I suffered some degree of entrapment by this Paper(pdf) by Irving Fisher, brought to Us by a Tim Schilling’ Post. Fisher wrote during the aftermath of the Great Depression, being a contemporary of Keynes. There is relatively greater clarity in Fisher’s writings than ever was found in Keynes, and Fisher may be as correct today as he was then, though the terms may confuse. I have always personally felt that lengthening periods of expansion, in themselves, led to economic decisions which were over-optimistic; Participants becoming entrapped in their own Expectations, without recognition that the Profit ratios in such magnification would reduce, because of higher Resource pricing, higher Transit Costs, and a higher degree of Competition. Factors take hold which were previously inexperienced and unexpected, all of which generated higher Costs combined with higher-priced Sales Costs. Ordinary Debt service becomes harder and harder, until a position of internal insolvency evolves. Interest payments become impossible thereafter.
This article is relatively consistent with the above commentary, and mentions the truth that Stimulus will not work as long as Banks are deleveraging. They are in this process because of the added Costs of Debt service outlined above. Banks are unwilling to adopt debt extension which has already proven a failure, and all circumstances indicate the Production matrix will not alter for the applicant loans. Attempts to provision Stimulus will be almost entirely inflationary; a simple addition to the increased Production Costs of the competing businesses. The Inflation will add a greater difficulty to the problem, where Government aggregation Costs will increase as the assumed Debt grows.
Arnold Kling suffers greatly from being taken out of Context and misquoted. I possess some Salvation from being less-Read, thereby relatively immune from online slander. I join with him, though, in greatly doubting the efficacy of any Stimulus plan. We are rapidly increasing the Costs of Stimulus (as it is all debt generated), without any effective measure of its value. No one has forwarded any analysis of the Price pressures applied to Resources by this Expenditure, when this Spending must be in direct competition with already struggling business formats. How many additional Businesses will be forced into bankruptcy with Employment lost, solely because the Stimulus package has made their Operating Costs too expensive under the limited number of their Sales? lgl