OUR family just returned from a fun holiday on New Zealand's South Island. My friend from university days threw a party there for 200 of his closest friends. (I don't even know 200 people.)

TNP ILLUSTRATION: JONATHAN ROBERTS

Most of the guests were economists and their families. On the last day, we held a conference to brainstorm solutions to the economic crisis. Here is what we came up with:

1. Will this recession be over by year-end?

Everyone seems to be predicting the recession will end in 2009. The world will return to boom times by 2010.

One year ago, however, economists predicted there would be no recession and certainly not a severe one.

It is a frightening thought: The top brains we are relying on to pull us out of this crisis did nothing to prevent us from falling into it in the first place.

It is enough to make you wonder if the world's economic experts are really so expert.

2. How to fix it?

The first step has been taken. It was to prevent a meltdown by making sure the banks didn't go broke.

For good measure, the US also saved insurance giant AIG, General Motors and Chrysler. A joke is that cattle ranchers and tomato farmers deserve bailouts too.

How about brothel owners? The recession has affected libidos and their business is down too.

Does every business that is hurting deserve a bailout? Should bankruptcy be made impossible? These are tough questions that will be debated for years.

Step two is to bring back demand. Economists know only one sure way to do it: Spend, spend and spend some more.

President-elect Obama has promised to do that. A stimulus package of about US$800 billion is likely to be approved by February.

3. Will it work?

Economists see the economy like a tap. If you need more water - or economic stimulus - you simply turn the spigot a little wider. Let it run until you've got all you need.

It sounds easy but this crisis is different. No one can say for sure what will work.

The only near-certainty is for massive spending to be effective, governments need to put money in the hands of low income groups.

Not only do they need the money most, they are also likely to spend close to 100 per cent of it. It will quickly filter through the economy, revive optimism and get us back to the good old go-go days.

What could go wrong?

THE US needs to fix its economy to give a boost to the rest of the world. It is likely to spend a massive US$800 billion within the next 6 months. Will it do the trick?

The risk is political pressure will push the handouts to (i) middle income groups and (ii) infrastructure spending.

Those produce a weaker boost than giving it to lower income groups who spend it.

For example, the US$268 billion tax rebate last May went to middle income groups who spent only 20 per cent, and used the other 80 per cent to save and pay down debts.

That is great for your personal finances but - ironically - saving is harmful for reviving a sick economy.

As for infrastructure spending, much of it only replaces previously planned spending by the 50 US states. That produces less 'bang for the buck' than personal spending.

A third option - used more and more - is 'quantitative easing'. The term sounds better than what it really is: Printing money.

In times like now, it is unlikely to trigger inflation and makes everyone feel richer so they spend more. It is also free, which makes it cheaper for the government than borrowing the money. It is a good idea that works well.

The downside is it may not be done aggressively enough since it has to replace huge gobs of money that have been destroyed from reduced bank lending.  Back to Columnists