In the hilariously titled post, Let's Start Spending, Dr. Robert Frank argues for more road paving to get the economy moving again. Writing in doubletalk, he says:
The deficit hawks are killing us. No, wait! I’m a deficit hawk. So let me rephrase that: Some of the deficit hawks are killing us. Like other deficit hawks, I believe we need to start paying down the mountain of debt the federal government has been running up. But not now, not as we continue to struggle to emerge from the deepest downturn since the Great Depression. Cutting spending now is the very last thing we should do.
The only reason we’re in a downturn is that there’s not nearly enough total spending to put everyone to work. The $787 billion economic stimulus bill passed in 2009, which many economists at the time warned was too small, is running out. Its effects are being offset increasingly by massive cutbacks in state and local government spending. And now many deficit hawks want us to cut spending further.
This is lunacy. The right kinds of deficit spending not only would help speed economic recovery, they would help bolster the nation’s long-term balance sheet.
He goes on to tout the supposed economic wonders that fixing roadways can do.
Wasn't that was ARRA (last year's "stimulus" bill) was all about?
What's especially important about Dr. Frank's views is that his co-author of an economics text was Dr. Ben Shalom Bernanke. Who just spoke today about mounting signs of economic weakness.
OK. Enough hilarity. Dr. Frank wants us to start spending. As if spending $3.5 T isn't enough this year.
On another front, first it was the sainted Jeremy Grantham with a self-serving alleged switch to fearing deflation as the greater worry than inflation. Now it is the allegedly conservative Weekly Standard that is hyperventilating about the same subject in its blog today, with a post titled Deflation: A primer. Here's one quote from that post:
As awful as double-digit inflation was, single-digit deflation is worse. As triumphant as the victory over inflation was, we can't always be re-fighting the last war.
This is a country deeply in debt. Inflation reduces the burden of debt -- anonymously, impersonally, and across the board. I hope I don't sound too nationalistic when I note that a lot of that debt is held by our Chinese friends. They ran huge trade surpluses with the United States when times were good. Time now for them to contribute a little back.
Sorry. I'm not with that program. There's good deflation and bad, but the blog doesn't differentiate. Most of the 19th century was deflationary in the U. S., and the country was probably the greatest growth story for a whole century in world history. Or close to it. Falling prices due to technologic advances and opening up of inexpensive raw materials are good things. Otherwise scarcity of food would be good, because it means rising prices.
The real problem is that deflation punishes poor borrowing and lending decisions. It is tough on borrowers, but that's a private matter between them and the lenders. If the lenders need to take a haircut, so be it. If deflation were allowed to occur naturally across the entire economy the way it used it be allowed, then both borrowers and lenders would be more prudent. They couldn't count on helicopter drops of money and ZIRP to bail them out.
About stiffing the Chinese with inflation, how spoiled can you get. First the West hires the Chinese to do the tough, polluting manual labor it doesn't want to do, at rock-bottom wages to enrich the owners and managers of the outsourcing companies, and refuses to pay them in kind with an equal amount of manufactured goods; we send them promises to pay. And now we keep up our bargain after receiving the fruits of their labor for our benefit by welching on our paper.
Honorable? No. Wise? Also not.
More and more, the Establishment is laying the groundwork to persuade the sheeple that the cure for excessive borrowing and lending and attendant money creation is more of the same.
QE2, in other words: Quantitative easing 2.0.
This can only continue with declining borrowing costs if private borrowing is crowded out; in other words, if the economy continues to be anemic. The Japan scenario, in other words.
And this may be. But as per Nassim Taleb's story of the turkey, the Black Swan event from the turkey's standpoint was sudden death after a happy, easy life. The economic equivalent of that is either hyperinflation or cessation of credit being supplied by creditors, in a Greek-like scenario with true austerity being imposed from outside. So we can go Japanecian (or, Grecianese), or the hyperinflation scenario such as Argentina and Brazil did in the relatively recent past.
What we can't do is "stimulate" the economy endlessly by printing money under the pretense that we are going to repave our way to prosperity.
The laws of economics trump hopium and hokum.
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