But J. Brad Delong proves that the math behind deficit spending in a down economy works. That is, money in a depressed economy is seeking safe havens to hide in. What's safer than the full faith and credit of the United States of America? Nothing. What to do if bond buyers drive bond rates to effectively negative? Sell more bonds, duh -- I mean, if you're *making* money selling Treasuries, why the hell not?
So anyhow, that's just mathematical proof of what we already knew -- the proper role of government in a consumption-slump-caused recession is to be consumer of last resort, taking the money that would ordinarily be spent on consumption (but is now looking for a mattress to hide under) and putting it to use doing something useful rather than just sitting under a mattress effectively being pretty-colored toilet paper from the perspective of the economy.
Which brings to mind something that JzB and I have been hashing about in emails, about the nature of money and how do you measure the amount of effective money in an economy (i.e., the money actually in use to buy and sell stuff). Some thoughts: 1. Consumer consumption is money. 2. Government purchases is money. 3. Consumer and government wages are money. 4. Capital improvement purchases are money. All of these involve money changing hands in exchange for something of real value (money itself has no real value, it's just toilet paper with pictures of dead people for, it's the fact you can exchange money for things of real value that give it effective value despite no intrinsic value). If you add up all of these money flows in a month, you should have a good notion of the effective money supply in a given month. If you compare this number to the inflation rate, what do you see? I don't know. Maybe JzB will do one of his pretty charts and show us :).
-- Badtux the Random Economics Penguin