These worthies ranged from Democrat Bob Rubin, to the Blue Dog caucus of Wall Street-afflicted Democrats in Congress, to Republican billionaires like Pete Peterson. And they were joined by legions of economists.

On this issue, the only difference between the two parties was that the Republican deficit-phobes wanted to reduce the red ink by cutting social programs while the Democrats wanted to raise taxes on rich people. I wrote about the danger that deficit-obsession would pose to an Obama administration in a recent Prospect piece, and in my book Obama's Challenge.

But that was then. All of sudden, an administration that can't find a spare nickel for children's health, repair of decrepit infrastructure, education aid, green energy, and other useful outlays is proposing to increase the deficit by more than four percentage points of GDP, because Wall Street made some bad bets. And Treasury Secretary Henry Paulson blithely explains that this gargantuan increase in the deficit is no biggie, because some of it may even be paid back. What a difference a meltdown makes.

Paulson insultingly declared that regular deficit spending -- say on scientific research or education -- pays no returns, while a Wall Street bailout does. What a splendid rendition of the way Wall Street Republicans view the world. The man is an economic idiot with a political tin ear.

But this change of heart on deficits may actually be salutary. First, waiving the usual deficit-phobia sets the stage for deficit spending that an Obama administration will surely need to pull the economy out of a deep recession. I have been arguing that a deficit of several hundred billion dollars spent on the right social investments will be a necessary source of stimulus, and will actually help ordinary people.

The fact is that the ratio of public debt to GDP is actually quite modest by international and historic standards -- about 37 percent, compared to 120 percent after World War II. The urgent imperative now is to get the economy back on course -- and to do it by helping regular people. If the deficit temporarily increases to, say 50 percent of GDP, that's far better than a severe and prolonged recession.

But once Paulson gets his bill enacted, the danger is that Republicans and fiscally conservative Democrats will use the $700 billion dollar hike in the deficit to justify further cuts in spending that actually helps regular people. So the Democrats should take Paulson at his word. The money for this bailout should be underwritten for by a special issue of government bonds that are not counted against the on-budget federal deficit. These bonds, unlike the junk that got us into this mess, will actually be paid back.