One of my Midland friends asked on Facebook (I'm paraphrasing) if running big budget deficits and borrowing "free money" in Washington is good economics. Probably not, but we're likely stuck with it for a while.
My short FB-friendly version was that we have three options when we run a deficit. We can cut spending (which Democrats don't like), raise taxes (which Republicans don't like) or borrow money. Given that we have a Republican House and a Democrat in the White House, the path of least resistance is a center-left coalition that makes token efforts to trim the deficit and keeps running up the credit card tab.
We're likely stuck with that situation for the next 2.5 years until January of 2017, we swear in a replace. Yes, you on the right, you'll swear at the guy going out the door, but that's not nice. Yes, if you can get the evidence that will convince half the Democrats in the Senate to vote him out of office (it takes 2/3rds), we can do it sooner, but don't bet the farm on it happening.
We're also likely stuck with at least a Republican House and likely a less Democratic Senate; it's still an open question whether Dirty Harry will still be in charge come January, but he won't have a reprise of Speaker Pelosi to work with either way unless some drastic change of politics blows in between now and November.
A rational approach to fiscal policy would be to sit down and see what level of government we're willing to pay for. That would require a combination of cutting spending and (more than likely, alas) raising taxes to bring things into balance, assuming we keep to an early-00s level of spending.
Rational fiscal policy would be nice, but we're not likely to see it anytime soon.
The president had to be dragged kicking and screaming into some rather modest "sequester" cuts in the last budget deal and isn't likely to go for much more. Republicans aren't going to sign off on any major tax increase given the discord on their right wing. That makes rational economic thought a luxury good inside the Beltway, as both sides limp through the next 2.5 years and slap together a budget that can muster a majority in both houses and garner a presidential signature.
One assumption that has driven the deficit spending is that we don't want to slam the breaks on a recovering economy by cutting spending or raising taxes. Running a deficit in bad times is not bad fiscal policy if coupled with running surpluses in the good times; that's called a "cyclically balanced budget" in textbooks and called a "pipe dream" in the real world, since neither party wants to run a surplus if they can help it.
The nagging question that comes to mind - "Is this the new normal?" If so, the idea that we need to do an expansionary fiscal policy to goose a moribund economy back to life might be short-sighted. Democrats would be reluctant to accept the smaller workforce we have today as normal, nor would they be happy with having to reign in the deficits. Republicans wouldn't like tax increases or the attack ads on the budget cuts that do get passed in that setting, but they would be more that happy to claim that Obama gave us this new normal with his policies and that they could change the paradigm if given a shot.
We might be stuck with an underperforming economy for a while. So far, the big deficits haven't had the "crowding out effect" of rising interest rates that economic theory suggests should happen, which leads to the idea of it being "free money;" with T-bill rates hovering just above zero(0.01% as we go to press), it's not quite free but it's dirt cheap.... for now.
Part of that cheapness is the Fed's buying up of debt and essentially printing the money to fund the deficit via open market operations. The other main leg of that is an economy still shaky from the market meltdown of the late 00s and leery of expanding with "Obamacare" and tax increases looming on the horizon; if they're holding off on a lot of new business spending or house-buying, there isn't a heck of a lot of demand for loanable funds to be crowded out in this economy, thus throwing conventional economic wisdom (be ye Keynesian or Austrian in your econ) a wicked googly.
We're due for a spike in inflation... but it's not showing up. We're due for a stronger economic recovery... but that's not showing up, either. Both parties point the fingers at the other for the bad news and the body politic changes the channel and checks to see how Tiger's doing at the British Open.