i believe keynes approach during times of economic recession is the right one. when firms and household spending declines, economic output will decline, leading to a deflationary spiral. government spending needs to increase to buoy the economy.
this was the one of the mistakes that occurred during the great recession; government chose to shrink its spending, thereby letting asset asset prices fall, thereby reducing production, wages, and demand.
had we allowed our large banks to fail, would have only amplified the impact of the impending recession. without government support, there would had been no confidence in our financial system and therefore our economy (as short-term credit markets are essential for the day-to-day operations of businesses). though not the ethical choice to bail out banks with tax payers' money, it was the right choice for the economy in the long-run.
however, the government bail out of the detroit big three is a different story.
