Spend a Deflation Dividend?

When the Soviet - U.S. conflict was reduced during the Gorbachev years, many spoke about a "peace dividend" for the economy due to a decline in required military expenditures. The current pandemic has a similar potential benefit of a "deflation dividend."

The Federal Reserve has a three part mandate: full employment, low stable inflation and control of long-term interest rates. While making monetary policy much more important, the pandemic has in some ways made the Fed's job easier. The typical foe of the Fed is inflation. In order to fight inflation, the Fed regularly introduces recessions through monetary tightening. But the pandemic actually allows the Fed to do just the opposite and take loosening actions.

The pandemic is unusual in that its impact is to increase utilization of high productivity tools, such as using internet-based communication rather than travel or internet-based shopping rather than real estate-based shopping. Normally an economic slowdown is accompanied by a slowdown in new technologies, whereas this slowdown is accelerating the adoption of them.

The combination of reduced demand and increased technology usage is a potent brew for deflation. While the 19th century U.S. economy flourished under deflation, our debt-based economy cannot withstand these dynamics. As a result, we potentially can spend a "deflation dividend." It seems like an excellent time to think about the best approaches. I can see the following ways:

1) increase social justice, with a program like reparations payments to slave descendants or Native Americans. This is my top idea because these payments would immediately increase demand and increase the general standard of living. Of course, the implementation is daunting.

2) increase globalization of with "utility"- like regulations for companies like Microsoft, Google and Apple in order to limit their role as platforms - while decreasing globalization in supply chains as well as news. The combined effect would be inflationary, but would encourage more economic diversity in local areas. Again, implementation would require a rethinking of anti-trust as well as import-export policies.

 3) make a massive investment in science and math-based education by closing all student loans and making them student grants in the science and math fields. At the same time eliminating all student loans for anything outside science and math-based education fields. While the overall impact would be inflationary by the creation of large educational debt, the restructuring of the U.S. workforce would reduce a desire for the "good old days" of manufacturing jobs that will never return.