We need Bubbles

One of the most influential financial people on twitter made a flat statement about what is going to be obvious about fiscal stimulus: Economies cannot maintain output without continuous fiscal stimulus.

Cullen fiscal stimulusThis idea -the economy demands some form of stimulus to operate at full capacity –¬†has long been one of the main ideas behind this blog. The last few pages of Cullens paper on money¬†talks about how Investment drives savings. Somehow, we need to invest in order to create the things that then become savings.

When we create money out of thin air, we are able to finance more investment than if we forced investments to compete for an unchanging pool of money. Some or even most of that extra investment eventually becomes savings. We become wealthier when we create money out of thin air, not poorer.

We need that “extra” to maintain full output – and become richer at our best rate.

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” we are able to finance more investment than if we forced investments to compete for an unchanging pool of money. ”

To “maintain” output an unchanging pool of money isn’t important. To maintain output per capita, an unchanging pool of money isn’t important *unless* there is population growth. So you’re basically saying that we need money to grow with population growth, which is hardly controversial – except that you’ve decided to equate creating money with fiscal stimulus.

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