Keynesians argue that we must increase fiscal stimulus to prevent a full-scale depression. .... On the other hand, those worried about the giant debt overhang point to the research of Minsky, Irving Fisher, Steve Keen and Austrian school economists to argue that massive debt, endless bailouts, government intervention in the markets, and the failure to write down worthless assets and "purge malinvestments" from the system are the main problems. .... Who is right? Initially, many Keynesian academics argue that it doesn't matter where the stimulus money is spent, just as long as it is spent on something. However, this is untrue. For example, it should be obvious that spending in some areas will have more and quicker turnover (increasing money velocity) as compared to others. And, in fact, economists have documented that some types of stimulus spending have more bang for the buck than others.
Initially, many Keynesian academics argue that it doesn't matter where the stimulus money is spent, just as long as it is spent on something. However, this is untrue. For example, it should be obvious that spending in some areas will have more and quicker turnover (increasing money velocity) as compared to others. And, in fact, economists have documented that some types of stimulus spending have more bang for the buck than others.
Moreover, as former chief IMF economist and MIT professor Simon Johnson points out: Perhaps the best analysis regarding the impact of fiscal policy on recessions was done by the IMF. In their retrospective study of financial crises across countries, they found that nations with "aggressive fiscal stimulus" policies tended to get out of recessions 2 quarters earlier than those without aggressive policies. This is a striking conclusion - should we (or anyone) really increase our deficit further and build up more debt (domestic and foreign) in order to avoid 2 extra quarters of contraction? Indeed, many experts say that continuing to cover-up the fraud which led to the financial crisis will extend the crisis for many years. In other words, failure to investigate and prosecute those responsible for bringing about the crisis may extend the crisis longer than any failure to spend more on stimulus. (And investigations and prosecutions for fraud - unlike stimulus spending - would not increase America's debt or tax burden.) A real debate about whether we should spend more on stimulus - and if so, what types of stimulus - cannot even begin unless and until the aforementioned data is considered.
Perhaps the best analysis regarding the impact of fiscal policy on recessions was done by the IMF. In their retrospective study of financial crises across countries, they found that nations with "aggressive fiscal stimulus" policies tended to get out of recessions 2 quarters earlier than those without aggressive policies. This is a striking conclusion - should we (or anyone) really increase our deficit further and build up more debt (domestic and foreign) in order to avoid 2 extra quarters of contraction?
Indeed, many experts say that continuing to cover-up the fraud which led to the financial crisis will extend the crisis for many years. In other words, failure to investigate and prosecute those responsible for bringing about the crisis may extend the crisis longer than any failure to spend more on stimulus.
(And investigations and prosecutions for fraud - unlike stimulus spending - would not increase America's debt or tax burden.)
A real debate about whether we should spend more on stimulus - and if so, what types of stimulus - cannot even begin unless and until the aforementioned data is considered.
Unfortunately that is politically impossible, since privileged turkeys who own the establishment will not vote for Christmas. However, I optimistically believe that the same effect may well be achievable through other - consensual - means through the disintermediating effects of the internet on the financial sector. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
