Reading this post from Tyler Cowen reminds me of one of my perceptions of our current economic crisis: Whether deflation is happening in the US or not, we are facing an major societal pressure toward devaluing.
1. We see increased saving, by individuals and corporations. After a long period of profligate spending, this makes sense.
2. Our economy was based on levels of spending that we are now fighting to avoid. Unless we (individuals, families, businesses) spend the money, the economy will not return to its former levels.
3. The former levels of spending were unsustainable. Individuals and families, to a large extent, got that message; government, not yet.
4. We’re afraid to spend money, not knowing what will come next. Increased taxes, regulations and costs from the government, surely. But if I take the plunge and buy a house will it at least retain its value? If I have to move or sell the house, will I be able to do so?
5. Our fear and uncertainty leads to a vicious cycle of nit-picking expenses and “accountability.” We worry, “ARE we getting the full bang for our buck? Surely our institutions ought to be doing more for less.”