rail. We can worry about how to pay for it all later. And if the Federal Reserve resumes its “extraordinary measures” to promote demand, well, that’s fine too. Americans won’t have to worry about the inflation that results, unless of course they drive a car that uses gasoline, shop at a grocery store, or live in Asia.

Such is the logic that has determined American economic policy for the last two and a half years. Actually, longer: The same assumptions informed the decisions made by President Bush at the end of his term, from the Economic Stimulus Act of 2008 to the bailouts of banks, insurers, and automakers to the massive interventions of the Federal Reserve to prevent a global banking collapse. Whether it’s Bush in 2008, Obama in 2009, or Obama last week, the federal government’s response to the Great Recession has been remarkably consistent. Like a corny one-liner, the setup is always the same. Government must “stimulate” the economy to encourage recovery.

Here’s the punchline. Fourteen million unemployed. No net job creation in August. A projected 9 percent unemployment rate through at least 2012. Trillion-dollar-plus deficits. A projected doubling of the national debt in one decade. The first downgrade of U.S. Treasuries in history. Dismal growth. A high chance of another recession (assuming we ever really left the first one). An inescapable sense of national decline.

So, for almost four years, a prolonged and brutal economic slump has coincided with sustained government efforts to bring demand forward and get consumers spending as they did before the crash. The powers that be say they’ve tried everything: temporary tax cuts, public works, Cash for Clunkers, Cash for Caulkers, cash transfers, preferential loans to favored companies, plus two rounds of what’s known as “quantitative easing,” aka money creation. They’ve sent money to states to prevent layoffs of public sector workers. They’ve entangled the government in AIG, GM, and Chrysler and further entangled it in Fannie Mae and Freddie Mac. Nothing’s worked.

And yet the delusion persists that the way out of recession is for government to “create jobs.” The president’s September 8 address to a joint session of Congress was chockablock with more of the same failed policies. Not once does it seem to have occurred to him that the inconsistent, frenetic, short-term, and haphazard activity of his government may be contributing to the sputtering economy. How are entrepreneurs to risk capital when they don’t know what tax rates will be in the long term, how are companies to hire when they don’t know which EPA regulations will be suspended and which won’t be, how are banks to lend to startups when they get a safer return buying coupons from the Fed?

None of this shows up in the abstract and soulless models of the macroeconomists. But if those models were accurate, happy days would be here again. The models are flawed. They did not know how to handle stagflation in the 1970s, nor do they know how to handle stagnation today. Simple, unfashionable common sense tells us government doesn’t need more stimulus. It needs a tranquilizer.

The fact is that everyone is drowning in debt. Governments, banks, individuals all took on far too many obligations. We’ve been on a sugar rush for a decade—and the president says the answer is just one more Pixy Stix.

A responsible chief executive would level with the public and say tough measures are required to accelerate the great deleveraging, return the economy to equilibrium, and resume the natural tendency of market economies to grow. That means ending the policies of the last four years. It means a renewed focus on limiting government, the unwinding of federal involvement in housing, insurance, and autos, a moratorium on regulations, an end to drive-by decision making, the permanent revision of the individual and corporate tax code, and a rethinking of monetary policy. It means a change at the top. Because this joke isn’t funny anymore.

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