Fighting the Great Depression Again

There's a quip about military thinking that says that every general staff devotes itself to preparing to fight the last war. As the government piles on more experts on the Great Depression, Bernanke at the Fed and now Christina Romer for the Council of Economic Advisors, I can't escape the feeling that the government is assiduously preventing the events of 1932.

But while it's possible to criticize Hoover and his ilk for making the situation worse through fiscal policy, there is no established method for doing any better. There's a lot of theory, but nobody has actually headed off a Depression through government action.

So when folks say that they'll do as much as it takes, they assume that what they are doing is what it takes. But I see the economy as the equivalent of a couch potato, waking up one day fat and unfit and having trouble just walking around. The cure would be diet and exercise. A temporary substitute would be meth, but sooner or later, you either crash from your meth high or die.

Only a little while ago, everyone would have agreed that running trillions of dollars into debt would not be good. Now it can be discussed almost nonchalantly. When interest rates start back up, with the extra few trillion of debt obligations, the feds may find themselves spending a trillion a year on interest. Does nobody else worry?