A Guide to the Economic Crisis for the Rest of Us

The politicians in DC have been telling us that we need to act now in order to stabilize the economy. They passed a massive bailout bill against the voice of the people last week in order to do just that. Afterall, the bill was named the Emergency Economic Stabilization Act of 2008. In predictable fashion, markets around the world closed lower in the days and even minutes after the bailout was passed. Could it be that the politicians have misdiagnosed the problem and is now proceeding with the wrong treatment?

On the popular TV show House, patients with mysterious illnesses are treated by Dr. House. He and his team of doctors try to find out what is wrong with the patient in order to cure them. The kicker is that it is never simple to diagnose the problem. In fact, that point of the show is that it takes a doctor who thinks completely outside the box to solve these medical mysteries.

Fortunately, our economic crisis is not as mystifying as the patients on House. The mainstream economic school of thought is just not capable of understanding the current state of the economy. The politicians believe we can just throw more money at the problem and it will be fixed. They happen to be wrong.

In order to understand what we should do to fix the problem, we first must understand how we got here. Just a month ago, people who supposedly understood the economy was telling us that the fundamentals were strong. Clearly, they were not. In fact, they must have been held together by duct tape considering how quickly it has fallen apart.

This economic crisis, like those before it, was created during the economic boom. No one complains when the economy is booming and everyone feels richer. The free market is touted as the greatest thing in the world during these times. The free market might be the greatest thing in the world but, the it didn't create the boom. The government created the boom. The boom created the bust. So, the government is responsible for the economic calamity we now find ourselves.