I came across this essay by Dean Baker and Mark Weisbrot on Alternet talking about how we can reverse the economic meltdown.

The other key component of an economic recovery package should be a coordinated fiscal stimulus. In the United States, this stimulus should be on the order of $300 billion to $400 billion (2.0-2.7 percent of GDP). This stimulus is essential for counteracting the sharp falloff in consumption that is following the loss of $5 trillion in housing wealth and President Bush’s scare tactics for promoting his bank bailout.

The stimulus should be designed to quickly boost demand. In the United States, this can best be done by aiding state and local governments, extending unemployment benefits, tax rebates to low income individuals, accelerating infrastructure spending and support for energy conserving retrofits of homes and businesses. It is also essential that the dollar fall against other major currencies in order to bring the trade deficit back to a manageable level.

It is possible that even larger boosts to spending may be necessary to restore normal economic activity. The federal government must be prepared to spend whatever amount is needed to keep the economy creating jobs. This was the main lesson that we learned from the Great Depression. Concerns over deficits prevented the government from taking sufficient measures to boost the economy out of its slump until World War II left the government no choice. It would be an enormous tragedy for the country and the world if the United States were to repeat the same mistakes almost 80 years later.

I actually just heard on MSNBC that Congressional Democrats are indeed considering a $150 billion dollar bail out package. I have to agree with the authors that repeating the steps that led to The Great Depression would be a nightmare. All sorts of political extremes would come into vogue and gain a foothold. We’d see nationalism resurface with a vengeance. You think the hostility we’ve seen toward immigrants legal and illegal are bad now! Just wait and see what could happen.

I’m not saying that consumption is the end all be all. I’m not saying that we all have to go shopping! But consumption of “normal” goods and services is essential to keeping the economy from regressing. If ever there were a time to dump Milton Friedmanism for Keynesian economics now would be that time. It’s also interesting that they brought up that WWII left the government no choice but to boost the economy. I knew that the begining of The New Deal was started before the involvement of America in WWII. I also have read that The New Deal up until that point had still not actually jump started things yet. I shall assume then that it took the war to allow really agressive economic policies to be put into place.

So a stimulus is what we need then. The thing we have to be on the look out for in times like this is what Naomi Klein has termed “The Shock Doctrine”. In times of crisis there are “free marketers” who are waiting to implement even harsher economic policies. They learned from The Great Depression and saw how The New Deal and liberal dominace came to be accepted. I’m glad that the American people however are realizng that deregulation and other unregulated free market ideas are not what we need. They are the check we need to stop the outbreak of a shock doctrine.