Once you understand how we got into the perilous economic situation we now enjoy you can start to look for ways to get out of it. But to find real solutions you have to approach the situation rationally, and not in a desperate panic. Thus far the reaction of Congress as well as both the Bush administration in passing the TARP bill, and the Obama administration in passing the stimulus package, has been one of irrational panic; throwing money at the problem without thinking about the consequences of their deficit spending or more effective and more responsible alternatives.
What we are faced with is a natural cyclic recession which has been intensified and prolonged by government mismanagement, gross financial irresponsibility, misguided economic policy and poorly conceived attempts at inadequate stimulus. Not to let anyone off the hook, consumers for years we've been spending money we don't have on crap we don't need. We've seen problems with real estate, credit markets and banking before, and we've seen the results of government intervention. When the role of government is limited and primarily that of a caretaker and manager, it can be a great help. When its response is heavy handed and excessive, it can do far more harm than good.
The reality is that the poorly conceived TARP bailout and the equally foolish stimulus plan are working to suppress the economy and prevent recovery by doing all of the wrong things and producing results too slowly. The TARP bailout gave money away to prop up businesses failing because their methods of doing business were unsupportable, when it should have shut those businesses down, quarantined their bad debt, and sold off their assets to more responsible competitors, even if they needed government loans to make those purchases. By giving more money to companies whose basic business models are flawed and have put them on the brink of failure, they are just encouraging those companies to lose more money, but in this case taxpayer money instead of money from their hapless investors.
About half of the TARP money has been spent, but the current behavior of the stock market and the increasingly unstable status of many lending institutions makes it clear that it is not having any positive effect. The perfect example of this is the situation with AIG, which received $80 billion with no strings attached, immediately spent that money to very little positive effect and then came back asking for another $60 billion to keep it solvent. Under what possible scenario would it make sense to give more money to a company which has already proven it couldn't make use of its previous handout responsibly?
In a bizarre example of doublethink, the advocates of stimulus spending are declaring that we were put in these dire straits because of the uncontrolled spending of the Bush administration, on the basis of which they disqualify all conservatives from having an opinion on the subject. Yet they think that the solution to a problem they admit was contributed to by excessive spending, is to spend enormously more money — spending more in 2 months than FDR spent in his first 4 years . That just makes no sense at all. The idea that you can spend your way out of recession makes no sense when you're getting the money you spend by further enlarging the deficit which is helping to cause the recession in the first place.
The current stimulus plan cannot work because it isn't designed to stimulate the economy directly enough; it wastes money on huge numbers of non-stimulative programs and passes too much money through the hands of bureaucracies which will reduce its impact while covering their own expenses. It spends $800 billion to produce the impact of maybe a quarter of that amount of spending. And it remains a basic truth that government cannot create jobs with the efficiency and permanence of the private sector; this stimulus plan not only does little to help the private sector, but it also comes with tax increases which will have a crushing effect on small businesses and entrepreneurs who really do create jobs.