The following is an excerpt from End This Depression Now!, the recently published book by Nobel Prize-winning economist and New York Times columnist Paul Krugman. Purchase it here.

By the fall of 2009 it was already obvious that those who had warned that the original stimulus plan was much too small had been right. True, the economy was no longer in free fall. But the decline had been steep, and there were no signs of a recovery fast enough to bring unemployment down at anything more than a glacial pace.

This was exactly the kind of situation in which White House aides had originally envisaged going back to Congress for more stimulus. But that didn’t happen. Why not?

One reason was that they had misjudged the politics: just as some had feared when the original plan came out, the inadequacy of the first stimulus had discredited the whole notion of stimulus in the minds of most Americans and had emboldened Republicans in their scorched-earth opposition.

There was, however, another reason: much of the discussion inWashingtonhad shifted from a focus on unemployment to a focus on debt and deficits. Ominous warnings about the danger of excessive deficits became a staple of political posturing; they were used by people who considered themselves serious to proclaim their seriousness. As the opening quotation makes clear, Obama himself got into this game; his first State of the Union address, in early 2010, proposed spending cuts rather than new stimulus. And by 2011 blood-curdling warnings of disaster unless we dealt with deficits immediately (as opposed to taking longer-term measures that wouldn’t depress the economy further) were heard across the land.

The strange thing is that there was and is no evidence to support the shift in focus away from jobs and toward deficits. Where the harm done by lack of jobs is real and terrible, the harm done by deficits to a nation likeAmericain its current situation is, for the most part, hypothetical. The quantifiable burden of debt is much smaller than you would imagine from the rhetoric, and warnings about some kind of debt crisis are based on nothing much at all. In fact, the predictions of deficit hawks have been repeatedly falsified by events, while those who argued that deficits are not a problem in a depressed economy have been consistently right. Furthermore, those who made investment decisions based on the predictions of the deficit alarmists, like Morgan Stanley in 2010 or Pimco in 2011, ended up losing a lot of money.

Yet exaggerated fear of deficits retains its hold on our political and policy discourse. I’ll try to explain why later in this chapter. First, however, let me talk about what deficit hawks have said, and what has really happened.

Invisible Bond Vigilantes

I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everyone.

—James Carville, Clinton campaign strategist

Back in the 1980s the business economist Ed Yardeni coined the term “bond vigilantes” for investors who dump a country’s bonds—driving up its borrowing costs—when they lose confidence in its monetary and/or fiscal policies. Fear of budget deficits is driven mainly by fear of an attack by the bond vigilantes. And advocates of fiscal austerity, of sharp cuts in government spending even in the face of mass unemployment, often argue that we must do what they demand to satisfy the bond market.

But the market itself doesn’t seem to agree; if anything, it’s saying thatAmericashould borrow more, since at the momentU.S.borrowing costs are very low. In fact, adjusted for inflation, they’re actually negative, so that investors are in effect paying the U.S.government a fee to keep their wealth safe. Oh, and these are long-term interest rates, so the market isn’t just saying that things are OK now; it’s saying that investors don’t see any major problems for years to come.

Never mind, say the deficit hawks, borrowing costs will shoot up soon if we don’t slash spending right now. This amounts to saying that the market is wrong—which is something you’re allowed to do. But it’s strange, to say the least, to base your demands on the claim that policy must be changed to satisfy the market, then dismiss the clear evidence that the market itself doesn’t share your concerns.

The failure of rates to rise didn’t reflect any early end to large deficits: over the course of 2008, 2009, 2010, and 2011 the combination of low tax receipts and emergency spending—both the results of a depressed economy—forced the federal government to borrow more than $5 trillion. And at every uptick in rates over that period, influential voices announced that the bond vigilantes had arrived, that America was about to find itself unable to keep on borrowing so much money. Yet each of those upticks was reversed, and at the beginning of 2012 U.S.borrowing costs were close to an all-time low.

Source: Board of Governors of the Federal Reserve System

The figure above showsU.S.ten-year interest rates since the beginning of 2007, along with supposed sightings of those elusive bond vigilantes. Here’s what the numbers on the chart refer to:

1. The Wall Street Journal runs an editorial titled “The Bond Vigilantes: The Disciplinarians of U.S. Policy Return,” predicting that interest rates will go way up unless deficits are reduced.

2. President Obama tells Fox News that we might have a double-dip recession if we keep adding to debt.

3. Morgan Stanley predicts that deficits will drive ten-year rates up to 5.5 percent by the end of 2010.

4. The Wall Street Journal—this time in the news section, not on the editorial page—runs a story titled “Debt Fears Send Rates Up.” It presents no evidence showing that fear of debt, as opposed to hopes for recovery, were responsible for the modest rise in rates.

5. Bill Gross of the bond fund Pimco warns tha tU.S.interest rates are being held down only by Federal Reserve bond purchases, and predicts a spike in rates when the program of bond purchases ends in June 2011.

6. Standard & Poor’s downgrades theU.S.government, taking away its AAA rating.

And by late 2011 U.S.borrowing costs were lower than ever.

The important thing to realize is that this wasn’t just a question of bad forecasts, which everyone makes now and then. It was, instead, about how to think about deficits in a depressed economy