The Stock Market, the Government Just Needs to Spend Money

Dean Baker
TPMCafé (Talking Points Memo), November 20, 2008

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The Great Depression was a horrible and extremely painful experience. But we did learn something extremely valuable from this experience: how to get out of a depression. The answer came in the form of the massive government stimulus associated with World War II. At the peak of the war, our deficits exceeded 20 percent of GDP. This would imply deficits of more than $3 trillion in today's economy.

This is important. We know how to keep the economy from collapsing. We didn't have this information 80 years ago. The secret is to spend money, lots of it.

CEPR just circulated a letter that garnered 375 economists' signatures arguing for a stimulus between $300 billion and $450 billion. This might be too small given all the bad news that we are seeing. We may need to spend $500 billion or $600 billion a year to get the economy back on its feet, possibly more. The key point is that we can get the economy back on its feet; we just have to spend the money to do it.

The stock market is driven by fear and greed. Today fear dominates. That should not be our concern. We must force the politicians to do what is necessary to get the economy moving. They must spend lots of money.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.