Fortune article: The tools to fend off Great Depression 2

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I have an article in the new Fortune magazine, which has a cracked GE lightbulb on the cover. It begins:

On Nov. 21, 2002, just two months after leaving Princeton University’s economics department for a spot on the Federal Reserve Board, Ben Bernanke gave a speech in Washington on the topic of deflation. At the time, stock prices had been falling for almost two years straight, inflation was just 2%, and there was widespread worry that it would drop into negative territory. The specter of Japan, beset for a decade by falling prices and economic stagnation, was on the minds of many. In his speech, Bernanke even brought up a far worse deflationary spiral – the Great Depression.

But his intent was to reassure. “I am confident that the Fed has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief,” Bernanke said. Quoting economist Milton Friedman, he described one such policy instrument – a tax cut accompanied by mass Federal Reserve purchases of Treasuries – as equivalent to a “helicopter drop of money.”

The helicopter line got a lot of attention, and critics have derided Bernanke as “Helicopter Ben” ever since. But the most important takeaway from his speech was that economists and central bankers had things pretty well figured out. They knew how to prevent a depression – and they had the “tools,” a word Bernanke used a lot. Read more.

I was writing for Fortune as sort of a trade for Andy Serwer and Allan Sloan writing TIME’s cover story a few weeks ago. Basically, we’re experimenting with the barter economy here at Time Inc. just in case the financial one ceases to exist.