[WS:] So why are they pushing for policies that will have that effect? I do not think they are stupid, I think they know the risks but go ahead anyway (UK is the prime example.) Why? Is it the Russian roulette player's mentality (I may die, but if I do not, I may win big time?)
Wojtek
On Fri, Oct 22, 2010 at 8:46 AM, Doug Henwood <dhenwood at panix.com> wrote:
>
> On Oct 22, 2010, at 8:24 AM, Wojtek S wrote:
>
>> But let's play a devil's advocate and put undesirable social
>> consequences aside for a while. If gov monetary policy results in
>> inflation of asset value, this does little to stimulate the economy -
>> as the government stimulus sits unproductively. There seem to be only
>> two ways out of this situation - gov switching to direct purchases
>> (fiscal policy) - as Richard Koo and Krugman advocate, and deflation
>> of assets to the point that it is more profitable to invest in
>> productive activities instead. Since the former is politically toxic,
>> the latter seems to be the only way out.
>
> But asset deflation doesn't lead to investment - it didn't in the 1930s, and not even in Japan's mild deflation of the last couple of decades. It leads to a low-employment equilibrium that's really hard to get out of.
>
>> From that pov, deflation is not bonkers - it is a real solution - one
>> that is politically preferable by neo-libs.
>
> Even the neolibs would be very uncomfortable with unemployment stuck around 10% - not to mention drifting higher.
>
> Doug
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