What prompted Parks's pessimism is his assumption that the "right-wing ideology" prevalent in the White House will keep Washington from acting to ward off a major depression. A fan of famed British economist John Maynard Keynes, who called for major government spending programs to remedy the Great Depression of the 1930s, Parks would like the federal government to step up outlays to fix rickety bridges, repair pot-holed roads, improve schools, and more to provide more jobs, more income, and thus more spending to cure any economic downturn.
As Parks sees it, Washington and Wall Street are mostly counting on Fed additions to the money supply to revive the free market and right the economy.
"Automatic recovery is in no way a reliable concept," he warns, especially if deflation (falling prices) has begun. He recalls warning of the economic damage that the bursting real estate and stock market bubbles would wreak in Japan: That nation suffered stagnation from 1990 to 2001. Today's financial crisis has revived the debate over the role of government in stopping a slump.
If the economy doesn't improve soon, says Ed Yardeni, president of Yardeni Research in Great Neck, N.Y., the United States might want to consider doing what Sweden did in 1991: Inject government capital into a troubled financial market. The Swedish economy bounced back quickly.
"This is the worst credit crisis we have ever had" in the postwar US, Mr. Yardeni reckons. He praises the Fed for breaking historical precedents and being creative in its steps to prevent a credit meltdown. But actions by Treasury Secretary Henry Paulson to stem the troubles are "pretty lame," he holds.
