My starting point is the now familiar debate over "Helicopter Ben" Bernanke's pledge to make monetary policy as loose as possible in order to jumpstart the economy. Some of the economists I most respect think this is a necessary step for any recovery. Yet don't we get a sickening feeling that this "solution" is precisely what got us into this mess? The "giant pool of money" unleashed after 9/11, when Alan Greenspan lowered interest rates over and over again, was the driving force behind the securitization boom that made subprime mortgages so attractive. Wall Street banks were paying Countrywide two to three times normal fees for subprime loans because so much easy money needed to find some place to earn returns. Where will today's easy money go? Do we have any faith that the same entities who made an easy buck investing it in subprime won't find some new bubble to invest in?

As authorities find they "can't push a string," fiscal policy now appears to be displacing monetary policy as a way to "save the economy." In this case, hundreds of billions of dollars of federal deficit spending are to be marshalled to fund everything from highways to broadband. Skeptics like Amity Shlaes claim that such spending failed to lift us out of the Great Depression; their opponents argue that FDR's effort to stimulate the economy was not strong enough.

I think these debates could go on forever without resolution. What really matters is a) what bad macroeconomic outcome you fear most and b) what substantive steps you want to see government take to improve our common life. While these criteria pull in opposite directions for me, I ultimately think a) has to start ceding to b).

When it comes to government spending on stimulus, I'm all for it--not because I think it will jump start the economy, but because on balance we have enough crying public needs that the spending is unlikely to be any more wasted than the hundreds of billions of dollars our investment banks have effectively flushed down the toilet (or absconded with) over the past 6 years. If you drive the pockmarked highways of northern New Jersey, fight your way onto the crowded 4, 5, or 6 line in New York City, or struggle to get a decent internet connection, you know what I'm talking about. If you've worked to find home care for an elderly relative, or have been shocked by wait-times at a local ER, you get it too. Of course, those rich enough to live at the very top of the income distribution probably have found ways around these problems, but the rest of us deal with them all the time. They're the real reason to have a stimulus.

The real worry all this government spending (and associated loose monetary policy) creates is fear of galloping inflation--some dramatic decline in the value of the dollar that utterly upsets the planning of savers and spenders. At that point, money starts to become unreal, to lose its function as a store or measure of value. Hyperinflation becomes a real possibility, and no one wants to become a 1923 German or 2008 Zimbabwe (where the "Z$100 billion agro cheque . . . shares the record for depicted zeroes (11) with the 500 billion Yugoslav dinar banknote.").

That's where I start thinking of Kunkel again. In discussing the novels of Ishiguro, McCarthy, and Houllebecq (among others), he distinguishes between "dystopian and the apocalyptic, because these categories refer to different and even opposed futuristic scenarios:"

The end of the world or apocalypse typically brings about the collapse of order; dystopia, on the other hand, envisions a sinister perfection of order. In the most basic political terms, dystopia is a nightmare of authoritarian or totalitarian rule, while the end of the world is a nightmare of anarchy. (There is also the currently less fashionable kind of political dream known as utopia.) What the dystopian and the apocalyptic modes have in common is simply that they imagine our world changed, for the worse, almost beyond recognition.

I have a suspicion that in our popular imagination, a deflation would be "merely" dystopian for the US, while a dramatic rise in inflation would be apocalyptic. The deflation portends too many goods being rejected by hoarders, while a great inflation suggests too few goods chased by too many dollars. In the former scenario, we learn to live on as little as we can; in the latter we battle for even the basics. But as Kunkel suggests, these types of distinctions are ultimately not very useful to pragmatic choices we make now because the world they presuppose is so unrecognizable:

[I]f lately we find ourselves fearing that the complexity of our civilization is nothing so much as an index of its fragility, the strange character of the neoliberal apocalypse is to placate the very dread that it evokes. There are grounds for fearing that this civilization devoted to private happiness and private gain will end by intruding pain and loss horribly upon our own households and personal relationships. In the meantime the likelihood of disaster is only abetted by our sense of the hopeless corruption of public life and the need to defend our wealth, our conveniences, and the small happiness of our homes against the sacrifices our governments or our consciences might otherwise exact.

In other words, if it's all going to hell anyway, why try to stop it? Given the role of expectations in economics, even the imagination of these scenarios does us a disservice; the more fear we feel, the less confidence there will be to support investment.

On the other hand, baseless optimism can be as much an enemy of reason as baseless pessimism. As the consistently sharp Rob Horning observes:

At some point, capitalism compels us, by its own integral logic, to adopt unsustainable approaches that can’t be generalized to include everyone—we all can’t be at the top of the pyramid. Instead we become committed to a desperate effort to keep the machine moving, to bringing in more and more into the system so it won’t collapse under its own weight, and the pile of grievances it generates through its merciless functioning. The more merciless the system becomes, the more merciless, we, its agents, have to become to perpetuate it.

Subprime loans were made with no real faith that they will be repaid, but with some hope that new, even more desperate and exploitative techniques would be contrived to bring in a new influx of profit and prevent their insolvency from mattering. What has happened now is that for the time being, we have lost faith in the schemes, and we can’t persuade ourselves to naively believe anymore, or alternatively, we have lost the will or ability to recruit new naifs.

As I read about schemes to keep the 30 year mortgage rate artificially low, I have to suspect the ultimate objectives of the program. What exactly are the demographics of homeowners? If the 65% or so of the US that owns homes is substantially richer than the 35% or so that does not, why should the latter effectively pay to keep the value of the former's investment up? And if the money is just coming from China, at what point does that gravy train end? The tech stock bubble and the housing bubble had the character of a game of musical chairs--and if you read a book like Louis Uchitelle's The Disposable American, you'll see how many other areas of economic life adopted just such a model, downsizing the bottom 10% yearly till many companies became a shadow of their former selves.

There are many ways to increase confidence necessary to get consumers spending and employers hiring. We've tried the illusory "wealth effect" created by rising home prices, and it hasn't worked. Nor has "black box" derivatives alchemy. Why not create a society where people can quit their jobs without the terror of being thrown into the maws of an arbitrary and overpriced individual health insurance system? Why not improve bad school districts so families don't have to fear that a slide down the economic ladder consigns their kids to insuperable educational disadvantage?

I have no idea if steps like these (or decent infrastructure provision) will or won't "jump-start the economy." I worry they might spark a hyperinflation. But inaction can lead to disaster, too, and I have no idea what the relative probabilities of the rival disasters of deflation and hyperinflation are. All I can conclude is that after years of increasing income shares at the very top, and a government turning its back on basic needs of its citizens, it's time to start meeting human needs sustainably. If the current economic crisis shocks us out of the complacent fantasy that an unfettered market can do that, it's done us a great service.

Photo Credit: Me (taken along 14th St., between 8th and 9th Aves., in Manhattan yesterday). Creative Commons-Licensed to all, for any purpose, share-alike.