This isn't about oil. Oil is as cheap as it's been in quite some time. Things are not yet recovering. (Actually, if we take your idea about an "oil standard" seriously, the US debt (denominated in oil) just about halved during this crisis. Cause for celebration, no?)
This is about what is better in the short run, what is better in the long run, and whether those things are the same. The updated, monetarily-aware pseudo-Keynes (Krugman, really) would argue that, given the maxing out of monetary policy to comparatively little effect, the correct answer is fiscal stimulus. Arguing about malinvestment and inflation and the whole lot is missing the point: people are scared, and until they see a reason to have courage and invest rather than withdraw, banks as much as individuals, the economy is going to stay depressed. An exclusively market-driven solution could be years or decades away. Yes, if spending today is misplaced, that will be inefficient for tomorrow. Yes, debts ran up today will have to be paid off tomorrow. But inaction today results in inefficiencies as well: labour and capital that could be profitably employed is sitting idle for want of investment funds that are not available, since banks and savers alike are fearful.
Government is the only entity with the credit and the power to break the fear, and help things gear up again. This will cause problems for the future. There is no free lunch. But those problems, at least in the Krugman analysis, are dwarfed by the immediate problems of how to get the economy out of the deflationary trap. Fix the immediate problems. Then when things are no longer spiralling out of control, regulate monetary policy and the financial sector so that they cannot fail in the same way again. Then start paying down the debt. Trying to do any of this in reverse order will inhibit recovery and cost the economy in the long term.
-Jester
This is about what is better in the short run, what is better in the long run, and whether those things are the same. The updated, monetarily-aware pseudo-Keynes (Krugman, really) would argue that, given the maxing out of monetary policy to comparatively little effect, the correct answer is fiscal stimulus. Arguing about malinvestment and inflation and the whole lot is missing the point: people are scared, and until they see a reason to have courage and invest rather than withdraw, banks as much as individuals, the economy is going to stay depressed. An exclusively market-driven solution could be years or decades away. Yes, if spending today is misplaced, that will be inefficient for tomorrow. Yes, debts ran up today will have to be paid off tomorrow. But inaction today results in inefficiencies as well: labour and capital that could be profitably employed is sitting idle for want of investment funds that are not available, since banks and savers alike are fearful.
Government is the only entity with the credit and the power to break the fear, and help things gear up again. This will cause problems for the future. There is no free lunch. But those problems, at least in the Krugman analysis, are dwarfed by the immediate problems of how to get the economy out of the deflationary trap. Fix the immediate problems. Then when things are no longer spiralling out of control, regulate monetary policy and the financial sector so that they cannot fail in the same way again. Then start paying down the debt. Trying to do any of this in reverse order will inhibit recovery and cost the economy in the long term.
-Jester