THE MARGINAL PRODUCTIVITY OF DEBT
Why Obama’s Stimulus Package Is Doomed to Failure
by Antal E. Fekete,
Professor of Money and Banking
San Francisco School of Economics
March 30, 2009
Why Obama’s Stimulus Package Is Doomed to Failure
by Antal E. Fekete,
Professor of Money and Banking
San Francisco School of Economics
March 30, 2009
The paper mill on the Potomac is furiously spewing up new money. According to the manager of the mill, as indeed according to the Quantity Theory of Money, this should stop prices from falling and the economy from contracting.
In this article I present an argument why this conclusion is not valid. On the contrary, I shall show that new money created on the strength of a flood of new debt, is tantamount to pouring gasoline on the fire, making prices fall and the economy contract even more. The Obama administration has missed its historic opportunity to stop the deflation and depression inherited from the Bush administration because it entrusted the same people with the task of damage-control who had caused the disaster in the first place: the Keynesian and Friedmanite money doctors in the Fed and the Treasury.
