With Wall Street in turmoil and the economy on a downward slope, policymakers’ ingenuity to help financial markets and the economy is demanded. The response will have to be large, but also smart. Voters will likely not accept an approach that simply throws money at the problem, never mind that the government will eventually run into some hard times itself if policymakers think that more money will fix all that ails us. Undoubtedly, some tax cuts and some spending increases will have to be part of the solution, but given the recent financial rescue package and the need for a short-run money injection to avoid a major recession, policymakers will need to think smartly about other tools at their disposal to help the economy to recover.
