Louis R. Woodhill on Economic Stimulus on NRO Financial - The Diigo Meta page

• 10 Apr 08
  

  ignt rn

  2008 ESA research economics

  • Government stimulus programs involve taking in money by selling bonds and then sending that money back out, either in the form of direct government spending or as transfer payments to individuals. All such programs can ever do is take money circulating in the economy and send it on a detour through Washington, D.C. There is no way that this can increase demand.
  • Once demand is properly understood, the solution to the problem of insufficient demand becomes obvious. If more demand is needed, the answer is for the Federal Reserve to create more money. Creating more money involves expanding the size of the monetary base. Lowering the Fed’s target for the interest rate on federal funds will only work if it results in an increase in the size of the monetary base.

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