Mission of Burma

Well, I've graduated, and I'm in a good mood. The weather's good, the Red Sox are ahead, this job search stuff is going well, feeling healthy. Being happy can be kind of boring, though - at times I feel like I need a new problem, something to focus on. I just got an interview with a fucking investment bank, which is the shit.

I went to Rudy's last night with Lio and Calliander, and I got a girl's number, which I then promptly lost. I still have her e-mail address, though. Anyways, that's new to me - I didn't know how I'd meet people outside of the college environment, so, renewed hope.

So, I've been thinking about taxes and deflation recently - it's pretty interesting stuff.

Right now, the economy is threatened by deflation - a fall in the prices of goods. People aren't buying, so stuff becomes less expensive. Goods produced in America will begin to become cheaper relative to foreign goods, too, I think. The reason deflation is bad is because the job market stagnates (I think). However, I guess it's not entirely bad, right - if prices are lower, I can consume more. Some economists don't think there's anything wrong with deflation. However, I think deflation deters investment because it forces people to wait before buying long-lasting goods.

Say you're planning on buying a$300,000 house - however, you know that deflation is going on, and that the house will be worth $290k next month. Why buy now? You're always going to be waiting for the deflationary period to end, always waiting to see how low prices are going to go before you commit to the house purchase.

What produces deflation? From what I can understand, deflation happens when there isn't enough cash in the economy to buy the stuff people want (I think). If there isn't enough cashbeing shifted around, then the value of a dollar drops (not enough money to buy the stuff we want, so the stuff we want becomes less expensive). I'm not entirely sure howcash enters the economy, but I think it involves the government buying bonds from banks and giving them cash in return.

Anyways, how does our government deal with deflation, try to correct it?It usually tries to end deflation by having the fed lowering interest rates. Interest rates basically tell you the value of holding on to money - not spending it. The Fed Interest rate is therisk-free rate, the rate you can get by investing money in a source that offers absolutely no risk of loss. If interest rates are really low, like they are now, then there's no reason to hold on to money, and no reason not to borrow. The goal, I think, is to force people to shift money around - which will even out prices again.

However, what if we're at an interest rate of virtually zero, and people still aren't spending? That's what people seem to think is happening right now.

There's the idea of something called a "liquidity trap". What I think this is is a situation where the economy is so bad that people aren't willing to spend or borrow money - even if the interest rate is zero, and there's no benefit to keeping money or penalty for taking it. John Maynard Keynes, the big liberal economist, is the one who came up with this idea. I don't know what people who believe in the idea of a "liquidity trap" think the solution is to deflation.

I think one solution would be to create artificial jobs - for the government to put tons of money into the economy by hiring people, basically forcing money into the hands of the people. I don't understand why the government couldn't just spend itself into debt (Deficits), and in doing so act as the investor. The treasury presses start printing bills. The government cuts taxes, starts to lose money, invests in itself, and the economy starts again.

I dunno. I wish I knew more about economics. I think of myself as a pretty educated guy, but I don't really understand much about this inflation/deflation issue, even though it seems to be completely crucial to the way our economy works. The economy is sucha huge part of our lives, and the way it works is a mystery to most people, which is strange. It'd be like living in a world where most people didn't understand gravity, and where there was constant debate over how exactly gravity worked.

Stone