Scott,

Think about it this way. It is all about the RATE at which money is spent.

If $100 is spent 7 times in a year, that same $100 produces $700 in GDP. If it is spent only 3 times in a year, then only $300 in GDP is produced.

Right now, corporations are hoarding cash. I.e. they are not spending it very quickly. By borrowing the money and spending it faster, the government can put it to use faster.

It is all about TIME. If $100 disappeared forever after use, then it would be true that you couldn't stimulate the economy by borrowing money.

Here is a thought experiment for you. Imagine there was one person who had all of the money. Let us say that is $10,000 (for simplicity). That person never spends any money and never lends it.

Well, everyone else is just going to have to use barter, right? Which is inefficient.

Now imagine a different scenario. That guy with $10,000 still never spends it, but decides to lend $1,000 to someone else. This other people spends it. Now, people are able to trade much more efficiently than through barter, because they can use money.

I think we can agree that in this extreme situation, borrowing money has increased economic activity.

Now compare two less extreme situations.

(1) The guy with $10,000 loans money out, but is very very cautious.

(2) The guy with $10,000 loans money out, but is merely cautious.

As you can imagine, economic activity is scenario 2 is going to be higher than in scenario 1.

(Of course, there is another way the guy with $10,000 can stimulate the economy. He can spend money FASTER than he normally does. Remember, TIME is always critically important.)

Our current economic crisis is caused by banks who are very very cautious in making loans and corporations and individuals who are very very cautious about spending money. Everything has slowed down.

Stimulus can work by speeding things back up.

David, you make an excellent point...it is all about the rate of spending. So, what got us into this mess in the first place? Too much spending and too much lending (to people that should not have been borrowing money). Most people that argue for a stimulus seem to think that this country needs to maintain the level of overspending and overlending that we had prior to the bubble bursting. There's a reason the bubble burst, because it was too big (i.e. too fast). We need to learn as a country and as a people that we cannot outspend ourselves. If you consistently outspend your income you will eventually go bankrupt and lose your possessions. If our government does't learn to live within it's means, it will eventually outspend itself, go bankrupt and lose this country to chaos. We do not need stimulus or bailouts of any kind. We need to learn to live within our means. I'm not arguing against all spending and lending. Of course both play a critical role in any economy. But overspending and overlending will always result in disaster.

I tend to believe that stimulus can work if it is done quickly so that companies don't give up and learn how to operate with fewer employees and inputs. That said, the 2009 "stimulus" was very little true stimulus and mostly a dealing of cash to favored companies and organizations. And, now it's too late to do a stimulus right.

This conservative neanderthal knows the second stimulus will be the same failure as the first because he is spending it the same way.

He wants it dispensed to Union State and City employees, i.e. teachers, police and firemen, and of course to his Union infrastructure buddies.

It is not the Federal governments jobs to prop up State employees, fix city public schools or pay for bike trails from nowhere to a farther away nowhere (which they did in my city).

Quit borrowing money to give away to your friends that I have to repay.

My personal opinion: Stimulus will work if it takes place against a relatively low level of government spending. Government spending is at all time highs right now, therefore stimulus effects are muted if not outright buried.

You supposed Keynesians tend to forget the other half of Keynes. That is, when the economy is strong, government and government spending should be shrunk. That never happens and certainly didn't happen in the decade leading up to the financial collapse.

Scott, a lot of people are advocating printing money and using it to buy stuff. If they bought $5T in napkins, GDP would be higher. Such a large increase would entail a shift in capital, from producing more useful things to producing napkins, so it wouldn't be $5T higher. (Some of that amount of napkins might also come from existing inventories, so the effect would be even smaller.)

But, assuming a gap between production and capacity equal to or larger than the value of the napkins purchased, a producer would hire people to work in the factory, it would buy wood pulp and ink and plastic (and spare machine parts) from suppliers. If there is a demand for these napkins, then drivers transport the napkins to retailers, who employ people to stock shelves and work registers.

If the government prints money to buy useful things, there are more knock-on effects down the line. If they build transportation infrastructure, then people can move around easier, which facilitates all kind of economic activity.

If they borrow money instead of printing it, then they have to pay interest. Currently, the interest rates on 5 and 7 year bonds are lower than projected inflation, meaning we can borrow X% of GDP and repay it with less than X% of GDP in tax increases in a few years.