In broad outlines, the story is very simple. In bailing out the financial system without taking possession of more than a small equity position, and then in engineering a stimulus that was deliberately inefficient—devoting a third of its cost to tax cuts at a time of massive deleveraging—the Bush and Obama administrations squandered hundreds of billions of dollars in public resources. Now, to prove his fiscal responsibility, Obama wants to cut spending on core functions of government, like public health, the environment and national infrastructure.
You can blame him for leaving the bloated Pentagon budget off the table, or for prematurely panicking over fiscal deficits. Both criticisms are entirely justified. But in a larger sense, we condemned ourselves to a generation of torturous public finance in that spasm of terrible policy. We will be paying for it, one way or another, for years to come.