An economic tsunami washed over the economy in 2008.  We should have all been standing in a foot of water in 2009 and 2010.  Instead, 90.4% of us are cozy and dry while 9.6% of us are drowning in water that is hundreds of feet deep.  Several million people are carrying our load for us, and it is killing them.

Of course I am speaking of those who are unemployed as a direct result of the financial collapse and ensuing recession.

To understand why, realize that unemployment is deflation in disguise.

“Huh”, you ask?

Think about it.  What happens when the overall demand for goods and services is greater than the economy’s ability to create them?  As in all shortages, the goods and services get more expensive.  There is inflation.

We hear all the time how terrible inflation is.  In reality, inflation isn’t terrible for everybody.  High rates of inflation take money from people with cash savings and fixed incomes and puts it in the pockets of people who have borrowed money or who make fixed payments.  So while inflation is terrible for people who are well off it can be quite lovely for people with mortgage payments, car payments, student loan payments, and other payments for fixed amounts.

Deflation is just the opposite.  Deflation is awesome for savers and people on fixed incomes because their money goes further as prices fall.  Deflation is terrible for borrowers who end up paying off loans of cheap money with payments of expensive money.

You might expect that as the business cycle rolls along sometimes we would have inflation and sometimes we would have deflation.  Sometimes savers would win and borrowers would lose, then later savers would lose and borrowers would win.  But it doesn’t work that way, does it?

Some amount of inflation is accepted as a fact of modern life but we very rarely have any deflation.  We never seem to find ourselves in a vicious cycle of going to the store week after week only to find lower prices every time.  There is a reason for this.

It is much easier to produce less than to produce more.  In order to increase supply factories need to be built, ships need to be commissioned, employees need to be trained, raw materials have to be acquired… a lot goes into growth and it takes time.  It is easy to produce less. Factories are shuttered, stores are closed, ships are docked, employees are laid off and voilà!  Overnight supply comes crashing down to meet demand.

Since supply rarely exceeds demand for very long, prices never fall very much.  We rarely experience much deflation.  We get unemployment instead.  All those laid off people, shuttered factories, and docked ships — all those unemployed resources are great holding tanks of deflation.

This is where the unfairness of unemployment rears its ugly head.  During inflationary times everybody with cash loses a little.  Almost all of us lose at least a little.  During deflationary times everybody with debt loses.  Almost all of have some debt.  But we rarely have deflation because we put it into these holding tanks called unemployment.  Instead of all of us losing a little, those few who end up unemployed lose a lot!  The rest of us just “ride it out”.

While this unfairness cannot be blamed on us as individuals, it also cannot be blamed on those who are forced to carry our burden.  We can’t believe that we, the strong, are surviving while they, the weak, are dying.  It’s not like we swam and they sank.  The water just went around us and hit them.  It could as easily have gone around them and hit us.

Some people, however, are to blame for at least some of the unfairness.

Our deflationary period that has become a period of high unemployment didn’t happen because supply suddenly zoomed out ahead of demand and had to be cut.  The financial collapse caused demand to plummet overnight. When that happened prices of everything should have collapsed, but they didn’t.  They don’t.  Instead, supply decreased to meet it the new, lower level of demand.  Millions of people lost their jobs.  Mothballed cargo ships lined both sides of some rivers for miles.  Tens of thousands of businesses ceased to exist.

It didn’t have to be this way.  Crashing supply to meet demand was not our only choice.

We can build demand up and limit unemployment by having the government buy things when no one else will.  If we choose what it buys wisely, such as having government invest heavily in infrastructure that will benefit our entire economy for a hundred years like programs such as the Tennessee Valley Authority did, we can limit the destruction caused by unemployment while getting something useful in the process.

To be fair, the Obama administration’s $780 billion stimulus package was intended to do just that.  And it did.  Without the stimulus package unemployment would have been even higher.  At the same time, the administration, fearing the reaction of conservatives, did not ask for enough money to avoid millions of people becoming unemployed and being drowned in the pain that should have been all of ours.  Then as the plan made its way through Congress, conservatives cut it by hundreds of billions of dollars more.

At the heart of both the administration’s timid request and the conservative cuts were a concern over inflation.

Remember that unemployment is a holding tank for deflation.  There are still enormous deflationary pressures out there and we know this for the very reason that we can see the unemployment!  The amount of stimulus it would take to increase demand so much that this massive deflationary pressure actually became inflationary pressure would be huge almost beyond comprehension.  More to the point… so what if it did create some inflation?

The few million people who are carrying our entire collective burden are drowning!  They are being destroyed!  They are literally dying.  Neither inflation nor deflation is fair, but converting deflation that should be shared among all of us to unemployment for a few of us and life as usual for the rest is beyond unfair.  It’s diabolical.

The thought that solving the problem might cause a hundred million of us or more to stand in that foot of water is very unpleasant.  But we should be demanding to have that unpleasantness thrust upon us to save our friends and neighbors from drowning.  A foot of water won’t kill us.  The hundreds of feet of our water the unemployed are drowning in will kill them.