[qnt]

One of Keynes' major contributions was to _convince_ that aggregate demand was a strong influence on economic output, and that left to its own devices the private sector would not be willing or able to perform the countercyclical spending necessary to stabilise an economy during a recession (by stabilise I specifically mean increase output back to the long run productive capacity of the economy). GDP = aggregate spending = aggregate incomes. With such a large output gap unable to be restored by the private sector, you end up in a depression. So he convinced governments to expand the federal deficit in order purchase goods & services from the private sector in sufficient quantity to kickstart economic output.

So I think to say that he simply affirmed that aggregate demand exists is underselling his contribution - he managed to convince all the important policymakers of the time that it was important enough to overturn their prior thinking about how to use fiscal (not monetary) policy in a countercyclical manner.

The scare quotes around money printing don't help progress the dialogue around the mechanics and consequences of government spending either. Today with a fiat currency system, the government can enact countercyclical fiscal policy by simply crediting private sector accounts, and increasing a balancing government liability electronically (note there are _no taxes involved in doing this_). No money is 'printed' (the term conveys unrealistic connotations), private sector demand deposits are simply increased electronically.

The increase of these demand deposits is not inflationary unless they are used to purchase goods and services in excess of what can be supplied at a constant price level. So when we find ourselves in a situation where 20% of the workforce is suddenly unemployed due to a shutdown of economic output, the government can spend to help stabilise aggregate incomes without risking inflation, because no-one is buying stuff otherwise (and as a result, no-one would be making any income).

It is certainly true that a number of economic schools of thought have tried to use his name to legitimise their ideas, and he'd likely be disappointed with a few of them.

[pdonis]

> when we find ourselves in a situation where 20% of the workforce is suddenly unemployed due to a shutdown of economic output, the government can spend to help stabilise aggregate incomes without risking inflation

The root problem with printing money is not inflation, it's wealth transfer. Printing money, whether it leads to inflation (increase in average price level--note that this usage of the term "inflation" is itself a product of Keynes, its older and more proper use was "increase in the quantity of money") or not, always means a transfer of wealth from whoever does not get some of the printed money to whoever does. In other words, it is a transfer of buying power.

In the current situation, where the transfer is spread widely across everyone and has the explicit effect of compensating people for loss of income due to no fault of their own, it is hard to argue that the transfer is a bad thing, and it won't cause much economic distortion or misallocation of resources because the printed money is going to be spent on much the same things as the lost income would have been spent on anyway. So the buying power is being used for much the same things as it was before.

However, in most cases of printing money, the transfer is very different. The way the US government has been doing it basically since the Federal Reserve existed, it is a transfer from everyone who is not a financial institution, to financial institutions. This causes serious economic distortion and misallocation of resources, because it significantly changes what the buying power is used for. That is why, for example, we have McMansions galore in the US and newly constructed office space sitting empty for years in many metro areas, while we also have many ordinary citizens having trouble making ends meet, crumbling infrastructure, and underfunded basic services: because printing money and giving it to financial institutions redirects buying power to housing purchased with mortgages and commercial construction funded with loans, instead of what the people whose buying power has been transferred away would have spent it on.

[perl4ever]

>it is a transfer from everyone who is not a financial institution, to financial institutions

I don't understand what this means. Aren't the victims you are imagining the hypothetical people who have large amounts of money in checking, savings, or literally under their mattress? And maybe this is ignorant, but I really didn't think that was a significant segment of the population.

I've read comments like yours a million times before, so I know your take isn't unique or novel, I just have never understood it at all.

I guess I can interpret you as talking about say inflation in the 1970s, but at this point that seems like ancient history and moot.