We've had a global economy since Marco Polo made Venice rich by turning it into a trade center linking Europe and the Orient. By degrees, local economies have become more intertwined ever since.
This matters when assessing Obama's stimulus package. I suspect that historians biggest criticism will be that Obama is trying to do in the world of economics what Bush tried to do in the world of diplomacy - go it alone.
It is possible to save a single house on a block of burning buildings. It is meaningless to save a single room in a burning house. My own feeling is that our national economy is so intertwined with the global economy that our situation is closer to that of the room in the house than house on the block.
Today's economic problem is not contained to any one country. It spills across continents. There is no market immune from the global troubles or any market that is going to rise back up alone.
I still believe that Keynesian economics is powerful and offers a lesson worth remembering: in a down economy, if everyone does what makes sense they'll make things worse. As people cut costs to adapt to a drop in sales, sales everywhere drop and the ripple effect is to make a bad situation worse. A stimulus package in this context makes every kind of sense and is necessary.
But Keynes did not like the idea of allowing capital flows across borders. It made it difficult to effect national policy. But we'll never get back to this world of self-contained national economies, and yet the lesson of Keynes holds: when individuals do what makes the most sense in a recession we can easily tip into a depression.
So, what to do? I'll write more about it, but the real point of this post is simple: any solution that Obama tries to hammer out with the Senate is going to be too small in scope. Not because nearly a trillion dollars falls short of absurdly sufficient to stimulate. No. By too small in scope, I mean that any solution focused on a national economy is going to do little to reverse a global slow down. Until Obama focuses his attention on jointly creating a global solution, we'll likely scratch our heads and wonder what we got for our trillions.