Deflation and Inflation in the World System

The Economist recently commented on the possibility of deflation after the world-wide financial crisis of 2007-2010. The major worry is deflation in the core countries and inflation in the peripheral economies of the world system. Current events demonstrate the strong dependency relationship between the core and the peripheral countries (core countries in deflation, peripheral countries booming or vice versa). Currency manipulations and tighter monetary policy in the core countries are being offered as the appropriate policy response to get the world system back on the track to unlimited growth.

History suggests, however, that none of these policies will be a panacea. When monetary conditions in the rich world are loose, emerging economies are prone to lending binges and asset bubbles. The price of avoiding deflation in the rich world today may be a bust in the emerging world tomorrow.

The NY Times is also reporting that Latin American economies are booming based on increased Asian demand for commodities (iron ore, tin and gold). Latin America has had its share of debt crises since the 1980's. We're probably witnessing the beginning of another cycle. It's a fundamental feature of the current world system and the division of labor between core and peripheral countries. Policies designed to increase short-term growth (especially in extractive industries which are subject to swings in commodity prices) will only make the next crisis that much more severe in the future.

The "Ultimate Failsafe Device"

Today's New York Times reported an in-depth investigation of oil well blow-out preventers (BOP), the "failsafe" devices that were supposed to have prevented the on-going Deepwater Horizon oil spill. Above is pictured the shuttle valve and blind shear ram that is supposed to prevent blow outs. Hydraulic fluid is piped through the shuttle valve to the blind (as in window blind) shear ram to cut through the drilling pipe and close the well (the NY Times has a nice animation and graphics on its web site). The problem is that there was only one shuttle valve and only one blind shear ram creating a single point of failure.

The details of how the BOP was allowed to operate with a single point of failure provide fascinating reading. The free-market did not insure that BP or any of its contractors would operate safely. Government regulation did not insure that the BOP was tested, installed and maintained properly. And, we are left with the backup plan of drilling two relief wells.

My worry is that increased government regulation focused on BOPs will not be enough to prevent future environmental catastrophes. The technology is simply too flaky, too difficult to test, too complicated and too difficult to maintain for the Mineral Management Services to regulate. That's why I conclude that drilling two wells from the start is the only fail-safe mechanism.

Stent vs. Bypass

I recently participated in a study at the University of Wisconsin asking about patient preferences for coronary stents or coronary artery bypass surgery. The question of the study was "given a range of probabilities for death from either procedure and ranges of probabilities for having to repeat the procedure, which one would you choose". Conventional bypass surgery is quite invasive (although newer, minimally invasive procedures exist).

Stents inserted using cardiac catheterization are minimally invasive although there are some risks. Patients are quite often awake, if mildly sedated, during the procedure.

Blocked arteries (indicated with arrows above) are opened and a stent is inserted in each blocked area.

The arteries are then held open by the stent. There are two types of stents, bare metal and coated. Bare metal stents must be used with larger arteries (as pictured above). The coated stents fight accumulation of plaque on the stent (although drugs such as clopidogrel are used to act as an antiplatelet agent).

Since I'm basically very conservative, the chances of death from stent insertion had to be 100% before I would be willing to undergo bypass surgery. What the study questionnaire should have asked is whether one would choose either procedure if neither decreased mortality (as the current studies seem to indicate).

Had they asked the question, I still would have chosen the stent, but...