President Obama’s USA Today op-ed says that raising the debt limit, previously a one-page bill passed in routine fashion with some grumbling, affords the nation “the opportunity to do something big and meaningful.” This is definitely true: the opportunity will result in either an immediate depression or a lesser depression.

In fact, policy makers seem determined to perpetuate what I’ve taken to calling the Lesser Depression, the prolonged era of high unemployment that began with the Great Recession of 2007-2009 and continues to this day, more than two years after the recession supposedly ended [...]

For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great. But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed [...]

There’s an old quotation, attributed to various people, that always comes to mind when I look at public policy: “You do not know, my son, with how little wisdom the world is governed.” Now that lack of wisdom is on full display, as policy elites on both sides of the Atlantic bungle the response to economic trauma, ignoring all the lessons of history. And the Lesser Depression goes on.

There are ways out of this box – minting a trillion-dollar platinum coin, for example. But there’s no evidence that anyone in power wants a deus ex machina to arrive on the scene at this point. After all, we’ve already seen one in the form of the McConnell proposal, and now it has been both weighted down with trillions in spending cuts and entitlement commissions, and passed over in favor of a big deal.

And as Krugman says, this is a Hobson’s choice. At the end of the set of the unpalatable options on the table, there’s the one where the debt limit doesn’t get increased, and the financial system goes haywire, states can’t pay their bills and most of the federal government is forced into shutdown.

We were backed into this corner by an unwinnable negotiations, but also because all sides of the deal have policy prescriptions uniquely unsuited to the economic moment.