To wit: After the Crash of 1929, the Federal Reserve did not move fast enough to save the banks and inject cash into the economy. Second, the New Deal, far from being wastrel deficit spending, was not bold enough. So it was that America wallowed in depression for a decade until the unbridled spending and mammoth deficits of World War II pulled us out.
Bush and Obama seem determined not to make the same mistake.
We are all Keynesians now.
Thus, we have the $700 billion Bush bank bailout, the $700 billion "stimulus package" Obama wants by inauguration to "jolt this economy back into shape" and the $800 billion fund Hank Paulson created to get consumers borrowing and buying again.These come on top of Bush $455 billion deficit, the $29 billion bailout of Bear Stearns, the $105 billion in pork to grease the $700 billion bailout, the $100 billion to $200 billion to keep Fannie and Freddie afloat, the $140-billion-and-counting for AIG, the $25 billion for the greening of GM, Ford and Chrysler, the $25 billion more to save the Big Three and the $20 billion for CitiGroup.
Now much of this overlaps, and some will be retrieved. But we are still staring at a deficit that could approach $2 trillion.
How would this stack up historically?
A deficit of $1.4 trillion would be 10 percent of gross domestic product, dwarfing the postwar record 6 percent run by Ronald Reagan in the Jimmy Carter recession.
Bewailing the "Reagan deficits" has been a staple of Democratic oratory. This will stop. But the politics of this is not the point, the policy is.
Consider what we are about to do. Bush in 2008 spent 21 percent of GDP. States, counties and cities spent another 12 percent. Thus, one third of GDP is spent by government at all levels. Obama and Co. propose to raise that by another 10 percent of GDP. We may soon be north of 40 percent of gross domestic product controlled and spent by government.
That is Eurosocialism.
And where, exactly, are we going to get the money?
Americans save nothing. We spend more than we earn. Thus the levels of consumer debt, credit card debt, auto debt and mortgage debt. U.S. foreign-exchange reserves amount to a piddling $73 billion.
The only nation with the kind of cash on hand we need now -- if we don't print the money and invite another gigantic bubble -- is China, with its $2 trillion in foreign-exchange reserves.
Will Beijing lend back the dollars it has piled up by selling to us?