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Brad DeLong describes what exactly “we” have been doing, in a short and highly readable piece.

In an effort to stave off the next Great Depression, he lists the 7 things that our government has been and is considering doing:

  1. Plan A – the FED lends lots of money to almost any and all comers, in order to keep “cash” in the banking system
  2. Plan B – the FED lowers interest rates to stave off “deflation” which supposedly threatens business investment (i.e. why build a factory today if prices tomorrow will fall)
  3. Plan C – the Treasury mails out a bunch of tax rebates and hopes consumer spending will fix the problem
  4. Plan D – mergers, liquidations and nationalizations of financial institutions
  5. Plan E – the Paulson plan to purchase bad mortgage assets from financial institutions
  6. Plan F – “recapitalization of banks” (i.e. hard-core Venezuelan socialism where the US government now owns substantial stakes in US financial institutions)
  7. Plan G – reincarnate the modern versions of the Works Progress Administration, the Tennessee Valley Authority, the Civilian Conservation Corps, etc.

So many plans! Imagine you are a parent and your young child is clever enough to convince all of his friends to loan him $2, and he will pay them back with $4 in a month … and he does this for quite some time until he runs out of people to rope into his scheme. What would be your options about how to rescue the system your son has created?

  1. You, as a parent, lend money to all of the kids that “invested” $2 with your kid?
  2. You grease the wheels of other parents to make it easier for their kids to run such a game
  3. You send a check to every single student in the school, regardless of whether they played the game or not
  4. You encourage your son and his friend to do the game together next time
  5. You purchase the obligations to pay back all of your son’s “investors”
  6. You provide your son with a huge lump sum allowance so that he can continue on about his merry way
  7. All of your son’s victims and non-victims alike should come to your yard and dig lots of holes, and perhaps build you a fence and a new driveway to boot

Where is the plan that says, “let the bad little boys get punished”?

One Response to “What Are Our Options?”

  1. Patrick says:

    But when the kid gets punished all his friends are still out two dollars, no? Still, it’s an amusing analogy.

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