How do you solve a problem like depression?

How do you catch a cloud and pin it down?

Well, it’s worrying, isn’t it. A drop in USA imports of over 20%, signs of deflation in the world’s biggest economy. The global economic crisis rumbles on.

So far, I think the actions taken are okay. Maybe not optimal, but okay. First, prop up the financial system. Second, undertake a huge stimulus package. This is the formula in all the developed western economies.

I was very pleased to see the New Zealand government go a step further, and demand that government departments make cuts to allow spending on new programs. We don’t want to cut benefits or total government expenditure to balance the budget - that will lead to more recession, as it did under Ruth Richardson in 1991. We have to keep government spending up to avoid worsening the situation, but we do need to move expenditure from less productive to more productive areas.

So security, stimulus, and efficiency. So far so good. But it may not be enough. There is a vicious circle of negative sentiment - people and businesses get worried, spend less, the economy declines, unemployment worsens, and it feeds back in to another round of loss of confidence. How do we get out it?

Increasing commodity prices or export receipts will do it, but that is unlikely if the whole world is in the same funk.

Increasing domestic demand based on rising incomes or rising asset prices will do it, but that seems out of the question.

In the 1930s it took a global war to stimulate investment and employment. We don’t want that.

So here is my long-term solution to a possible depression. Innovation. That sounds like a platitude, I know, but there is more to it than that.

Consider, why will people open their wallets? They will do so for a new technology that offers really substantial benefits - like flatscreen TVs. Or they will do so as it helps to improve their financial situation over the longer term. That is, if they have an existing cost that they can reduce by investment - insulating the hot-water cylinder, buying a breadmaker. Sometimes we get new technologies that are so good, there is a wave of adoption or substitution. Air-conditioners in hot countries, fax machines in the late 1980s, mobile phones, gaming consoles. It is the substitution of a new technology for an old technology that really stimulates investment and expenditure.

And if things get really bad, that’s what we need. Substitution of new technologies for old, at a price that pays for itself in cost savings or lifestyle improvements. The relative advantage of the new technologies should make their purchase low risk, so they can break the cycle of negative sentiment.

Governments can foster this through science and education policies. Lower interest rates will also help by making investment less costly. But we also need to start to look hard for new technologies that will save us money or improve our lives. If we find them and commercialize them, the wave of adoption will give a big boost to the economy, just as flatscreen TVs, fax machines, and rotary milking sheds have.

Here are some suggestions for technologies or actions that will improve our lot, and promote investment. I think these are all kind of obvious, so would be plesed to see creative suggestions in comments.

1 - Converting from AC to DC power transmission lines to minimize transmission loss, and give greater flexibility in using major generation sources like Manapouri.

2 - Engaging in large-scale Nuclear power plant building to meet power needs, provide employment, stimulate science eduction and reduce carbon emissions.

3 - Promoting the development of electric cars, by government purchase of electric cars for local fleets, and local government parking concessions for electric cars.

4 - Encouraging development local off-grid power generation, by legislating the right to sell excess power back to the grid, and providing subsidies for purchase. (This is already done in Australia for solar power.)

5 - Getting super-fast broadband in place as a platform from which to develop and deliver internet services.

6 - Seeing new technologies come through like flexible computer displays, quantum computing, truly integrated computer/home entertainment systems, and true convergence of laptops/iPod/phones.

Other ideas, please? New technologies or ways of doing things that could lead to a wave of substitution? Technologies that, when interest rates are 3%, will pay for themselves for those who buy them? The phone lines are open …