Government must be "Consumer of Last Resort" to Prevent Depression

It is refreshing to see Paul Krugman's recent article daring to raise the specter of deflation and clearly explicating the danger of action too little too late to prevent the erosion of U.S. productive capacity.


The financial industry's gross malfeasance in using its position of fiduciary trust in our economic system to manipulate and speculate in financial markets has caused trillions of dollars to disappear in the last two months. Money is the grease that permits our economic engine to function. Even though our productive capacity is just as great as it was two months ago, and even though the economic needs and wants of our population remain as great as they were two months ago, there is too little money to translate those needs and wants into effective demand for the products and services our industries are quite capable of producing.

What we need now to stave off deflation and Depression is a rapid rise in "consumer" demand for the goods and services our economy is ready to produce. With everybody from the banks to Joe the plumber stuffing their money into mattresses, only the federal government has the ability to generate the effective demand needed to arrest the economic death spiral that we now see brewing. 

Our federal government must immediately start buying stuff like there is no tomorrow. It is generally accepted that it was the mobilization for World War II, not the "New Deal" that finally ended the Great Depression. Yes! Running up unheard of deficits to buy stuff and blow it up got us out of the Great Depression. There is no requirement to have a war and it is not necessary to blow up what we buy. The key is to buy as much as we can as fast as we can. While infrastructure building is very important, we must first buy goods and services that will translate into immediate production. For example, we could buy solar cells for every public building in the U.S. southwest; we could buy modular homes to rebuild New Orleans and Galveston; we could order a few tens of thousands of fuel efficient and alternate fueled vehicles for our federal, state and local automobile fleets; we could stock up FEMA with emergency food, clothing and other supplies. We could fulfill every Congressmember's pork barrel dreams - which is to say, if we are willing to dicker, we can get the votes in Congress to make this happen.

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