Lately a commentary about the real cost of the bailouts to tax-payers, and another one on the wishful and non-existent world decoupling, both underline the scenario whereby our high-income economies are too big to be taken down. Slowdown and recessions yes, Depression no.
They point out that a 30% drop in money supply (liquidity) is what really dragged the world into the Great Depression, whereas the authorities are making sure that there is plenty of that nowadays. Money quote
But as far as the citizen is concerned the “cost” is what he or she might have to suffer in terms of future increases in the tax burden or lower public expenditure on tangibles such as schools and hospitals, to pay for rescue measures. The answer is; very little if anything over the next couple of years and perhaps not very much looking even further ahead. The limit to any stimulus is given not by accountancy, but the point at which rising inflation is again a danger.
Got that? The discussions on taxes is irrelevant. Truth is the US could do with no taxes at all, zero and just print the money. The limit of that mechanism is that flows must not trigger inflation. The net result will NOT be a drop in money supply but a shifting from opaque debt in the shadow banking system to transparent debt in the public sector. Transparency is good.
Long term, given that 3T is peanuts, the downside is real lost output due to non-maximized demand. But that is it according to these editorials. Friedman and Keynes are mentioned a lot these days. Public deficit is inevitable and desirable, in a deflationary debt destruction, the govts can play debt reallocation by printing new money and enforcing liquidity levels.
Does this means better schools and roads for everyone? Maybe, right now a lot of it is going to financial institutions, money markets, and maybe stricken mortgages. It also means that there is so much to be done AT HOME in terms of public investment, the war economy is a burden.