Map of life expectancy at birth from Global Education Project.

Friday, January 16, 2015

I'm not an economist, but . . .

I did have to pass a qualifying exam in economics to get my doctorate in social policy, and I read a lot. So . . .

The value of money and who makes a return or a loss on an investment seems like it shouldn't matter for the real world. People can go on making and buying stuff, right? It's just paper. Sadly, no. Money and its various derivatives -- stocks and bonds and more exotic products -- are how trade is organized, and there's a lot that can go wrong.

We have grown accustomed to thinking that inflation is the worst thing that can happen, and of course a quirky sub-culture of the far right has succeeded in making it conventional wisdom that "sound currency" is the only economic goal government should pursue. Not. The global economy now faces the prospect of a ruinous deflation.

Isn't that a good thing? you ask. My savings will be worth more. My wages will go farther. Well, yes, as far as that goes you'll be happy. You already are, paying less for gasoline. But there are many problems.

First, people who borrowed money to invest in, say, drilling for oil and gas, can't pay it back. That means their creditors -- who include pension funds and widows and orphans -- lose their money. They have less to spend. The roughnecks also lose their jobs. As prices fall for other products, this disease spreads. Businesses go bankrupt, and their workers lose their jobs and their investors lose their savings.

Wait, there's more. With prices falling, you're in no hurry to buy. Put off the big purchase, it will just get cheaper. Less demand means a shrinking economy, however, because your spending is somebody else's income. Pretty soon the whole economy is circling the drain.

Will this happen? Is it 1929 all over again? Too soon to say, but that's bad enough.

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