John Maynard Keynes, the New Deal era economist whose theories that the government can and should control the economy are back in vogue, said that to combat an economic slowdown, the government should put more money into the system. Even, he said, if that meant dropping money from an airplane.
In Keynesian thinking, if I am understanding him right, it doesn’t matter what the government spends the money on. In the current stimulus plan, road construction, buildup of government agencies, and even pork barrel projects are all equally valid. They inject money into the economy.
Furthermore, the fact that this is all deficit spending does not matter either. In fact, the government HAS to spend money that it does not have and that does not currently exist. If the government spent what it had, that would do no good for a weak economy, anymore than any other normal circulation of buying and spending. For the government measures to work, by this way of thinking, it’s precisely the money supply that has to increase.
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