Sunday, October 17, 2010
Deflation
While waiting for the computer to work itself through the data, I shall write down my thoughts. Following Mangan's very pessimistic note on his country, which apparently reflects the general ambiance, I think that America may be in danger of falling into deflation. Deflation is a mass psychological mood of loss of faith in the future, fear to start new things, avoiding new experiences instead of touring the world's seven marvels. In a deflationary environment people will not even go out to the street to pick up dollar bills laying on the pavement. Banks are pushing loans at 0% interest and people is not taking them. Once national pessimism sets in, it may last a generation.
Subscribe to:
Post Comments (Atom)
13 comments:
Very pessimistic article on the effects of inflation on Japan here:
http://www.nytimes.com/2010/10/17/world/asia/17japan.html?pagewanted=3
My son says it is just the US nomenklatura softening up the public for a devaluation of the US $ - "see deflation is bad. You WANT there to be inflation. Inflation is GOOD."
I don't think deflation is the cause of anything, any more than a high temperature what makes you sick. Deflation (and fever) are symptoms of the underlying disease, which in Japan's case is a declining population. If your population is falling, there is going to be too much housing, too many shops and restaurants, etc. and falling prices.
NYT subscribes to "broken windows" economics. If only consumers would go out and have a wild party and break all the windows in their house and buy stuff they can't afford, retailers would sell lots of new windows and buy Mercedes and the economy would be great. The party never has to stop - we just keep selling each other stuff we can't afford, smash it, buy more, and get richer and richer. Fie on the party poopers calling last call and asking us to pay the check - they spoil everything. Democrats have always been the party of "cheap money" (credit on easy terms) and later "free money" (welfare benefits). The more free/cheap money we have, the better off we are. Only when the potlatch stops do hard times come, so don't stop the potlatch or you'll be sorry.
K
Sorry , DEFLATION in Japan, not inflation.
K
Breaking windows, or waging a war -- I guess these are two ways to stimulate an economy.
War is the best remedy.
I disagree vehemently - there is nothing good about war and the post WWII recoveries had nothing to do with war itself but rather with the stable conditions that resulted after the war was over. Those that say defense spending is good for the economy are wrong. The Soviet Union spent most of their budget on defense and it did not make them rich.
K
Not just budget but GDP. Most of whst they produced went into the military. Nor are "spinoffs" worthwhile - you put $1 into defense and maybe there are 10 cents worth of spinoffs (jet engines, satellites, etc.). Most military spending has no civilian application at all.
K
I meant that war destroys infrastructure, and rebuilding can stimulate the economy. Wasn't that Marx' theory on why wars are fought?
I know and as usual Marx is wrong - as you point out, this is "broken windows" theory and it's wrong. We did not become richer when the WTC crumbled - that's just plain wrong.
Japan and W. Germany postwar became rich not because all their factories were bombed into rubble - it took them years of austerity to rebuild. They became rich because A. they no longer had to pay defense costs and B. they were now integrated into the Western system of rule of law and world trade. E. Germany was just as destroyed but they did not become rich.
K
Thanks. I could tell it is a shallow theory, but then I like to see your insightful response to things.
Marx says that war is necessary because of capitalism's chronic overproduction. I think that war is necessary to solidify the State and improve the people's mood. Depression - economic and otherwise - is all about mood.
War only improves your mood if you win.
K
The Soviet Union spent most of their budget on defense and it did not make them rich.
True, but the SU did not have private property or the rule of law, so there were no private companies to exploit dual-use technology in the private sector. All of that research carried out for the military could have been exploited but never was.
Also, a lot of private wealth in any country comes from the small businesses meeting local needs in low tech ways.
There's no doubt that the Soviets could have done a better job of exploiting dual use technologies (civilian production was never a priority for the central planners - the best resources went into military use, even things that we consider civilian production in the West - e.g. wristwatches) but the idea that military spending therefore "pays" in a private property framework is just not true - as I said before, maybe you get a positive return on the very best spinoff ( GPS satellites) but 90% of military spending has little or no civilian application. Spend $5 billion on space program, get Tang instant breakfast drink. Not a good deal for the taxpayers.
K
Post a Comment