The big story out of Obama’s press conference today will be that he said that “the private sector is doing fine.” This choice of language does seem like a pretty serious misstep, and Republicans are salivating over the opportunity it has given them to portray the President as out of touch with people’s economic suffering.

But at the same time, something else noteworthy happened at the presser, and it shouldn’t get lost in the discussion of Obama’s gaffe. He offered one of his most extensive cases yet for government spending as the best way to create jobs amid a downturn and against austerity as something that could make the short term crisis worse. Obama:

If, when an economy is still weak, and a recovery is still fragile, and you resort to a strategy of, `let’s cut more,’ so that you're seeing government layoffs, reductions in government spending, severe cutbacks in major investments that help the economy grow over the long term — if you’re doing all those things at the same time as consumers are pulling back, because they’re still trying to pay off credit debt, and there’s generally weak demand in the economy as a whole, then you can get on a downward spiral where everybody is pulling back at the same time. That weakens demand. And that further crimps the desire of companies to hire more people....

And the markets by, the way, respond when they see this kind of downward spiral happening. They start making a calculation that if you’re not growing, if you’re contracting, you end up having more trouble paying us off, so we’re going to charge you even more. So your interest rates go up...

We’ve created 4.3 million jobs over the last 27 months. Over 800,000 this year alone. The private sector is doing fine. Where we’re seeing weaknesses in our economy have to do with state and local government — oftentimes cuts initiated by governors or mayors who are not getting the kind of help they have in the past from the federal government...if Republicans want to be helpful, if they really want to move forward and put people back to work, what they should be thinking about is, how do we help state and local governments...the recipes that they’re promoting ... would add weakness to the economy ... and would result, most economists estimate, in lower growth, and fewer jobs. Not more.

The reaction to this today has been interesting to watch. Many GOP operatives have been arguing on Twitter that this shows that Obama thinks more “government” would fix the economy. Of course, Obama is arguing for more government jobs; this only confirms again that for many on the right, government jobs simply don’t count.

But Obama made one of his most clear cases yet today that cutting government more would hurt the whole economy and drive us further into crisis. And as it happens, the claim that major cutbacks to state and local governments have proven a major drag on the recovery is a factually verifiable one, so we can determine who is right and who is wrong here.

It’s often pointed out that Obama and Dems have complicated this case for themselves by previously reinforcing conservative frames with talk about the need for government to “tighten its belt” and so forth. And I don’t disagree with that. But it’s good to see Obama taking on the argument over the relationship between government spending and economic growth/job creation so directly.