The economy in a nutshell

"We're in a zero-inflation, zero interest rate savings glut. The only way to get out is liquidity + fiscal stimulus."
-- An anonymous commenter on Brad DeLong's blog

Sad to say, with all the bullshit that the Rethugs are pushing out, they're doing their damndest to turn a deep recession into an all-out depression. They're saying the exact same goddamned things that they said in 1930, and are just as wrong now as they were in 1930. It's as if they flunked history in college or some shit like that, or maybe Republican history classes at Sheep Dip Bible College says FDR was President in 1930-1932 or some stupid shit like that (just as Republican science classes at Sheep Dip Bible College says the world is only 16,000 years old and the dinosaur bones were placed underground by the Great Flood).

So anyhow -- we're in liquidity trap territory right now, where any money being printed is stuffed under (virtual) mattresses, rendering monetary policy ineffective. We have to solve the fundamental solvency problem to eliminate the liquidity problem, but doing that isn't enough. A functioning financial marketplace is a necessary, but not sufficient, precondition for economic activity in an era of deflationary expectations. People (or banks) with deflationary expectations, who see their money as being more valuable to them in the future as their income declines due to job losses or pay cuts, will shove money under mattresses (or the virtual equivalent) rather than spend, no matter how much money you print. Any extra money printed simply goes to make mattresses plumper, rather than being spent or loaned and thus create economic activity.

Thus why I continue to state that it isn't enough to print money in order to re-inflate a deflating money supply. We need continued massive fiscal policy spending on the part of the U.S. government and government as a whole in order to make that newly-printed money actually employ people and create economic activity, and thus change deflationary expectations into inflationary ones where people want to spend again because their money will be worth less in the future. It's not as if there's any shortage of projects to spend money on. The nation’s infrastructure has been crumbling for years because of the pervasive underinvestment of almost 30 years of Republican domination of U.S. politics dating back to the election of Ronald Reagan, so it’s not as if there’s nothing to use as the target for this fiscal spending. We need roads, bridges, new high-speed rail and mass transit systems to deal with the fact that oil is running out and the automobile will not continue to be a viable means of transportation at some point within the next 20-30 years, we need a new electrical grid to replace the current collapsing one and new power plants to produce the power that will power the transportation infrastructure of the future, we need investment in basic science and research both theoretical and practical (for practical, in how to do agriculture in the future once easy petrochemical access is lost due to peak oil otherwise there will be a *lot* of hungry Americans and we aren’t likely to survive as a nation), there are just so many things that fiscal policy could be used for that not only help re-inflate the money supply, but result in actual valuable infrastructure and products in the future. Simply cranking up the printing presses won’t do all of this, it’ll just make the mattresses plumper and the Fed’s (virtual) vaults plusher. Cranking up the printing presses *and* spending the newly-printed money on all these backed-up infrastructure projects, on the other hand, are how you keep a deep recession from turning into an all-out New Great Depression.

Thing is, then you got these Republican fucktards whinging about inflation. What the fuck? There is no inflation out there, asset values are still spiraling downward like the Republican Party's collective IQ as all the smart Repubs jump ship, wages are flat or declining (remember, wages of unemployed people declines to ZERO and there's half a million people a month losing their jobs right now), prices of a few commodities have risen but mostly things are flat or declining there too. Only a total moron would be worrying about inflation when we're on the precipice of an all-out Great Depression. Hold it, we're talking Republicans here, of course we're talking about total morons :-).

The depressing thing is that all these morons waving teabags inchoately and whining about (mythical) inflation and shit are having an effect. I see no possibility that we're going to do the sort of fiscal stimulus needed to take the place of a significant amount of the private economic activity that has simply collapsed due to the asset bubble collapse. Instead, we have dolts waving fucking teabags, of all things. We have become a nation of dolts and idiots from top to bottom, reduced to inchoate expressions of outrage upon demand, and the stupidity seems to be wearing off even on people who I generally respected for their intelligence, such as President Obama. Sigh.