In this MSNBC article, entitled "Deflation poses new economic threat," there is a pretty good analysis of what deflation means for the economy at large.
I would like to lift out the final paragraph of this article and bold what I think might get lost in over conventional wisdom din:
The recent, huge injection of hundreds of billions of dollars into the banking system should help offset deflationary pressures. Tax cuts could help, along with further increases in government spending on rebuilding roads and bridges. As the government pumps money into the economy and financial system that generally boosts inflation and should limit the odds that deflation could take hold.
The other tool to fight deflation mentioned elsewhere is to lower interest rates. Since the Fed has already lowered interest rates close to zero, that is just not an option.
Therefore, government spending is the only empirically proven option.
Now while I don’t necessarily agree that solely rebuilding roads and bridges is a very forward thinking strategy, I do think that "Apollo type" projects in developing a more powerful car battery, developing more efficient solar panels, or developing environmentally friendly wind farms (while finding a way to deal with the bird population) should take place. Installing solar parks and wind farms, among other things, as well as repairing our roads and bridges, which in many cases haven’t been upgraded since the 50s, would put a lot of money in the economy from the bottom up, not the top down. In 1933, President Roosevelt created and implemented the Civilian Conservation Corps (CCC), in 37 (!) days after he came into office. President Obama could create something similar, especially for depressed areas in the Rust Belt affected by the upcoming mass layoffs in the auto industry.
In order to achieve the goal of bringing in a new era, the language that we use should be different, it should not be "spending" but "investment;" the development of the Internet in the early 90s, led to the dawn of the Information Age. The "Green Age" is, in my mind, the next frontier, and President-Elect Obama has talked about investing in said technology.
The Conventional Wisdom, unfortunately, was voiced clearly by Jim Lehrer in the first debate when he asked, and I am paraphrasing, what spending do we need to cut due to the economic downturn? No one questioned the premise of the question in the first place, it is Generally Accepted Wisdom.
So I open the forum for a little discussion, what technologies, such as the ones I named could lead to a new era?
What technologies have the promise to be developed into large public works projects so that the money spent finds its way to the lower and middle class and not private contractors?
Finally, how do we overcome the media’s obsession with treating the government budget like it is a family’s budget?





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The deflation fight in the 1930s prolonged the agony rather than curtailed it. The measures that have been taken already in the present circumstances are by all measures historically doomed to failure and likely will end with a period of hyperinflation. The same thing that brought us to this point is now being used as the cure. It’s the sum total of madness.
Actually, this:
is false Conventional Wisdom.
Paul Krugman smacked down George Will this past Sunday on This Week and pointed out the return to “balanced budgets” in 1937 actually unnecessarily prolonged the recession.
What measures do you refer to here?
Frankly, we have NOT seen large government works projects tried since World War II. If I am incorrect here, please provide links to articles or other type of sourcing making your point here. The only measures the central government has provided so far have been relatively small stimulus checks, which I personally used to pay off my credit cards and the injection of large sums of capital into the financial system – something that I feel is ill-advised and poorly thought out. These are not the measures that I discuss in my post.
As stated in the article above, in cases of deflation, one of the proven methods is to inject more money into the economy. We are in a different situation than say, the Weimar Republic (we have a tad quicker access to information now than then) or Argentina in early 90s. (dollars, as the world-wide safe currency of choice are actually more in a demand as we have seen a rise in the dollar compared to other currencies in the last 6 months)
With the access to quick information that we now have, competent management (and I will grant you that that is a large question mark still) will pick up signs of inflation fast enough so that we are able to raise interest rates again and put them back to historical levels.
Economists out there – am I missing something?
unnecessarily prolonged the recession
I meant: unnecessarily prolonged the depression
we need more than highway construction [roads and bridges] .. we especially need to be looking a constructing gray water recapture systems .. and water treatment/filtration systems .. sewers .. ect .. there’s a lot which could be done to prepare for future shortages in clean safe drinking water .. and sewage systems which don’t overflow and pollute rivers and streams ..
We need towns and cities all over to change their codes to allow graywater systems for garden watering. Actually we in my city need a code inspection moratorium. No one can afford to paint a house. It’s simply not going to happen.
But, to get back to my original point, are large public works projects possible that would allow said graywater systems? I would think the answer is “yes,” but I just don’t know enough about this subject.
In Jane’s thread on the mothership about the Big 3 and BK, there was a discussion about the Dutch and their system of dikes, where they actually built one that was environmentally friendly to allow one of the estuaries to remain salt water in order not to destroy the unique habitat that exists at the end of that estuary near Roosendaal.
I think localizing the food supply in urban, vertical farms is an important idea. It hasn’t been prototyped on a big scale, afaik, but I think it has many advantages over our current emphasis:
How about healthcare infrastructure to meet the needs of the newly covered under a universal system? Not just hospitals and clinics, but medical equipment, pharma, etc will be needed to accomodate a huge increase in demand.
FWIW, I would love to see a separate structure for each specialty. While there will be some overlap at administrative levels. How unscrupulous psychiatrists try to defraud Medicaid/single payer system is usually VERY different from how unscrupulous orthopedic surgeons try to defraud. Government needs people from within each specialty advising them.
Energy is my favorite because it recalls the American mythology of personal reinvention and innovation – we know that story and enjoy it.
I’m going with health care investment as job one-A, which should not wait around while the new energy economy gets going. Among other big ticket items, it’s going to cost a lot to get people to go along with transitioning from their jobs in the insurance industry and into something else or something similar.
Solar Electric systems could be going up much much faster than they are because solar panels are in short supply (and are being shipped to Germany), and because tax credits for installing them run out every year about May.
There are many small businesses capable of installing medium scale systems if the country chose to fix those two “problems”.