Not Your Grandfather’s Stimulus

I’m not even going to bother quoting Robert Samuelson’s latest Washington Post column. Suffice it to say that he’s worried about the federal debt. I think there are good reasons to be worried but none that he lists. The Congress and the pundits on which so many Congressmen rely for their economic advice are mostly folk Keynesians. There are a few who are folk Modern Monetary Theorists.

A real Modern Monetary Theorist believes that a government that is a monetary sovereign can issue itself any amount of credit as long as that’s exceeded by the growth in aggregate product without fear of hyperinflation. A folk MMT-er believes monetary sovereign can issue itself any amount of credit full stop. A real Keynesian believes that a shortfall in aggregate demand by a well-timed and targeted stimulus using credit the monetary sovereign issues to itself. A folk Keynesian believes that all government spending produces economic growth.

What’s being right now is a matter of political if not economic survival. The federal government is “borrowing” (issuing credit to itself) to give money to consumers. That’s sort of like a payday loan. It will tide people over but it won’t necessarily produce economic growth. If it stimulates an economy it’s likely to be those of our trading partners.

That’s our immediate problem. The longer term problem is a shortfall in aggregate product. No Congressman now living has any experience in dealing with such a problem. Their immediate inclination will be to deal with the problem they know and understand using the tools they’re accustomed to using. We cannot solve that problem by spending more on health care or education. Those are consumption. Don’t be surprised at unexpected run-on effects.