Yesterday we took a look at Daniel Gross’s interpretation of the last year and a half of American economic history. Dorning of Bloomberg BusinessWeek has written a very similar essay that suffers from many of the same deficiencies and oversights while also adding new ones, e.g.,

Despite a budget deficit that is projected at $1.5 trillion this year, Obama wants to move the country toward the kind of fiscal balance it enjoyed fleetingly in the Clinton era, though his budget plans falls short of that. He recognizes that the federal debt load is unsupportable.

Indeed, the president’s budget plans do fall short. Is it worth mentioning that we’ve seen an enormous entitlement expansion and the continuation of the Bush tax cuts for the vast majority of taxpayers?

“When you take it all together, the response was massive, unprecedented, and ultimately successful,” says Mark Zandi, chief economist at Moody’s Economy.com (MCO). Even Obama critics like Phil Swagel, assistant Treasury secretary for economic policy under George W. Bush, acknowledge that White House policies have been successful. “They could have done a better job” by spending more of the stimulus on corporate tax cuts to boost hiring and investment, says Swagel, now an economics professor at Georgetown University’s McDonough School of Business. “But their economic policies, including the stimulus, have helped move the economy in the right direction.”

“Ultimately successful” seems slightly premature. And I don’t think it’s surprising that a massive debt-financed stimulus has led to an uptick in economic activity: the question is whether or not it will enhance long-term growth in light of the impact of a heavy public debt burden going forward. In a sense, the observation that a massive fiscal stimulus has “helped move the economy in the right direction,” that is, towards GDP expansion, seems trivial. Has it moved the economy in the right direction by facilitating the liquidation of malinvestment, a process that might dampen GDP expansion in the short term while enhancing long term growth? That is a separate question.

I hope that Dorning is right. But he doesn’t make a very strong case. Kevin Drum has done a terrific job of highlighting U.S. economic vulnerabilities. I don’t agree with him on every count, but he makes a number of excellent points. Two things I’ll highlight:

There are strong political pressures to reduce the budget deficit. That makes further fiscal stimulus unlikely.

These political pressures are rooted in the view that we need stable fiscal policies, and I think that view is correct. So while I agree with Drum’s upshot, I tend to think that this is a good thing. The problem is that the extreme departure from stability that was the stimulus will force painful tax increases in the not-too-distant future.

Consumer debt is still way too high. There’s more deleveraging on the horizon, and that’s going to make consumer-led growth difficult.

This strikes me as extremely important. I wrote about this a bit last year:

Citing 2007 data from the Federal Reserve, Tom Petruno of the Los Angeles Times recently noted that while the top 10% of earners have debt-to-disposable-income ratio of 116%, and the bottom 40% of earners have a ratio of 133, those in between–that is, middle-class households–have a ratio of 205%. This 50% slice of the population represents 46% of consumption, and it is precisely this group that will have to dramatically pare back its consumption to pay down its debt. This is a recipe for weak consumer demand for a decade or more, which means another decade of sluggish growth. Until recently it seemed possible that the top 10% of earners, who represent 42% of consumption, could fuel the economy on their own. In 2005, Ajay Kapur, then working for Citigroup, maintained that the United States had become a “Plutonomy,” an economy dominated by the wealthy. His team estimated that in 2005, 60% of spending could be attributed to the top 20% of households, a number that is broadly in tune with the Federal Reserve’s 2007 data. What happens next is a mystery. Though the super-rich have been dealt a blow, they’ve already begun a comeback, as evidenced by robust corporate earnings. Perhaps we’ll rely, as we have for the past decade, on this small slice of the population to drive the economy during a long jobless recovery. It’s not clear, however, that this strategy is sustainable. Just as sensible investors try to diversify their portfolios, relying on a small number of households concentrated in a small number of sectors exposes the economy to tremendous risk. Building a more balanced economy might actually reduce the severity of downturns.

To their credit, many on the left are trying to answer the question of how to build a more balanced economy. Unfortunately, the answer embraced by the White House and its congressional allies has placed heavy emphasis on shifting taxpayer dollars to politically influential firms in the health and energy sectors rather than to spurring grassroots entrepreneurship through an embrace of stable fiscal policies.