Economists continue to produce lots of evidence that a more aggressive monetary policy would substantially help demand-deficient economies, and that using monetary policy to finance government debt is a very effective way to deliver a more aggressive monetary policy (especially if the central bank is forthright about what it's doing and why).
This is the good deflation driven by excess supply and high-tech productivity, not the demand-deficient deflation of the 1930s.
When the economy is in a liquidity trap – when demand is deficient, prices are stagnant or falling, and interest rates approach zero – normal macroeconomic logic goes out the window.
Consumers and executives are depressed, anxious, and they will only spend again when they feel better -- not that they are over-leveraged and that aggregate demand is deficient.
In regard to work stressors the pattern differed somewhat by gender as the most commonly reported work stressors for men were 1) quantitative demands, 2) emotional demands and 3) managerial responsibility and conflicts at work (equally common), whereas women reported 1) quantitative demands, 2) deficient leadership and 3) emotional demands.
Harking back to Keynes and Alvin Hansen, one of the early American Keynesians, Summers warns that modern economies face a chronic problem of deficient demand, or excessive saving (to economists, saving and demand are two sides of the same coin), which, absent some vigorous policy actions, will hold them back permanently.
However, not all deflations are like that of the 1930s, a vicious circle of deficient demand, falling prices and rising real debt burdens, which further depressed demand and hence prices.
Others blame deficient demand for the country's stubbornly high unemployment.
And yes, that means that we're looking at an economy with desperately deficient demand.
It is to fix the problem of deficient demand not by attempting to further loosen monetary conditions, but by boosting public spending.
