In The Midas Paradox, he writes,
if depressions do encourage statist policy interventions, then deflationary policies may impose costs that are much larger that [sic] those predicted by natural rate models of the business cycle.
Recently, Blanchard and Summers have argued that demand shocks cause supply shocks in the private sector. That is, if you have a recession, the economy’s potential output falls. Sumner’s view is that demand shocks cause governments to come to power that implement bad supply-side policies. Examples he gives include Roosevelt’s NRA and Argentina’s left-wing government of the early 2000’s. Perhaps the U.S. after 2008 will turn out to be another example.
Of course, I am not as ready as Sumner to go with the AS-AD paradigm.
Potential aggressive intervention in markets = bad
Guaranteed aggressive intervention in markets = good . . . As long as it’s Scott’s preferred organization doing it.
Scott argues for less intervention in markets than is presently the case.
Except that growth was exceptional under Roosevelt, rather it was the depth of the pit he started from, but yes, debt deflation results in bankruptcies and disorder and destruction of large amounts of wealth.