In his recent blog post detailing his agency's latest Monthly Budget Review (MBR), Congressional Budget Office (CBO) Director Doug Elmendorf opens by remarking, "The federal budget deficit was $941 billion during the first eight months of fiscal year 2010." To some, that number is a bewildering reminder of what they see as a dysfunctional and wasteful federal government. To others, it's a sign of how badly the Great Recession has affected the economic health of our country, and, after digging deeper into the numbers, shows that more – not less – needs to be done.

Elmendorf, detailing government spending in the month of May, states that outlays were $80 billion, or 3 percent, lower than at this point last fiscal year. According to the CBO director, "The net reduction in spending reflects sharply lower outlays for the costs of the Troubled Asset Relief Program [TARP]," and several other financial recovery programs.

He also notes that, apart from spending on TARP, "spending through May was $257 billion (or 12 percent) higher than in the same period last year," and much of that increase, more than a third, in fact, "stemmed from provisions in the American Recovery and Reinvestment Act (ARRA)." Most of that growth "was for grants to states made by the Department of Education, additional unemployment benefits, refundable tax credits, and the federal share of Medicaid assistance."

This is a good thing. Our economy is still suffering from the worst economic recession since the Great Depression, and without the stimulative effects of deficit spending, we wouldn't be in nearly as good as shape as we are. With that said, the government needs to continue to deficit spend to raise employment levels, which is why the grip that a shortsighted deficit hysteria currently holds over the Obama administration and Congress is appalling.

As noted Princeton economist and New York Times op-ed columnist, Paul Krugman, observed on Sunday, "slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt." Indeed, focusing on short-term deficits while the economy is still recovering risks depressing the economy further. By further depressing the economy, you leave the government with even less tax receipts, which, by the way, have come in at $29 billion lower than this time last year.

The best way to get a handle on short-term deficits and long-term debt is to get the economy strong and healthy again. That means continuing to provide unemployment insurance and COBRA benefits to the unemployed, and helping states overcome their steep budget shortfalls. In short, following policies that will lead the CBO to continue to produce MBRs that show large budget deficits.

Image by Flickr user Jim Linwood used under a Creative Commons license.