Economic rescue could cost $8.5 trillion
With its decision last week to pump an additional $1 trillion into the financial crisis, the government eliminated any doubt that the nation is on a wartime footing in the battle to shore up the economy. The strategy now -- and in the coming Obama administration -- is essentially the win-at-any-cost approach previously adopted only to wage a major war.
And that means no hesitation in pledging to spend previously almost unimaginable sums of money ...
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I think this story leaves out one important effect that we saw the last time this sort of thing was tried in the Carter administration. Stagflation. It led to the Reagan win in the 1980 election followed by the recession of 1982. And what did Reagan do that ultimately got us out of the Carter mess? He lowered tax rates and convinced the Federal Reserve to stop expanding the money supply. The Milton Friedman solution. Or supply side economics as it was called at the time. Now much derided but, it did lead to a 28 year long boom with only very minor corrections. Of course Reagan was trained in economics. Our incoming President was trained in Community Organizing. It will be interesting to see if he is up to the job.