The American economy isn't just going through a weak patch--it's mired in a "Lesser Depression" that poses a challenge more daunting than at any since the crisis of the 1930s, according to a major new study released Wednesday.

The provisions in President Obama's jobs plan are no more likely to be effective at producing a lasting recovery than were the bank bailouts and various stimulus efforts that came before, write Daniel Alpert, Robert Hockettt, and Nouriel Roubini in the New America Foundation report, "The Way Forward: Moving from the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness." The dire economic situation, they argue, demands far more urgent and aggressive action.

But nor do the authors see reducing the federal deficit--the issue Washington has spent much of the year focused on--as a key part of the answer. In an interview with The Lookout, Alpert described the fears over the deficit as a "red herring that is dangled before much of the American people."

The study's analytic rigor and the reputation of its authors give it an unusual authority. Alpert is the founder of the investment banking firm Westwood Capital and a respected financial commentator. Hockett is an expert in financial law at Cornell. Roubini, an economics professor at New York University, gained fame as "Dr. Doom" for predicting the collapse of the housing market and the global recession that followed.

The United States is not facing "an ordinary business cycle downturn" that can be fixed with the "modest policy measures" that have been tried so far, the authors write.

Instead, they argue, the economy is stuck in a "balance-sheet Lesser Depression or Great Recession of nearly unprecedented magnitude." The bursting of the housing bubble has left millions of Americans with a massive overhang of debt that continues to exert a huge drag on consumption. That creates a lack of demand that's at the root of the economy's slow growth. It also means the banks that hold that debt are seeing sky-high default rates, making them reluctant to lend, even more than four years after the housing crash began.

Story continues

International factors are also in play. Cheap labor has flooded the world market. The rise over the last three decades of new export-driven economies, mostly in Asia, has created an oversupply of labor, the authors argue, leaving the United States with stagnating wages, widening inequality and fewer exports.

The relationship has not been entirely positive for the developing world, however. Because the world's new export-driven economies are dependent on American consumers, the entire global economy can be upended by a weakening of demand in the United States--which is essentially what has happened.

The authors don't propose many ideas that haven't been floated before. They want a "five-to-seven year public investment program" focused on repairing public infrastructure. That same concept was part of President Obama's jobs bill, but over a shorter period, and on a far smaller scale.

In addition, the authors propose a comprehensive debt-restructuring plan focused on the banking and housing sectors. The Obama administration's efforts to reduce homeowner debt have been halting and often ineffective.

Despite its prominent place on Washington's agenda, the authors are opposed to cutting the federal budget deficit in the short run. When the economy is as weak as ours is, Alpert said, deficit reduction is counter-productive--a view shared by most economists.

Alpert angrily dismissed the notion, pushed by many deficit hawks, that business sector concern over the budget gap is holding back the economy.

"It's a complete and utter fallacy to say that a business that has a chance to invest and make money won't do so because it's worried about taxes going up in the future," he told The Lookout, calling the hypothesis "intellectually insulting."

Other popular Yahoo! News stories:

• Informant posing as drug cartel member foiled Iranian plot

• Underwear bomber pleads guilty at trial

• Obama team targets Romney but stops short of calling him GOP frontrunner

Want more of our best national affairs stories? Visit The Lookout or connect with us on Facebook and follow us on Twitter.