Will common sense prevail over the phony deficit crusade?

The new normal is here, the legacy of our denial of the reality of climate change. The federal government needs to do a comprehensive assessment of the public investment necessary to protect our coasts, which will run into the trillions of dollars.

One consequences of that reality is that it blows away past assumptions about deficit reduction. The government needs to begin a multi-year public investment program.

With interest rates at historic lows, the government could issue a special series of flood-prevention bonds.

The scenes of devastation that we’ve seen in recent days are like what happens to cities in wartime. If there were a war, government would have no hesitation about borrowing as much money as is necessary to prevail.

The damage of 9/11 was small compared to the damage of Sandy—and 9/11 prompted increases in military spending north of two trillion dollars. The cynical corporate CEOs who are spending tens of millions to demand that we “fix the debt” should get serious and back a campaign to Fix the Coasts. Several of these Wall Street moguls can’t even use their Lower Manhattan offices this week because of the lingering storm damage.

And of course, that would only address defense against the consequences of climate change. We also need to remedy the causes. We should be investing comparable sums in conversion to carbon-free energy to head off even worse climate change. Not to mention the modernizing and greening of the rest of our infrastructure.

All of this public outlay will have the handy side effect of stimulating a real economic recover, instead of the half-recovery that will limp along for years absent drastic policy changes.

Of course the real story of the deficit is very simple. We have large deficits at present because the collapse of the housing bubble crashed the economy. That’s it.

In 2007, the last year before the downturn, the deficit was a modest 1.3 percent of GDP. We can run deficits of this magnitude forever. The debt to GDP ratio was actually falling. The Congressional Budget Office projected that the deficit would remain modest and actually turn to a surplus when the Bush tax cuts expired in 2011.

This all changed when the economic downturn sent tax revenues plummeting and caused a sharp jump in spending on unemployment insurance and other programs designed to counteract the downturn. But the basic story is simple and straightforward: The large deficits are because the economy collapsed, not because of huge tax cuts or runaway spending.

There is a longer-term deficit problem but this is entirely a problem due to the projected explosion of healthcare costs. Interestingly, the data doesn’t seem to be cooperating with this story either. Healthcare spending grew at just a 0.5 percent annual rate in the most recent quarter. Its growth rate has been far below projections since the start of the downturn.

If healthcare costs continue anywhere near their recent path, our deficit fighters will lose their long-term deficit crisis story. They will be left pushing cuts for Social Security and Medicare that lack any basis in budget realities.